Registration No.: 333-137925

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

(Amendment No. 9 to Form SB-2)

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

FOOTHILLS RESOURCES, INC.

Nevada		1311		98-0339560
(State or Other Jurisdiction of Incorporation or Organization)		(Primary Standard Industrial Classification Code Number)		(I.R.S. Employer Identification No.)

Approximate Date of Commencement of Proposed Sale to the Public: From time to time as determined by the selling stockholders after the effective date of this Registration Statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, please check the following box. þ

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o		Accelerated filer o		Non-accelerated filer o		Smaller reporting company þ
		(Do not check if a smaller reporting company)

CALCULATION OF REGISTRATION FEE

	Title of each class								Proposed maximum					Proposed maximum
	of securities to be			Amount to					offering price					aggregate offering					Amount of
	registered			be registered					per unit					price					registration fee
	Shares of Common Stock, $0.001 par value				48,700,960				$	0.90	(1)			$	43,830,864	(1)				(2	)
	Shares of Common Stock, $0.001 par value, issuable upon exercise of warrants				20,597,532				$	0.90	(1)			$	18,537,778.80	(1)				(2	)
	Total				69,298,492									$	62,368,642.80	(1)				(2	)

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine

 

 

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

Subject to completion, dated June 4, 2008

Prospectus

Foothills Resources, Inc.

48,700,960 shares of common stock, and
warrants to acquire 20,597,532 shares of common stock

This prospectus relates to the offering by the selling stockholders of Foothills Resources, Inc. of up to 48,700,960 shares of our common stock, par value $0.001 per share. Those shares of common stock include 28,103,428 shares of common stock and 20,597,532 shares of common stock underlying warrants. In addition, we are registering the warrants to acquire 20,597,532 shares of common stock. We are registering the offer and sale of the common stock, including common stock underlying warrants, and the warrants, to satisfy registration rights we have granted to the selling stockholders.

We will not receive any proceeds from the sale of common stock or warrants by the selling stockholders. We may receive proceeds from the exercise price of the warrants if they are exercised by the holders thereof. We intend to use any proceeds received from the exercise of the warrants for working capital and general corporate purposes.

The selling stockholders have advised us that they will sell the shares of common stock and warrants from time to time in the open market, on the OTC Bulletin Board, in privately negotiated transactions or a combination of these methods, at market prices prevailing at the time of sale, at prices related to the prevailing market prices, at negotiated prices, or otherwise as described under the section of this prospectus titled “Plan of Distribution.”

Our common stock is traded on the OTC Bulletin Board under the symbol “FTRS.OB”. On March 31, 2008, the closing bid price of the common stock was $0.82 per share.

Investing in our common stock involves risks. Before making any investment in our securities, you should read and carefully consider risks described in the Risk Factors beginning on page 2 of this prospectus.

You should rely only on the information contained in this prospectus or any prospectus supplement or amendment. We have not authorized anyone to provide you with different information.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

This prospectus is dated June      , 2008

TABLE OF CONTENTS

		Page
SUMMARY			1
RISK FACTORS			2
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS			13
SELLING STOCKHOLDERS			13
USE OF PROCEEDS			54
DETERMINATION OF OFFERING PRICE			54
PLAN OF DISTRIBUTION			54
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS			55
DIVIDEND POLICY			56
MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION			57
BUSINESS			64
DIRECTORS AND EXECUTIVE OFFICERS			73
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT			77
EXECUTIVE COMPENSATION			78
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS			84
DESCRIPTION OF SECURITIES			85
LEGAL MATTERS			89
EXPERTS			90
WHERE YOU CAN FIND MORE INFORMATION			90
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE			90
INDEX TO FINANCIAL STATEMENTS			i
Consent of Akin Gump Strauss Hauer & Feld LLP
Consent of Brown, Armstrong, Paulden, McCown, Starbuck, Thornburgh & Keeter Accountancy Corporation
Consent of Cawley, Gillespie and Associates, Inc.

SUMMARY

This summary highlights information contained elsewhere in this prospectus but might not contain all of the information that is important to you. Before investing in our common stock, you should read the entire prospectus carefully, including the “Risk Factors” section and our financial statements and the note thereto included elsewhere in this prospectus.

For purposes of this prospectus, unless otherwise indicated or the context otherwise requires, all references herein to “Foothills,” “we,” “us,” “our,” and “the Company” refer to Foothills Resources Inc., a Nevada corporation, and our subsidiaries.

Our Company

Foothills Resources, Inc. is a growth-oriented independent energy company engaged in the acquisition, exploration, exploitation and development of oil and natural gas properties. The Company currently holds interests in properties in the Eel River Basin, in northern California, the Goose Creek Field and Goose Creek East Field, both in Harris County, Texas, the Cleveland Field, located in Liberty County, Texas, and the Saratoga Field located in Hardin County, Texas, and is planning to acquire interests in the Anadarko Basin in southwest Oklahoma.

Our business strategy is to identify and exploit low to moderate risk resources in existing 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 in these areas. We also intend to 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 intends to use its extensive domestic and international oil and gas experience to establish and grow the Company.

