-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GQUAPyo8pQiTXAtundQo4BGojnv+2CPcNXa0E4x6TEgHt7uzEJeaciPi2iHLTYVu FU73k+kee3HtqzbmafOIlw== 0001015402-03-000955.txt : 20030331 0001015402-03-000955.hdr.sgml : 20030331 20030331120311 ACCESSION NUMBER: 0001015402-03-000955 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20021231 FILED AS OF DATE: 20030331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HOUSTON AMERICAN ENERGY CORP CENTRAL INDEX KEY: 0001156041 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 760675953 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB SEC ACT: 1934 Act SEC FILE NUMBER: 333-66638 FILM NUMBER: 03628217 BUSINESS ADDRESS: STREET 1: 801 TRAVIS STREET, SUITE 2020 CITY: HOUSTON STATE: TX ZIP: 77002 BUSINESS PHONE: 7132226966 MAIL ADDRESS: STREET 1: 801 TRAVIS STREET SUITE 2020 CITY: HOUSTON STATE: TX ZIP: 77002 10KSB 1 doc1.txt U.S. Securities and Exchange Commission Washington, D.C. 20549 FORM 10-KSB [X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2002. [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______ to ________ Commission file number: ____________ HOUSTON AMERICAN ENERGY CORP. (Name of small business issuer in its charter) Delaware 76-0675953 (State or other jurisdiction (I.R.S. of incorporation or organization) Employer Identification No.) 801 Travis Street, Suite 2020, Houston, Texas 77002 (Address of principal executive offices) (Zip Code) Issuer's telephone number, including area code: (713) 222-6966 Securities registered under Section 12(b) of the Exchange Act: None. Securities registered under Section 12(g) of the Exchange Act: Common Stock, Par Value $0.001 Per Share (Title of class) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [X] Issuer's revenues for the fiscal year ended December 31, 2002 were $25,805. As of March 20, 2003, the aggregate market value of the registrant's common stock (based on the closing sales price for the common stock as reported on the OTC Bulletin Board on such date) held by non-affiliates of the registrant was approximately $1,534,944. Aggregate market value has been estimated solely for the purpose of this report. For the purpose of this report it has been assumed that all officers and directors are affiliates of the registrant. The statements made herein shall not be construed as an admission for the purposes of determining the affiliate status of any person. As of March 20, 2003, the registrant had a total of 14,508,217 shares of common stock issued and outstanding. Transitional Small Business Disclosure Format (check one): Yes NoX - Documents incorporated by reference: None. 1 Forward-Looking Information This annual report on Form 10-KSB of Houston American Energy Corp., a Delaware corporation, for the year ended December 31, 2002, contains certain 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, which are intended to be covered by the safe harbors created thereby. To the extent that such statements are not recitations of historical fact, such statements constitute forward-looking statements that, by definition, involve risks and uncertainties. In any forward-looking statement, where we express an expectation or belief as to future results or events, such expectation or belief is expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the statement of expectation or belief will be achieved or accomplished. The following are factors that could cause actual results or events to differ materially from those anticipated, and include, but are not limited to: general economic, financial and business conditions; our ability to minimize expenses and exposures related to its oil and gas properties in which other companies have control over the operations conducted on such properties; changes in and compliance with governmental laws and regulations, including various state and federal environmental regulations; our current dependency on John F. Terwilliger, our sole director and executive officer, to continue funding our operations and, to the extent he should ever become unwilling to do so, our ability to obtain additional necessary financing to obtain additional financing from outside investors and/or bank and mezzanine lenders; and our ability to generate sufficient revenues to cover operating losses and position us to achieve positive cash flow. Readers are cautioned not to place undue reliance on the forward-looking statements contained herein, which speak only as of the date hereof. We believe the information contained in this report to be accurate as of the date hereof. Changes may occur after that date, and we will not update that information except as required by law in the normal course of its public disclosure practices. 2
TABLE OF CONTENTS PART I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Item 1. Description of Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Item 2. Description of Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Item 4. Submission of Matters to a Vote of Security Holders. . . . . . . . . . . . . . . . . 9 PART II. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Item 5. Market for Common Equity and Related Stockholder Matters . . . . . . . . . . . . . . 9 Item 6. Management's Discussion and Analysis or Plan of Operation. . . . . . . . . . . . . . 9 Item 7. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 10 PART III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Item 9. Directors and Executive Officers. . . . . . . . . . . . . . . . . . . . . . . . . . 10 Item 10. Executive Compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Item 11. Security Ownership of Certain Beneficial Owners and Management. . . . . . . . . . . 11 Item 12. Certain Relationships and Related Transactions. . . . . . . . . . . . . . . . . . . 11 Item 13. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . . . . . . . . . . . 12 Item 14. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3 PART I ITEM 1. DESCRIPTION OF BUSINESS CURRENT STRATEGY Houston American Energy Corp. is an oil and gas exploration and production company. In addition to seeking out oil and gas prospects using advanced seismic techniques, we utilize the contacts of John F. Terwilliger, our sole director and executive officer, to identify potential acquisition targets in the Onshore Texas Gulf Coast Region of the State of Texas, where Mr. Terwilliger has been involved in oil and gas exploration and production activities since 1983. Further, we have through an interest in a limited liability company, interests in two concessions in the South American country of Colombia. As a result, we expect to be active in Colombia for the foreseeable future. Moreover, as well as our own drilling activities and acquisition strategy, we may also encourage others in the oil and gas industry to enter into partnerships or joint ventures with us for the purpose of acquiring properties and conducting drilling and exploration activities. EXPLORATION AND DEVELOPMENT ACTIVITIES Our exploration and development activities focus on the identification and drilling of new productive wells and the acquisition of existing producing wells from other producers. We will be developing our interests in Colombia through both exploratory and development drilling. DRILLING ACTIVITIES From December 31, 2001 through March 20, 2003, we drilled four wells and completed two gross wells (0.004 net wells) and are currently completing a third gross well (0.035 net well). The two completed wells are awaiting pipeline hookup and production facilities in order to go into production. We expect to drill two wells on our existing leaseholds in Jackson and Lavaca Counties in Texas in 2003. On one of our concession interests in Colombia in South America, we expect to drill one more well in 2003. Currently, we are acquiring 3D seismic data covering a part of our other concession interests in Colombia, and we believe this will result in two more wells to be drilled in 2003. We are engaged in generating additional drilling prospects in 2003 on the Texas Gulf Coast which may result in the drilling of additional wells. The following table summarizes our development drilling activity for the period from January 1, 2002 through March 25, 2003. There is no correlation between the number of productive wells completed during any period and the aggregate reserves attributable to those wells. With respect to the productive wells, one well is an oil well and two wells are natural gas wells. TOTAL PRODUCTIVE DRY ----- ---------- --- DRILLED NET DRILLED NET DRILLED NET ------- ---- ------- ----- ------- ----- 4 0.20 3 0.075 1 0.125 A "gross well" is a well in which we own a working interest. A "net well" is deemed to exist when the sum of the fractional working interests in gross wells equals one. MARKETING We market substantially all of the gas we produce to Kinder Morgan Pipeline, Inc., pursuant to a gas purchase agreement we entered into with respect to the Kalmus No. 1 well. The agreement requires us to sell all of the gas we produce from this well to the purchaser at fluctuating prices, which are based on a monthly gas index. Our oil production from our Tambaqui No. 1 well in Colombia is sold on international spot markets. 4 PRODUCTION The Kalmus No. 1 well, in which we own a 0.20 working interest and a 0.14965 net revenue interest, from January 1, 2002 through January 31, 2003 has produced a total of 70,194 Mcf, or thousand cubic feet, of gas. After netting gas used for lease compression and gas attributed to line loss, 66,852 Mcf of gas produced from the well was sold, which represents approximately 10,008.10 net Mcf to Houston American based on our ownership interest in the well. The gas produced from the well from January 1, 2002 through January 31, 2003 was sold at an average price of approximately $3.09 per Mcf, which resulted in total revenues of approximately $29,462.84 after deducting production taxes to Houston American based on our net revenue interest in the well. RESERVES We obtained an independent reserve report of our producing wells as of December 31, 2002, which indicated that there was an impairment of the oil and gas properties. As a result, we wrote down the value of our properties by $109,573 to the present value of the estimated recoverable amount of oil and gas. At December 31, 2002, our estimated reserves included 18,872 Mcf of gas and no oil. The write down of $109,573 is included in our losses of $1,327,004 through December 31, 2002. Our business strategy requires us to develop reserves through the acquisition of proved natural gas and oil properties, further development of our existing properties, and exploration activities. We expect to continue incurring costs to acquire, explore and develop oil and gas properties, and our management predicts that these costs, together with general and administrative expenses, will exceed our revenues. It is anticipated that the source of funds to carry out exploration and development will come from a combination of our production revenues, sales of our securities, and funds from other sources. We periodically review the carrying value of our natural gas and oil properties under the full cost accounting rules of the SEC. Under these rules, capitalized costs of proved natural