Foothills Resources, Inc. took its present form on April 6, 2006, when our wholly-owned subsidiary, Brasada Acquisition Corp., and Brasada California, Inc. executed a Merger Agreement and Plan of Reorganization. On April 6, 2006, Brasada Acquisition Corp. merged with and into Brasada California, Inc., with Brasada remaining as the surviving corporation and our wholly-owned subsidiary. The holders of Brasada’s issued and outstanding capital stock before the merger surrendered all of their issued and outstanding capital stock of Brasada and received 17,375,000 shares of our common stock, par value $0.001 per share. Our stockholders before the merger retained 12,625,006 shares of common stock.

Contemporaneously with the closing of the Merger, we split-off another wholly-owned subsidiary, Foothills Leaseco, Inc., a Nevada corporation, through the sale of all of the outstanding capital stock of Foothills Leaseco, Inc. As a consequence of the sale of Foothills Leaseco, Inc., we discontinued all of our business operations which we conducted prior to the closing of the merger with Brasada, and spun off all material liabilities existing prior to that date, in any way related to our pre-closing business operations. As a result of these transactions, our business and operations changed 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 merger.

Our primary operations are now those formerly operated by Brasada California, Inc., as well as other business activities which we have developed since April 2006, as described in this Prospectus.

Corporate Information

Foothills Resources, Inc. was incorporated under the laws of the State of Nevada on November 17, 2000. Our principal executive offices are located at 4540 California Avenue, Suite 550, Bakersfield, California 93309. The telephone number at our principal executive offices is (661) 716-1320. Our website address is www.foothills-resources.com. Information contained on our website is not deemed part of this prospectus.

The Offering

Common Stock Offered (1)		48,700,960 shares
Warrants Offered (2)		Warrants to acquire 20,597,532 shares
Offering Price		Market price or privately negotiated prices.
Common Stock Outstanding (3)		60,572,442 shares
Use of Proceeds		We will not receive any proceeds from the sale of the shares offered by the selling stockholders. Any proceeds we receive from the selling stockholders upon their exercise of warrants to purchase the shares included in the shares that are being offered by them hereunder will be used for general working capital purposes and capital expenditures.
OTC Bulletin Board Symbol		FTRS.OB
Risk Factors		An investment in our common stock involves a high degree of risk. You should carefully consider the risk factors set forth under “Risk Factors” beginning on page 2 and the other information contained in this prospectus before making an investment decision regarding our common stock.

RISK FACTORS

Several of the matters discussed in this prospectus contain forward-looking statements that involve risks and uncertainties. Factors associated with the forward-looking statements that could cause actual results to differ from those projected or forecasted in this prospectus are included in the statements below. In addition to other information contained in this prospectus, you should carefully consider the following cautionary statements and risk factors. The risks and uncertainties described below are not the only risks and uncertainties we face. If any of the following risks actually occur, our business, financial condition, and results of operations could suffer. In that event, the trading price of our common stock could decline and investors may lose all or part of their investment in our common stock. The risks discussed below also include forward-looking statements and our actual results may differ substantially from those discussed in these forward-looking statements.

RISKS RELATED TO OUR BUSINESS

We have a limited operating history for you to evaluate our business. We may never attain profitability.

We are engaged in the business of oil and gas exploration and development, and have limited current oil or natural gas operations. The business of acquiring, exploring for, developing and producing oil and natural gas reserves is inherently risky. 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 focus is on the oil and gas industry in a limited number of properties, initially in California, Oklahoma and Texas, with the intention of expanding elsewhere. Larger companies have the ability to manage their risk by diversification. However, we 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 Texas, California and Oklahoma alone will not be sufficient to fund both our continuing operations and our planned growth. We will require additional capital to continue to operate our business beyond the initial phase of our current properties, and to further expand our exploration and development programs to additional properties. We may be unable to obtain additional capital required.

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 may pursue sources of additional 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, our resources may not be sufficient to fund our operations going forward.

Any additional capital raised through the sale of equity may dilute the ownership percentage of our 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 significant 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 decline, 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 sell some of our assets or 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.

Since commencing our present business activities in April 2006, our financing activities have consisted of the following transactions.

In April 2006, we closed a private offering of an aggregate of 17,142,857 units consisting of one share of our common stock and warrants to acquire three-quarters of a share of common stock for five years, at an exercise price of $1.00 per whole share. In this offering, we received aggregate consideration of $12,000,000. Some of the consideration for the units sold in this offering was in the form of debentures that we sold prior to the closing date of the offering to accredited investors. These debentures converted into units in the offering on a dollar-for-dollar basis upon the closing date of the offering.

In September 2006, we closed a private offering of units consisting of shares of our common stock and warrants to acquire our common stock. Each unit we sold in the offering consisted of one share of common stock and a warrant to acquire one-half share of common stock for five years at an exercise price of $2.75 per share. On September 8, 2006, we received $22,500,000 in proceeds from the offering, through the sale of 10,000,000 units, issuing to investors in the offering 10,000,000 shares of common stock and warrants to acquire 5,000,000 shares of common

stock. On September 27, 2006, we received proceeds of an additional $211,059 through the sale of an additional 93,804 units to additional investors in the offering.

To finance a portion of the acquisition of properties in Texas in September 2006, we executed a credit agreement with a financial institution, whereby we could borrow funds under a credit facility in an amount not to exceed $42,500,000 (the “Mezzanine Facility”). The Mezzanine Facility was scheduled to terminate, and all amounts borrowed under the Mezzanine Facility were due and payable, on September 7, 2010. The interest rate on the Mezzanine Facility was initially the London Interbank Offered Rate (“LIBOR”) plus 700 basis points, and was increased by 100 basis points on each of September 22, 2006, October 23, 2006 and November 22, 2006 when we did not satisfy a requirement of the credit agreement to raise an additional $5,000,000 in equity capital on or before those dates. We were required to make quarterly interest and principal payments on the Mezzanine Facility equal to the adjusted net cash flow attributable to the properties acquired in the acquisition. The Mezzanine Facility was secured by liens and security interests on substantially all of our assets, including 100% of our oil and gas reserves, and prohibited any dividends on or redemptions of our capital stock.

In December 2007, we entered into a Credit Agreement with various lenders and Wells Fargo Foothill, LLC, as agent (the “Credit Facility”). The Credit Facility provides for a $50,000,000 term loan facility and a $50,000,000 revolving credit facility, with an initial borrowing base of $25,000,000 available under the revolving credit facility. We utilized $52,564,000 of the proceeds of the Credit Facility to retire the Mezzanine Facility, including the repayment of the outstanding principal balance of $42,500,000 and prepayment penalties and transaction costs totaling $10,164,000. The Credit Facility matures in December 2012, with principal payments scheduled to commence in April 2010 based on 50% of our cash flow, net of capital expenditures. Interest on the revolving credit facility is payable at prime plus 0.75% or at LIBOR plus 2.00%, as we select from time to time, with an unused line fee of 0.50%. Interest on the term loan facility is payable at prime plus 5.25% or at LIBOR plus 6.50%, as we select from time to time, provided that the interest rate on the term loan facility will not be less than 10.50% in the event that LIBOR is less than 4.00%. The Credit Facility contains financial covenants pertaining to asset coverage, interest coverage and leverage ratios. Additionally, the Credit Facility has restrictions on the operations of our business, including restrictions on payment of dividends. Borrowings under the term loan facility carry prepayment penalties ranging from 1.00% to 2.00% in the first three years of the Credit Facility. Borrowings under the revolving credit facility may be repaid at any time without penalty. The Credit Facility is secured by liens and security interests on substantially all of our assets, including 100% of our oil and gas reserves. In connection with the Credit Facility, we issued to the lender under the term loan facility a ten-year warrant to purchase 2,580,159 shares of our common stock at an exercise price of $0.01 per share.

Although we recorded a loss of $17,593,000 in connection with the early retirement of the Mezzanine Facility, including $10,164,000 in prepayment penalties and transaction costs, and $7,429,000 of non-cash charges relating to the unamortized balances of debt discount and debt issue costs, we entered into the Credit Facility and retired the Mezzanine Facility because the Credit Facility is expected to provide us with significant liquidity for development activities, a substantial reduction in our weighted average cost of debt capital, increased operating flexibility through an improved covenant package, and enhanced ability to manage our cash position (and interest costs) through the revolving structure. We expect to be able to retire the amounts outstanding under the Credit Facility at or prior to its maturity from cash flow provided by operations from our proved oil and gas reserves, or from the proceeds of other financing transactions or arrangements, including joint venturing of projects, debt financing, equity financing or other means.

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 you that we will be able to:

•

meet our capital needs;

	•		expand our systems effectively or efficiently or in a timely manner;
	•		allocate our human resources optimally;
	•		identify and hire qualified employees or retain valued employees; or
	•		incorporate effectively the components of any business that we may acquire in our effort to achieve growth.

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 effect 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.

Our business prior to the merger between our wholly-owned acquisition subsidiary and Foothills California, Inc. (formerly Brasada California, Inc.) in April 2006 involved mineral exploration. In 2001, we acquired a mining lease on a total of five unpatented lode mineral claims property located in the State of Nevada. Subsequent to our fiscal year ended December 31, 2004, we decided to abandon the property and terminate the claims and have since been in the process of reviewing other potential resource and non-resource assets for acquisition. We determined not to pursue the mineral exploration line of business following the April 2006 merger, but could still be subject to claims arising from our former business operations. These claims may arise from our 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 our former business operations. Even if any 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 provided indemnities to us for liabilities arising from our prior business activities, these indemnities may not be sufficient to fully protect us from all costs and expenses.

Our hedging activities could result in financial losses or could reduce our net income, which may adversely affect your investment in our common stock.

In connection with our credit facility with Wells Fargo Foothill, LLC, we are contractually obligated to enter into hedging contracts with the purpose and effect of fixing oil and natural gas prices on no less than 50% of projected

oil and gas production from our proved developed producing oil and gas reserves. To comply with the requirements of our credit facility, and in order to manage our exposure to price risks in the marketing of our oil and natural gas production, we have entered into oil and natural gas price hedging arrangements with respect to a portion of our expected production. We may enter into additional hedging transactions in the future.

While intended to reduce the effects of volatile oil and natural gas prices, such transactions may limit our potential gains and increase our potential losses if oil and natural gas prices were to rise substantially over the price established by the hedge. In addition, such transactions may expose us to the risk of loss in certain circumstances, including instances in which:

	•		our production is less than expected;
	•		there is a widening of price differentials between delivery points for our production and the delivery point assumed in the hedge arrangement; or
	•		the counterparties to our hedging agreements fail to perform under the contracts.

RISKS RELATED TO OUR INDUSTRY

Our exploration for oil and gas is risky and may not be commercially successful, and the 3D seismic data and other advanced technologies we use cannot eliminate exploration risk, which could impair our ability to generate revenues from our operations.