gas and oil properties may not exceed the present value of estimated future net revenues from proved reserves, discounted at an annual rate of 10 percent. Application of this "ceiling" test requires pricing future revenue at the unescalated prices in effect as of the end of each fiscal quarter and requires a write down for accounting purposes if the ceiling is exceeded, even if prices were depressed for only a short period of time. In the future, we may be required to further write down the carrying value of our natural gas and oil properties when natural gas and oil prices are depressed or unusually volatile, which would result in a charge against our earnings. Once incurred, a write down of the carrying value of our natural gas and oil properties is not reversible at a later date. RISKS RELATED TO OUR OIL AND GAS OPERATIONS Operational Hazards and Insurance. Our development, exploitation and exploration activities may be unsuccessful for many reasons, including weather, cost overruns, equipment shortages and mechanical difficulties. Moreover, the successful drilling of a natural gas and oil well does not ensure a profit on investment. A variety of factors, both geological and market related can cause a well to become uneconomical or only marginally profitable. Our business involves a variety of operating risks which may adversely affect our profitability, including: - fires; - explosions; - blow-outs and surface cratering; - uncontrollable flows of oil, natural gas, and formation water; - natural disasters, such as hurricanes and other adverse weather conditions; - pipe, cement, or pipeline failures; 5 - casing collapses; - embedded oil field drilling and service tools; - abnormally pressured formations; and - environmental hazards, such as natural gas leaks, oil spills, pipeline ruptures and discharges of toxic gases. In accordance with industry practice, our insurance protects us against some, but not all, operational risks. Further, we do not carry business interruption insurance at levels that would provide enough cash for us to continue operating without access to additional funds. As pollution and environmental risks generally are not fully insurable, our insurance may be inadequate to cover any losses or exposure for such liability. Volatility of Oil and Gas Prices. As an independent oil and gas producer, our revenue, profitability and future rate of growth are substantially dependent upon the prevailing prices of, and demand for, natural gas, oil, and condensate. Our realized profits affect the amount of cash flow available for capital expenditures. Our ability to maintain or increase our borrowing capacity and to obtain additional capital on attractive terms is also substantially dependent upon oil and gas prices. Prices for oil and natural gas are subject to wide fluctuation in response to relatively minor changes in the supply of, and demand for, oil and gas, market uncertainty and a variety of additional factors that are beyond Houston American's control. Among the factors that can cause the volatility of oil and gas prices are: - worldwide or regional demand for energy, which is affected by economic conditions; - the domestic and foreign supply of natural gas and oil; - weather conditions; - domestic and foreign governmental regulations; - political conditions in natural gas and oil producing regions; - the ability of members of the Organization of Petroleum Exporting Countries to agree upon and maintain oil prices and production levels; and - the price and availability of other fuels. OPERATIONS IN COLOMBIA As described elsewhere in this report, we currently have interests in two concessions in the South American country of Colombia and expect to be active in Colombia for the foreseeable future. The political climate in Colombia is unstable and could be subject to radical change over a very short period of time. In the event of a significant negative change in political and economic stability in the vicinity of our Colombian operations, we may be forced to abandon or suspend our efforts. Either of such events could be harmful to our expected business prospects. COMPETITION Competition in the oil and gas industry is intense and we compete with major and other independent oil and gas companies with respect to the acquisition of producing properties and proved undeveloped acreage. Our competitors actively bid for desirable oil and gas properties, as well as for the equipment and labor required to operate and develop the properties. Many of those competitors, however, have financial resources and exploration and development budgets that are substantially greater than ours and may be able to absorb the burden of any changes in federal, state and local laws and regulations more easily than we can do so, which would adversely affect our competitive position. These competitors may be able to pay more for natural gas 6 and oil properties and may be able to define, evaluate, bid for and purchase a greater number of properties than we can. Our ability to acquire additional properties and develop new and existing properties in the future will depend on our capability to conduct operations, to evaluate and select suitable properties and to consummate transactions in this highly competitive environment. GOVERNMENTAL REGULATION Our business and the oil and gas industry in general are subject to extensive laws and regulations, including environmental laws and regulations. As such, we may be required to make large expenditures to comply with environmental and other governmental regulations. State and federal regulations, including those enforced