Our future success will depend on the success of our exploratory drilling program. 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.

Even when used and properly interpreted, 3D seismic data and visualization techniques only assist geoscientists in identifying subsurface structures and hydrocarbon indicators. They do not allow the interpreter to know conclusively if hydrocarbons are present or economically producible. In addition, the use of 3D seismic data becomes less reliable when used at increasing depths. We could incur losses as a result of expenditures on unsuccessful wells. 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.

If 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.

As further described under the section of this prospectus titled “Business,” in early 2008 we completed two wells that we previously drilled in the Eel River Basin in California. After perforating the indicated gas-bearing zones in both wells, we did not recover natural gas from either well. We temporarily suspended further testing on the two wells, and are in the process of performing stimulation programs to fracture the formations in the wells.

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, among others. 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. In the Eel River Basin in California, we have contractual rights to access existing natural gas transportation facilities. Depending on the success of our planned drilling, it is possible that we will be required to construct additional pipeline facilities in the future in order to have sufficient capacity to transport all of our natural gas production.

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 record levels on a nominal basis in 2007. 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. During 2007, the daily spot price of West Texas Intermediate oil, as reported by the Wall Street Journal, peaked at $99, and as of May 15, 2008 was reported as $124 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 expect to 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 a limited trading market for our common stock and no market for our warrants.

There has been a limited trading market for our common stock on the Over-the-Counter Bulletin Board and no established market for the warrants. The lack of an active market may impair the ability of our investors to sell their shares of common stock or their warrants 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 the shares of common stock and warrants to be sold under this prospectus. 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 our common stock as consideration.

Investors may have difficulty trading and obtaining quotations for our common stock or warrants.

Our common stock is currently quoted on the Over-the-Counter Bulletin Board under the symbol “FTRS.OB.” Our warrants do not currently trade on any exchange or market. Our common stock has been actively traded for only a limited time, and the bid and ask 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 common stock and our warrants. This severely limits the liquidity of our common stock and our warrants, and would likely reduce the market price of our common stock and warrants, and hamper our 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 our common stock is likely to continue to be highly volatile and could be subject to wide fluctuations in response to a number of factors, some of which 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;
	•		our ability to take advantage of new acquisitions (such as our acquisition of certain properties of TARH E&P Holdings, L.P.), reserve discoveries or other business initiatives;
	•		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 or warrants.

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 our warrants, and/or our results of operations and financial condition.

Our operating results may fluctuate significantly, and these fluctuations may cause the price of our common stock and our warrants 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 and our warrants 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 or warrants, and stockholders may be unable to sell their shares and warrants 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 our common stock and warrants.

Stockholders will experience dilution upon the exercise of warrants and options.

As of March 31, 2008, there were 1,880,000 shares of common stock underlying options issued and outstanding and 23,177,691 shares of common stock underlying warrants issued and outstanding, which if exercised or converted, could decrease the net tangible book value of our common stock. In addition, there were 5,000,000 shares of common stock underlying equity-based incentive grants or awards that may be granted or awarded, of which equity-based incentive grants or awards for 141,176 shares of common stock have already been awarded , pursuant to the Company’s 2007 Equity Incentive Plan. If the holders of those options exercise those options, stockholders may experience dilution in the net tangible book value of our 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 the above-described warrants all of the shares of common stock underlying such warrants. 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 have a high concentration of common stock ownership.

Based on the 60,572,442 shares of common stock that were issued and outstanding as of March 31, 2008, our officers and directors beneficially owned approximately 25.0% 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 Company’s board of directors and the outcome of actions brought to our stockholders for approval. Such a high level of ownership may adversely affect the voting and other rights of our stockholders.

Applicable SEC rules governing the trading of “penny stocks” limit the trading and liquidity of our common stock, which may affect the trading price of our common stock.

Shares of our 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 an investment in our common stock or warrants.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). This prospectus 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 “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 prospectus reflect the good faith judgment of our 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 prospectus. 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 prospectus, 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.

SELLING STOCKHOLDERS

This prospectus covers warrants and shares of our common stock, including shares underlying warrants, sold in our recent private equity offerings, in April 2006 and September 2006, to “accredited investors” as defined by Rule 501(a) under the Securities Act pursuant to an exemption from registration provided in Regulation D, Rule 506 under Section 4(2) of the Securities Act. The selling stockholders may from time to time offer and sell under this prospectus any or all of the warrants or shares of common stock listed opposite each of their names below. We are required, under registration rights agreements, to register for resale the warrants and the shares of our common stock described in the tables below.

Common Stock

The following table sets forth information about the number of shares of our common stock beneficially owned by each selling stockholder that may be offered from time to time under this prospectus. Certain selling stockholders may be deemed to be “underwriters” as defined in the Securities Act. Any profits realized by such selling stockholders may be deemed to be underwriting commissions.

The table below has been prepared based upon the information furnished to us by the selling stockholders as of

March 31, 2008. The selling stockholders identified below may have sold, transferred or otherwise disposed of some or all of their shares since the date on which the information in the following table is presented in transactions exempt from or not subject to the registration requirements of the Securities Act. Information concerning the selling stockholders may change from time to time and, if necessary, we will amend or supplement this prospectus accordingly. We cannot provide an exact amount, but have provided an estimate, of the number of shares of common stock that will be held by the selling stockholders upon termination of this offering because the selling stockholders may offer some or all of their common stock under the offering contemplated by this prospectus. The total number of shares that may be sold hereunder will not exceed the number of shares offered hereby. Please read the section entitled “Plan of Distribution” in this prospectus.

We have been advised, as noted below in the footnotes to the table, 18 of the selling stockholders are broker-dealers and 8 of the selling stockholders are affiliates of broker-dealers. We have been advised that each of such selling stockholders purchased our common stock and warrants in the ordinary course of business, not for resale, and that none of such selling stockholders had, at the time of purchase, any agreements or understandings, directly or indirectly, with any person to distribute the related common stock.

The following table sets forth the name of each selling stockholder, the nature of any position, office, or other material relationship, if any, which the selling stockholder has had, within the past three years, with us or with any of our predecessors or affiliates, and the number of shares of our common stock beneficially owned by such stockholder before this offering. The number of shares owned are those beneficially owned, as determined under the rules of the SEC, and such information is not necessarily indicative of beneficial ownership for any other purpose. Under such rules, beneficial ownership includes any shares of common stock as to which a person has sole or shared voting power or investment power and any shares of common stock which the person has the right to acquire within 60 days through the exercise of any option, warrant or right, through conversion of any security or pursuant to the automatic termination of a power of attorney or revocation of a trust, discretionary account or similar arrangement.

Unless otherwise indicated, the stockholders listed in the table below acquired their shares in our private offerings in April 2006 and September 2006. Beneficial ownership is calculated based on 60,572,442 shares of our common stock outstanding as of March 31, 2008. Beneficial ownership is determined in accordance with Rule 13d-3 of the Securities and Exchange Commission. Shares underlying warrants or options exercisable within 60 days of March 31, 2008 are considered for the purpose of determining the percent of the class held by the holder of such warrants or options, but not for the purpose of computing the percentages held by others. The persons and entities named in the table have sole voting and sole investment power with respect to the shares set forth opposite the stockholder’s name, subject to community property laws, where applicable, unless otherwise noted in the footnotes to the table. We have assumed all shares reflected on the table that were acquired in our private offerings will be sold from time to time. Because the selling stockholders may offer all or any portion of the common stock listed in the table below, no estimate can be given as to the amount of those shares of common stock acquired in our private offerings that will be held by the selling stockholders upon the termination of any sales of common stock.

														Percentage of
														Common Stock
		Shares of								Shares of Common				Outstanding
		Common Stock				Shares of				Stock Owned				Upon
		Owned Before the				Common Stock				Upon Completion				Completion of
		Offering				Being Offered				of the Offering (a)				Offering
0702119 BC Ltd.1			1,312,500				1,312,500				—				—
1087741 Alberta Ltd.2			80,000				80,000				—				—
719906 BC Ltd.3			250,000				250,000				—				—
Adam S. Gottbetter4			125,001				125,001				—				—
A.H. Investments5			22,500				22,500				—				—
AK Asset Management6			262,501				262,501				—				—
Alec Morrison & Sandra Morrison7			99,999				99,999				—				—
Alfred Ricciardi8			16,667				16,667				—				—
All Seasons Consulting Inc.9			50,000				50,000				—				—

														Percentage of
														Common Stock
		Shares of								Shares of Common				Outstanding
		Common Stock				Shares of				Stock Owned				Upon
		Owned Before the				Common Stock				Upon Completion				Completion of
		Offering				Being Offered				of the Offering (a)				Offering
Alvin L. Gray10			133,200				133,200				—				—
Andrew A. Schatte11			20,000				20,000				—				—
Andrew Goodacre12			62,500				62,500				—				—
Anke Zenze13			61,187				61,187				—				—
Anthony Bobulinski14			125,000				125,000				—				—
Arn E. Schoch15			124,962				124,962				—				—
Atlantis Software Company Employee Profit Sharing Plan 16 !			49,999				49,999				—				—
Centrum Bank AG17			1,875,000				1,875,000				—				—
Avtar Dhillon18			62,500				62,500				—				—
Baradaran Revocable Trust, Sharyar Baradaran Trustee 19			625,000				625,000				—				—
Barbara S. Burkart20			7,000				7,000				—				—
Barry Davis21			250,000				250,000				—				—
Barry Tucker22			62,500				62,500				—				—
Ben T. Morris23 #			146,248				146,248				—				—
Bentley N. Kerfoot24			104,000				104,000				—				—
Bernard Bonertz25			25,000				25,000				—				—
Besser Kapital Fund LTD26			75,012				75,012				—				—
Bifrost Fund LP27			225,000				225,000				—				—
Bill Haak and Johnnie S Haak28			79,301				79,301				—				—
Blake Selig29			52,500				52,500				—				—
BMO Nesbitt Burns I/T/F Balanced Natural Resource Fund30			66,666				66,666				—				—
Bonner S. Ball31			75,000				75,000				—				—
Brad Deason32 #			37,500				37,500				—				—
Brad Gabel33			62,500				62,500				—				—
Brede C. Klefos34 #			87,500				87,500				—				—
Brian Hicks35			125,000				125,000				—				—
Brian Kuhn36			262,500				262,500				—				—
Bruce C. Gibbs and Lou Ann Gibbs37			70,000				70,000				—				—
Bruce Nurse38			191,250				191,250				—				—
Bruce R. McMaken39			34,286				34,286				—				—
Brunella Jacs LLC40			250,005				250,005				—				—
CamCap Energy Offshore Master Fund, L.P. 41			1,170,000				1,170,000				—				—
CamCap Resources Offshore Master Fund, L.P. 42			630,000				630,000				—				—
Carl Pipes43			37,500				37,500				—				—
Carmen Lanza44			62,512				62,512				—				—
Carol C. Barbour45			37,500				37,500				—				—
Carter D. Pope46			75,000				75,000				—				—
Champion Construction Consultants, Inc.47			18,725				18,725				—				—