by the Texas Railroad Commission as the primary regulator of the oil and gas industry in the State of Texas, are generally intended to prevent waste of oil and gas, protect rights to produce oil and gas between owners in a common reservoir and control contamination of the environment. Matters subject to regulation in the State of Texas include: - location and density of wells; - the handling of drilling fluids and obtaining discharge permits for drilling operations; - accounting for and payment of royalties on production from state, federal and Indian lands; - bonds for ownership, development and production of natural gas and oil properties; - transportation of natural gas and oil by pipelines; - operation of wells and reports concerning operations; and - taxation. Under these laws and regulations, we could be liable for personal injuries, property damage, oil spills, discharge of hazardous materials, remediation and clean-up costs and other environmental damages. Failure to comply with these laws and regulations also may result in the suspension or termination of our operations and subject us to administrative, civil and criminal penalties. Moreover, these laws and regulations could change in ways that substantially increase our operating costs. Natural gas operations are subject to various types of regulation at the federal, state and local levels. Prior to commencing drilling activities for a well, we are required to procure permits and/or approvals for the various stages of the drilling process from the applicable state and local agencies. Permits and approvals include those for the drilling of wells, and regulations including maintaining bonding requirements in order to drill or operate wells and the location of wells, the method of drilling and casing wells, the surface use and restoration of properties on which wells are drilled, the plugging and abandoning of wells, and the disposal of fluids used in connection with operations. Our operations are also subject to various conservation laws and regulations. These include the regulation of the size of drilling and spacing units and the density of wells, which may be drilled and the unitization or pooling of natural gas properties. In this regard, some states allow the forced pooling or integration of tracts to facilitate exploration while other states rely primarily or exclusively on voluntary pooling of lands and leases. In areas where pooling is voluntary, it may be more difficult to form units, and therefore, more difficult to develop a project if the operator owns less than 100 percent of the leasehold. Regulation of Sales and Transportation of Natural Gas. Historically, the transportation and resale of natural gas in interstate commerce have been regulated by the Natural Gas Act of 1938, the Natural Gas Policy Act of 1978, and the regulations promulgated by the Federal Energy Regulatory Commission. Maximum selling prices of some categories of natural gas sold in "first sales," whether sold in interstate or intrastate commerce, were regulated under the NGPA. The Natural Gas Well Head Decontrol Act removed, as of January 1, 1993, all remaining federal price controls from natural gas sold in "first sales" on or after that date. FERC's jurisdiction over natural gas transportation was unaffected by the Decontrol Act. While sales by producers of natural gas and all sales of crude oil, condensate and natural gas liquids can currently be made at market prices, Congress could reenact price controls in the future. 7 Sales of natural gas are affected by the availability, terms and cost of transportation. The price and terms for access to pipeline transportation are subject to extensive regulation. In recent years, FERC has undertaken various initiatives to increase competition within the natural gas industry. As a result of initiatives like FERC Order No. 636, issued in April 1992, the interstate natural gas transportation and marketing system has been substantially restructured to remove various barriers and practices that historically limited non-pipeline natural gas sellers, including producers, from effectively competing with interstate pipelines for sales to local distribution companies and large industrial and commercial customers. The most significant provisions of Order No. 636 require that interstate pipelines provide transportation separate or "unbundled" from their sales service, and require that pipelines make available firm and interruptible transportation service on an open access basis that is equal for all natural gas suppliers. In many instances, the result of Order No. 636 and related initiatives has been to substantially reduce or eliminate the interstate pipelines' traditional role as wholesalers of natural gas in favor of providing only storage and transportation services. Another effect of regulatory restructuring is the greater transportation access available on interstate pipelines. In some cases, producers and marketers have benefited from this availability. However, competition among suppliers has greatly increased and traditional long-term producer pipeline contracts are rare. Furthermore, gathering facilities of interstate pipelines are no longer regulated by FERC, thus allowing gatherers to change higher gathering rates. Environmental Regulations. Our operations are subject to additional laws and regulations governing the discharge of materials into the environment or otherwise relating to environmental protection. Public interest in the protection of the environment has increased dramatically in recent years. It appears that the trend of more expansive and stricter environmental legislation and regulations will continue. We generate wastes that may be subject to the Federal Resource Conservation and Recovery Act ("RCRA") and comparable state statutes, which have limited the approved methods of disposal for some hazardous wastes. Additional wastes may be designated as "hazardous wastes" in the future, and therefore become subject to more rigorous and costly operating and disposal requirements. Although management believes that we utilize good operating and waste disposal practices, prior owners and operators of our properties may not have done so, and hydrocarbons or other wastes may have been disposed of or released on or under the properties owned or leased by us or on or under locations where wastes have been taken for disposal. These properties and the wastes disposed on the properties may be subject to the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), RCRA and analogous state laws, which require the removal and remediation of previously disposed wastes, including waste disposed of or released by prior owners or operators. CERCLA and similar state laws impose liability, without regard to fault or the legality of the original conduct, on some classes of persons that are considered to have contributed to the release of a "hazardous substance" into the environment. These persons include the owner or operator of the disposal site or sites where the release occurred and companies that disposed of or arranged for the disposal of the hazardous substances found at the site. Persons who are or were responsible for release of hazardous substances under CERCLA may be subject to joint and several liability for the costs of cleaning up the hazardous substances that have been released into the environment and for damages to natural resources, and it is not uncommon for neighboring landowners and other third parties to file claims for personal injury and property damage allegedly caused by the hazardous substances released into the environment. EMPLOYEES As of March 20, 2003, we had one full-time employee and no part time employees. The employee is not covered by a collective bargaining agreement, and we do not anticipate that any of our future employees will be covered by such agreement. If our operations continue to grow as expected, we anticipate hiring as many as three additional employees over the next six to eight months. 8 ITEM 2. DESCRIPTION OF PROPERTY As of March 20, 2003, we had leasehold interests in four oil and gas properties in Lavaca County, Texas, which represent a total of 230.0 gross and 19.75 net developed acres and 45.25 gross and 45.25 net undeveloped acres. In Jackson County, Texas we have 80 gross and 80 net undeveloped acres and no developed acres. In Colombia, we have 317,080 gross and 14,519.80 net undeveloped acres and 320 gross and 22.4 net developed acres. A "gross acre" is an acre in which a working interest is owned. The number of gross acres represents the sum of acres in which a working interest is owned. A "net acre" is deemed to exist when the sum of the fractional working interests in gross acres equals one. The number of net acres is the sum of the fractional working interests in gross acres expressed in whole numbers or fractions. We currently lease approximately 2,000 square feet of office space in Houston, Texas as our executive offices. Management anticipates that our space will be sufficient for the foreseeable future. The monthly rental under the lease, which expires on November 30, 2006, is $3,302.59. ITEM 3. LEGAL PROCEEDINGS As of March 20, 2003, we are not involved in any legal proceedings. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Since January 22, 2002, our common stock has been listed on the OTC Bulletin Board under the symbol "HUSA." During the period from January 22, 2002 through March 20, 2003, the high and low bid prices for our common stock were $0.75 and $0.10, respectively. The foregoing quotations of the high and low bid price of our common stock reflect inter-dealer prices, without retail markup, markdown or commission and may not represent actual transactions. As of the close of business on February 28, 2003, our outstanding common stock was held by approximately 1,006 beneficial holders of record. We have never paid dividends on our common stock. Since we anticipate that all of our future earnings will be retained for the development of our business, we do not expect to pay any cash dividends in the foreseeable future. Any actual payment of future dividends will be at the discretion of our board of directors and will be based on our future earnings, financial condition, capital requirements and other relevant factors. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS The following discussion regarding our financial condition and results of operations should be read in conjunction with the financial statements and related notes contained in this report. RESULTS OF OPERATIONS Since inception on April 2, 2001 to December 31, 2002, we have incurred an operating loss of $1,327,004 which included a write down in the value of our oil and gas properties of $574,331 as a result of the findings of an independent reserve report conducted as of December 31, 2001 and a write down of $109,573 as of December 31, 2002. Our revenues during that period were approximately $40,619 and our total expenses were $683,719, excluding the amount of the write down. The total expenses of $683,719 included $256,470 of nonrecurring expenses related to our formation and the process of taking us public. 