														Percentage of
														Common Stock
		Shares of								Shares of Common				Outstanding
		Common Stock				Shares of				Stock Owned				Upon
		Owned Before the				Common Stock				Upon Completion				Completion of
		Offering				Being Offered				of the Offering (a)				Offering
Charbonneau Limited Partnership48			62,500				62,500				—				—
Chester R. Cloudt49			50,000				50,000				—				—
Chester R. Cloudt, Jr.50			25,000				25,000				—				—
Chestnut Ridge Partners, L.P.51			200,000				200,000				—				—
Choregus Master Trust, Plan I, Money Purchase 52			29,750				29,750				—				—
Choregus Master Trust, Plan II, Profit Sharing 53			29,750				29,750				—				—
Christine M. Sanders54			22,500				22,500				—				—
Christopher Neal Todd55			16,667				16,667				—				—
Christopher Powell56			6,250				6,250				—				—
Craig Taylor57			25,000				25,000				—				—
Cranshire Capital, L.P.58			525,000				525,000				—				—
Crimson Group, LTD59			23,325				23,325				—				—
Curtis Conway60			350,000				350,000				—				—
Curtis E. Smith and Mary H. Cummins Trust 61			52,500				52,500				—				—
Dan Mechis62			20,000				20,000				—				—
Danich Investments Ltd.63			62,500				62,500				—				—
David A Melman64			87,500				87,500				—				—
David B. Steffan, Jr.65			25,000				25,000				—				—
David B. Steffan, Sr.66			5,250				5,250				—				—
David Jensen67			32,933				32,933				—				—
David Malm68			20,000				20,000				—				—
Dennis B. Tower69			4,905,335				262,500				4,642,835				7.7	%
Dennis Bleackley70			62,500				62,500				—				—
Dennis H. Lundy71			37,500				37,500				—				—
DNG Capital Corp.72			50,000				50,000				—				—
Don Sanders and Tanya Drury TTEES FBO Tanya Jo Drury Trust 73			56,250				56,250				—				—
Don Weir and Julie Ellen Weir74!			239,995				239,995				—				—
Donald V Weir TTEE Sanders 1998 Children’s Trust DTD 12/01/1997 75 !			506,275				506,275				—				—
Douglas Patterson76			3,375				3,375				—				—
Dr. William Grose Agency77			26,666				26,666				—				—
Earl Fawcett78			62,500				62,500				—				—
Edmund H. Melhado79			75,000				75,000				—				—
Edward Antonsen80			80,000				80,000				—				—
Edward C. Kash81			23,333				23,333				—				—
Edwin Freedman82			199,994				199,994				—				—
Emily H. Todd83			16,667				16,667				—				—
EPSILON Management LTD.84			37,506				37,506				—				—
Evonne Whelan85			37,500				37,500				—				—

														Percentage of
														Common Stock
		Shares of								Shares of Common				Outstanding
		Common Stock				Shares of				Stock Owned				Upon
		Owned Before the				Common Stock				Upon Completion				Completion of
		Offering				Being Offered				of the Offering (a)				Offering
Ewan Downie86			80,000				80,000				—				—
Francis P. Knuettel TTEE Francis P Knuettel Rev LVG TR UA DTD 3/7/03 87			125,001				125,001				—				—
Frank J. Metyko, Jr. and Mark J. Metyko and Kurt F. Metyko TTEES Frank J. Metyko Residuary Trust DTD 10/08/84 88			26,666				26,666				—				—
Frank Knuettel II Trustee, The Knuettel Family Trust 89			43,750				43,750				—				—
Frank Knuettel, II90			49,875				49,875				—				—
Fred Hagans91			139,994				139,994				—				—
Friedrich Brenckman92			75,000				75,000				—				—
G. Marie Smith93			106,500				106,500				—				—
Gary E. Mintz94			262,500				262,500				—				—
Gary Friedland95			18,750				18,750				—				—
Gary Maynard96			33,750				33,750				—				—
GEM Advisors97 #			500,000				500,000				—				—
George L. Ball98 #			177,494				177,494				—				—
Georges Antoun and Martha Antoun Ten Com 99			46,667				46,667				—				—
Gerald K. Bogen100			18,000				18,000				—				—
Gloria D. Kelley101			18,750				18,750				—				—
Goldman, Sachs & Co.102 #			8,000,000				8,000,000				—				—
Grant E Sims and Patricia Sims JT TEN103			37,500				37,500				—				—
Gregg Sedun104			250,000				250,000				—				—
Gregory Selig Lewis105			62,501				62,501				—				—
H. Alan Dill106			222,000				222,000				—				—
H. Ben Taub107			45,000				45,000				—				—
Hammonds Management Trust108			16,875				16,875				—				—
Harry Edelson109			1,250,000				1,250,000				—				—
Harry Gabel110			62,500				62,500				—				—
Hayden McIlroy111			212,500				212,500				—				—
Hedge Capital Partners LLC112			105,050				105,050				—				—
Heimbuck Family Trust DTD 8/13/85113			104,168				104,168				—				—
Herbert Lippin114			22,500				22,500				—				—
Hyman Gildenhorn and Vivian Gildenhorn115			133,332				133,332				—				—
Hypo Alpe-Adria-Bank116			612,500				612,500				—				—
Don A. Sanders117 #			506,275				506,275				—				—
Don S. Cook118			26,666				26,666				—				—
Erik Klefos119 #			87,500				87,500				—				—
Humbert B. Powell120 #			88,751				88,751				—				—