9 LIQUIDITY AND CAPITAL RESOURCES Management anticipates that our current financing arrangements will meet our anticipated objectives and business operations for the next 12 months. For that period, we anticipate that our share of the costs associated with our anticipated drilling program will be about $350,000. Additionally, our management is currently evaluating several producing property acquisitions as well as several drilling prospects. Over the next few months, we expect to enter into definitive agreements on one or more of these projects, subject to our ability to obtain adequate financing at that time. As discussed by our accountants in the audited financial statements included in this report, our revenue is currently insufficient to cover our costs and expenses. In addition to the income received from our wells, John F. Terwilliger, our sole director and executive officer, continues to loan us the funds needed to finance our ongoing operations. To the extent our revenue shortfall exceeds Mr. Terwilliger's willingness and ability to keep on loaning us the funds needed for our operations, we anticipate raising any necessary capital from outside investors coupled with banks or mezzanine lenders. As of March 20, 2003, we have not entered into any negotiations with any third parties to provide such capital. ITEM 7. FINANCIAL STATEMENTS Our financial statements are set forth immediately following the signature page of this report. ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT DIRECTORS AND EXECUTIVE OFFICERS John F. Terwilliger, age 55, is our sole director and executive officer. Mr. Terwilliger has been our president, secretary and treasurer since our inception in April 2001. Since 1988, Mr. Terwilliger has served as the chairman of the board and president of Moose Oil & Gas Company, and its wholly-owned subsidiary, Moose Operating Co., Inc., both Houston, Texas based companies. Prior to 1988, Mr. Terwilliger was the chairman of the board and president of Cambridge Oil Company, a Houston, Texas based oil exploration and production company. Mr. Terwilliger served in the United States Army, receiving his honorable discharge in 1969. On April 9, 2002, Moose Oil & Gas Company and its wholly-owned subsidiary, Moose Operating Co., Inc., filed a bankruptcy petition under Chapter 7 of the United States Bankruptcy Code in Cause No. 02-33891-H507: 02-22892, in the United States District Court for the Southern District of Texas, Houston Division. At the time of the filing of the bankruptcy petition, Mr. Terwilliger was the chairman of the board and president of both Moose Oil & Gas Company and Moose Operating Co., Inc. Mr. Terwilliger resigned those positions on April 9, 2002. Although, on the date of this report we have only one director, our board of directors is divided into three classes, each elected for staggered three-year terms. Mr. Terwilliger, our only director, is a Class C director. His term is scheduled to expire at the third annual meeting following the end of our 2001 fiscal year. Our executive officers are elected by our board of directors and serve terms of one year or until their death, resignation or removal by the board of directors. SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING REQUIREMENTS Based upon a review of filings with the SEC and written representations that no other reports were required, we believe that Mr. Terwilliger, our sole director and executive officer, and O. Lee Tawes, a principal stockholder, 10 complied with the reporting requirements of Section 16(a) of the Securities Exchange Act of 1934, as amended, during 2002. ITEM 10. EXECUTIVE COMPENSATION During the period from our inception on April 1, 2001 through March 20, 2003, Mr. Terwilliger has not received a salary or any other compensation for the services he has provided to us. We do not compensate our directors for serving in such capacity. As of March 20, 2003, we have not issued any options or warrants to purchase shares of our common stock. ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth certain information regarding the beneficial ownership of our issued and outstanding common stock as of March 20, 2003, by (i) each person or entity known to beneficially own more than five percent of our common stock, and (ii) John F. Terwilliger, our sole director and executive officer.
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES BEN EFICIALLY - ---------------------------------------------------- ---------- ----------- OWN ED (3) ---------- ----------- NUMBER PERCENT (4) ---------- ----------- John F. Terwilliger (1). . . . . . . . . . . . . . . 7,470,695 51.49 Orrie Lee Tawes (2). . . . . . . . . . . . . . . . . 2,651,968 18.28 All directors and officers as a group (one person) 7,470,695 51.49 __________ (1) Mr. Terwilliger's address is c/o Houston American Energy Corp., 801 Travis, Suite 2020, Houston, Texas 77002. (2) Mr. Tawes' address is c/o O. Lee Tawes III, C.E. Unterberg Towbin, 350 Madison Avenue, 8th Floor, New York, New York 10017. (3) Beneficial ownership is determined in accordance with the rules of the SEC. (4) Based on 14,508,217 shares of our common stock outstanding as of March 20, 2003.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Our oil and gas properties were purchased, at cost, from Moose Oil & Gas Company, a Texas corporation and an affiliate of John F. Terwilliger, our sole director and executive officer. As payment for the properties, we issued Moose Oil & Gas a promissory note in the amount of $216,981, which, as discussed below, was paid in July 2001. On April 6, 2001, we entered into an Operating Agreement with Moose Operating Co., Inc., a Texas corporation and a subsidiary of Moose Oil & Gas. Under the terms of the Operating Agreement, Moose Operating has full control over the drilling activities to be conducted on our current leaseholds in Lavaca County, Texas. Although Moose Operating is initially responsible for the payment of all costs associated with development and operation, we, along with Moose Oil & Gas, is ultimately responsible for our proportionate share of the costs based on our respective working interests. In order to secure repayment of the operating costs, the Operating Agreement grants Moose Operating a security interest in our proportionate share of the oil or gas produced from any wells. In addition to being entitled to utilize and receive payment for the use of our own equipment and labor in conducting the operations, the Operating Agreement entitles Moose Operating to receive monthly fixed overhead payments of $4,500 per well being drilled and $500 per producing well. The monthly fixed overhead payments to Moose Operating were determined based on competitive rates. In July, 2001, we borrowed approximately $664,000 from John F. Terwilliger, our sole director and executive officer. The notes bear interest at a rate of 10 percent per annum and are due on demand. Our payment of the notes is secured by our interests in our oil and gas properties. Should we fail to make any required payment or otherwise default on the note, Mr. Terwilliger would have the right to foreclose on our interests in our oil and gas properties. 11 We utilized a portion of the funds borrowed from Mr. Terwilliger to pay the principal and accrued interest on the $216,981 promissory note that was payable to Moose Oil & Gas Company upon the purchase of our oil and gas properties, and to repay Moose Operating for the operating expenses and drilling and completing costs it had advanced on our behalf pursuant to the Operating Agreement. The bankruptcy proceedings involving Moose Oil & Gas Company and Moose Operating Co., Inc. are not expected to have any effect on their obligations with respect to Operating Agreement. As of December 31, 2002, we borrowed $1,128,522.63 from Mr. Terwilliger. The note, which bears interest at a rate of 10 percent per annum, is due on demand and is unsecured. ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits.
EXHIBIT NO. IDENTIFICATION OF EXHIBIT - ----------- ----------------------------------------------------------------------------------------------- 2.1** Amended and Restated Plan and Agreement of Merger dated as of September 26, 2001, between Texas Nevada Oil & Gas Co. and Houston American Energy Corp. (incorporated by reference to Exhibit 2.1 to Amendment No. 5 to our Registration Statement on Form SB-2, registration number 333-66638 (the "Company's Registration Statement"), filed with the SEC on November 30, 2001). 3.1** Certificate of Incorporation of Houston American Energy Corp. filed April 2, 2001 (incorporated by reference to Exhibit 3.1 to our Registration Statement filed with the SEC on August 3, 2001). 3.2** Certificate of Merger Merging Opportunity Acquisition Company with and into Houston American Energy Corp. filed April 12, 2001 (incorporated by reference to Exhibit 3.2 to our Registration Statement filed with the SEC on August 3, 2001). 3.3** Bylaws of Houston American Energy Corp. adopted April 2, 2001 (incorporated by reference to Exhibit 3.3 to our Registration Statement filed with the SEC on August 3, 2001). 3.4** Certificate of Amendment to the Certificate of Incorporation of Houston American Energy Corp. filed September 25, 2001 (incorporated by reference to Exhibit 3.4 to Amendment No. 1 to our Registration Statement filed with the SEC on October 1, 2001). 3.5** Certificate of Merger Merging Texas Nevada Oil & Gas Co. with and into Houston American Energy Corp. filed January 17, 2002. 4.1** Text of Common Stock Certificate of Houston American Energy Corp. (incorporated by reference to Exhibit 4.1 to our Registration Statement filed with the SEC on August 3, 2001). 4.2** Text of Preferred Stock Certificate of Houston American Energy Corp. (incorporated by reference to Exhibit 4.2 to our Registration Statement filed with the SEC on August 3, 2001). 10.1** Model Form Operating Agreement dated April 6, 2001, between Moose Operating Co., Inc. and Houston American Energy Corp. (incorporated by reference to Exhibit 10.1 to our Registration Statement filed with the SEC on August 3, 2001). 10.2** Agreement to Assign Interests in Oil and Gas Leases dated as of April 6, 2001, between Moose Oil & Gas Company and Houston American Energy Corp. (incorporated by reference to Exhibit 10.2 to our Registration Statement filed with the SEC on August 3, 2001). 10.3** Assignment of Interests in Oil and Gas Leases and Bill of Sale effective as of April 6, 2001, between Moose Oil & Gas Company and Houston American Energy Corp. (incorporated by reference to Exhibit 10.3 to our Registration Statement filed with the SEC on August 3, 2001). 10.4** Promissory Note of Houston American Energy Corp. in the amount of $216,981.06 dated April 15, 2001, payable to Moose Oil & Gas Company (incorporated by reference to Exhibit 10.4 to our Registration Statement filed with the SEC on August 3, 2001). 10.5** Plan and Agreement of Merger dated as of April 12, 2001, between Opportunity Acquisition Company and Houston American Energy Corp. (incorporated by reference to Exhibit 10.5 to our Registration Statement filed with the SEC on August 3, 2001). 