														Percentage of
														Common Stock
		Shares of								Shares of Common				Outstanding
		Common Stock				Shares of				Stock Owned				Upon
		Owned Before the				Common Stock				Upon Completion				Completion of
		Offering				Being Offered				of the Offering (a)				Offering
Lewis S. Rosen121			16,667				16,667				—				—
Scott M. Marshall122			87,500				87,500				—				—
William W. Sprague123			88,751				88,751				—				—
J. Barrett Developments, Ltd.124			25,000				25,000				—				—
Jack Coldwell125			62,500				62,500				—				—
Jack Sheng126			40,000				40,000				—				—
James T. Dilella Trust127			33,000				33,000				—				—
Jamie Gilkison128			75,000				75,000				—				—
Jan Bartholomew129 #			16,667				16,667				—				—
Jan Rask130			217,500				217,500				—				—
Jason M. Rimland131			75,287				75,287				—				—
Jeffrey Scott132			250,000				250,000				—				—
Jerry F. and Nina L. Christopherson133			62,500				62,500				—				—
JMC Investments Ltd.134			62,500				62,500				—				—
Joe & Iola Bots135			62,500				62,500				—				—
Joel Stuart136			18,750				18,750				—				—
John A. Cary137			30,000				30,000				—				—
John H. Malanga and Jodi F. Malanga, JT Ten Malanga 138 #			77,501				77,501				—				—
John M. Martineck139			137,500				137,500				—				—
John N. Spiliotis140			16,667				16,667				—				—
John Seaman141			80,000				80,000				—				—
John W. Lodge, III142			33,333				33,333				—				—
Joseph Benjamin Johnson143			84,165				84,165				—				—
Judy Kay Hunnemuller144			10,001				10,001				—				—
Karl Antonius145			62,500				62,500				—				—
Katherine U. Sanders146!			397,475				397,475				—				—
Kenneth R. Hartley Jr.147			33,750				33,750				—				—
Kenneth S. Goodwin148			26,250				26,250				—				—
Kevin Shugars, Lori Shugars149			33,750				33,750				—				—
Knox Family Partnership, Lee M. Knox General Partner 150			20,000				20,000				—				—
LA Hougue Financial Management Services Limited 151			375,000				375,000				—				—
Ladasa Investments Inc.152			250,000				250,000				—				—
Larry Hunnemuller153			10,001				10,001				—				—
Lenny Olim154			52,500				52,500				—				—
Leon Frenkel155			225,000				225,000				—				—
Leonard C. Atkins156			37,500				37,500				—				—
Lisa Dawn Weir157			37,500				37,500				—				—
Louis Gleckel158			18,750				18,750				—				—
Louis Zehil159			66,666				66,666				—				—
M. Paul Tompkins160			100,000				100,000				—				—
M. St. John Dinsmore161			37,500				37,500				—				—
Mark Emalfarb Custodian for Hailey Emalfarb 162			187,500				187,500				—				—

														Percentage of
														Common Stock
		Shares of								Shares of Common				Outstanding
		Common Stock				Shares of				Stock Owned				Upon
		Owned Before the				Common Stock				Upon Completion				Completion of
		Offering				Being Offered				of the Offering (a)				Offering
Mark Emalfarb Guardian for Ashley Emalfarb 163			187,500				187,500				—				—
Mark Leszczynski164			21,000				21,000				—				—
Mark Rousselot165			25,000				25,000				—				—
Mary Harris Cooper166			26,666				26,666				—				—
Matthew D. Myers167			17,250				17,250				—				—
Max and Judy Poll Rev Trust168			33,333				33,333				—				—
Melton Pipes169			22,500				22,500				—				—
Meteoric L.P.170			120,000				120,000				—				—
MGK Consulting Inc.171			80,000				80,000				—				—
Michael J. Burkart172			1,500				1,500				—				—
Michael J. Burkart and Breanna A. Burkart173			5,000				5,000				—				—
Michael J. Gaido, Jr.174			50,000				50,000				—				—
Michael John Fanti175			20,000				20,000				—				—
Michael S. Chadwick176#			81,251				81,251				—				—
Molly B. Jorgensen177			1,500				1,500				—				—
Molly B. Jorgensen and Trent R. Jorgensen178			5,000				5,000				—				—
Morton J. Weisberg179			16,650				16,650				—				—
Mosby Lindsay Simmons III180			87,500				87,500				—				—
Nadine C. Smith181			375,000				375,000				—				—
Natalie Dull182			43,750				43,750				—				—
Nina Holdings, LLC183 !			500,000				500,000				—				—
Nite Capital LP184			666,667				666,667				—				—
Nunziata Holdings Inc.185			200,000				200,000				—				—
NYBOR Group Inc.186			40,179				40,179				—				—
Paula L. Santoski187			59,999				59,999				—				—
Pauline Tower188			26,250				26,250				—				—
Perfco Investments Ltd.189			250,000				250,000				—				—
Philip M. Garner and Carol P. Garner190			60,000				60,000				—				—
Professional Trading Services SA191			1,250,000				1,250,000				—				—
Randall W. Tower192			100,000				100,000				—				—
Richard Lippin193			17,250				17,250				—				—
Richard Macdermott194			62,500				62,500				—				—
Richard W. Hodgman195			33,750				33,750				—				—
Rick Berry196 !			16,667				16,667				—				—
RJS JR/PLS 1992 Trust FBO Robert J Santoski Jr, Paula Santoski TTEE 197			16,667				16,667				—				—
Rob Anderson198 #			375,000				375,000				—				—
Robert Burschik199			262,425				262,425				—				—
Robert F. Ruth Jr.200			108,000				108,000				—				—
Robert J. Gonzales201			122,500				122,500				—				—

														Percentage of
														Common Stock
		Shares of								Shares of Common				Outstanding
		Common Stock				Shares of				Stock Owned				Upon
		Owned Before the				Common Stock				Upon Completion				Completion of
		Offering				Being Offered				of the Offering (a)				Offering
Robert Pedlow202			87,500				87,500				—				—
Robert Sarcher203			175,000				175,000				—				—
Robert Schiesser204 #			250,250				250,250				—				—
Robert W. Bomengen205			21,506				21,506				—				—
Robert Wilensky206			15,000				15,000				—				—
Rose Anna Marshall207			70,000				70,000				—				—
Rosebury, L.P.208			90,000				90,000				—				—
Roy Alan Price209			30,000				30,000				—				—
Rune Medhus & Elisa Medhus210 #			147,494				147,494				—				—
Sam Belzberg211			625,000				625,000				—				—
Samuel Ginzburg212			25,008				25,008				—				—
Sanders Morris Harris Inc.213 #			688,859				688,859				—				—
Sanders Opportunity Fund (Institutional) L.P. 214 #			1,209,353				1,209,353				—				—
Sanders Opportunity Fund, L.P.215 #			378,138				378,138				—				—
Sandra L. Acosta216			50,000				50,000				—				—
Sanovest Holdings Ltd.217			500,000				500,000				—				—
Scott Rapfogel218			87,500				87,500				—				—
Leticia Turullos219			16,667				16,667				—				—
Sierra Madre Development, LLC220			18,725				18,725				—				—
Lawrence R. Simonson221			62,500				62,500				—				—
Stanley Katz222			250,005				250,005				—				—
SLS/PLS 1988 Trust FBO Samantha Leigh Santoski, Paula L Santoski TTEE 223			16,667				16,667				—				—
Stephen Hanson224			300,000				300,000				—				—
Steve Perry225			62,500				62,500				—				—
Steven R. Hall226			22,500				22,500				—				—
Sue M. Harris Separate Property227			33,333				33,333				—				—
Sue Minton Harris TTEE Pinkye Lou Blair Estate Tr u/w Dtd 6/15/91 228			33,333				33,333				—				—
Susan S. Lehrer229			16,667				16,667				—				—
T. Scott O’Keefe230			162,499				162,499				—				—
Tanya J. Drury231			56,250				56,250				—				—
The Brewster Family Trust232			62,500				62,500				—				—
Thomas Asarch and Barbara Asarch233			104,167				104,167				—				—
Thomas E. Fish234			375,000				375,000				—				—
Titus Harris, Jr.235!			33,333				33,333				—				—
Tom Juda and Nancy Juda236			124,994				124,994				—				—
Tom Steffan237			12,500				12,500				—				—
US Global Investors- Global Resources Fund 238			1,900,001				1,900,001				—				—
V MacLachlan Investments Corp.239!			375,000				375,000				—				—
Vicki T. Ruth240			105,900				105,900				—				—
Vincent Vazquez241			174,000				174,000				—				—

														Percentage of
														Common Stock
		Shares of								Shares of Common				Outstanding
		Common Stock				Shares of				Stock Owned				Upon
		Owned Before the				Common Stock				Upon Completion				Completion of
		Offering				Being Offered				of the Offering (a)				Offering
W. Kirk Bosché 242			3,308,877				126,000				3,182,877				5.3	%
Wayne C. Fox243			15,000				15,000				—				—
Wayne Hucik244			62,500				62,500				—				—
Weitzman Living Trust245			75,000				75,000				—				—
Whalehaven Capital Fund Limited246			200,000				200,000				—				—
William E. Grose247			26,666				26,666				—				—
William F. Burkart248			53,000				53,000				—				—
William L. Benson249			18,000				18,000				—				—
William Lowe250			499,970				499,970				—				—
William Sockman251			16,650				16,650				—				—
Y&S Nazarian Revocable Trust252			1,249,999				1,249,999				—				—
Yarek Bartosz253			62,500				62,500				—				—
Yellowstone Limited Partnership254			75,000				75,000				—				—
Meridian Global Energy & Resources Fund LT 255			33,333				33,333				—				—
E. Paul Jansen256			7,500				7,500				—				—
TARH E&P Holdings, L.P.			1,691,186				1,691,186				—				—