12 10.6** Agreement dated as of March 23, 2001, between Unicorp, Inc., Equitable Assets, Incorporated, Texas Nevada Oil & Gas Co. and Opportunity Acquisition Company (incorporated by reference to Exhibit 10.6 to our Registration Statement filed with the SEC on August 3, 2001). 10.7** First Amendment of Agreement dated as of July 31, 2001, between Unicorp, Inc., Equitable Assets, Incorporated, Texas Nevada Oil & Gas Co. and Houston American Energy Corp. (incorporated by reference to Exhibit 10.7 to our Registration Statement filed with the SEC on August 3, 2001). 10.8** Gas Purchase Contract #36-1599 dated as of May 1, 2001, between Kinder Morgan Texas Pipeline, L.P. and Moose Operating Co., Inc. (incorporated by reference to Exhibit 10.8 to Amendment No. 1 to our Registration Statement filed with the SEC on October 1, 2001). 10.9** Gas Purchase Agreement dated July 31, 1997, between Dominion Pipeline Company (as predecessor-in-interest to Pinnacle Natural Gas Co.) and Moose Operating Co., Inc. (incorporated by reference to Exhibit 10.9 to Amendment No. 1 to our Registration Statement filed with the SEC on October 1, 2001). 10.10** Model Form Operating Agreement dated December 11, 1997, between Louis Dreyfus Natural Gas Corp., Seisgen Exploration, Inc. and Moose Operating Co., Inc. (incorporated by reference to Exhibit 10.10 to Amendment No. 1 to our Registration Statement filed with the SEC on October 1, 2001). 10.11** Promissory Note of Houston American Energy Corp. in the amount of $390,000 dated July 2, 2001, payable to John F. Terwilliger (incorporated by reference to Exhibit 10.11 to Amendment No. 4 to our Registration Statement filed with the SEC on November 21, 2001). 10.12** Promissory Note of Houston American Energy Corp. in the amount of $285,000 dated July 30, 2001, payable to John F. Terwilliger (incorporated by reference to Exhibit 10.12 to Amendment No. 4 to our Registration Statement filed with the SEC on November 21, 2001). 10.13** Exchange Agreement executed on July 19, 2002 between the registrant and Millennium Seismic, Inc. (incorporated by reference as Exhibit 2.1 to Form 8-K filed with the SEC on July 23, 2002). 10.14** License Agreement executed on July 19, 2002 between the registrant and Millennium Seismic, Inc. (incorporated by reference as Exhibit 2.2 to Form 8-K filed with the SEC on July 23, 2002). 10.15** Warrant Agreement executed on July 19, 2002 between the registrant and Millennium Seismic, Inc. (incorporated by reference as Exhibit 2.3 to Form 8-K filed with the SEC on July 23, 2002). 10.16** Registration Rights Agreement executed on July 19, 2002 between the registrant and Millennium Seismic, Inc. (incorporated by reference as Exhibit 2.4 to Form 8-K filed with the SEC on July 23, 2002). 10.17** Assignment of Term Royalty Agreement executed on July 18, 2002 by Marlin Data Research, Inc. (incorporated by reference as Exhibit 2.5 to Form 8-K filed with the SEC on July 23, 2002). 10.18** Bill of Sale executed on July 18, 2002 by Marlin Data Research, Inc. and the registrant (incorporated by reference as Exhibit 2.6 to Form 8-K filed with the SEC on July 23, 2002). 10.19** Agreement between the registrant and Rio Exploration Company dated January 15, 2003, (incorporated by reference as Exhibit 10.1 to Form 8-K filed with the SEC on February 12, 2002). 10.20* Compromise Settlement Agreement and Complete Release of All Lawsuits by and between Millennium Seismic, Inc. and Houston American Energy Corp. and John F. Terwilliger. 10.21* Promissory Note of Houston American Energy Corp. in the amount of $1,128,522.63 dated December 31, 2002, payable to John F. Terwilliger. 99.1* Certification of John F. Terwilliger, chief executive officer, pursuant to 18 U.S.C. Subsection 1350 as adopted pursuant to Subsection 906 of the Sarbanes-Oxley Act of 2002. 99.2* Certification of John F. Terwilliger, chief financial officer, pursuant to 18 U.S.C. Subsection 1350 as adopted pursuant to Subsection 906 of the Sarbanes-Oxley Act of 2002. __________ * Filed herewith. ** Incorporated herein as indicated.
13 (b) Reports on Form 8-K. 1. Texas Nevada Oil & Gas Co., a Texas corporation, which merged with and into Houston American Energy Corp. on January 22, 2002, filed a report on Form 8-K on November 16, 2001, related to the Amended and Restated Plan and Agreement of Merger the companies entered into as of September 26, 2001, a copy of which was attached as an exhibit to the Form 8-K. Financial statements were not required to be filed in connection with the Form 8-K. 2. On July 23, 2002, the registrant filed a report on Form 8-K related to an Exchange Agreement executed on July 19, 2002 between the registrant and Millennium Seismic, Inc., whereby Millennium acquired 1,000,000 shares of the registrant's common stock in exchange for Millennium's issuance to the registrant of a no fee License Agreement for Use of Proprietary Data relating to the registrant's utilization of Millennium's seismic data. 3. On September 30, 2002, the registrant filed a report on Form 8-K related to a petition filed on September 20, 2002 in the district courts of Harris County, Texas by Millennium Seismic, Inc. filed against the registrant and John F. Terwilliger, the registrant's sole director and executive officer. The filing of the petition relates to the agreements Millennium and the Registrant entered into on July 19, 2002. 4. On February 12, 2003, the registrant filed a report on Form 8-K related to the agreement between the registrant and Rio Exploration Company dated January 15, 2003 whereby the registrant acquired from Rio a 12.5 percent interest of 100 percent interest in Hupecol, LLC, a Texas limited liability company, and the Tambaqui Association Contract composed of 36,000 hectares, more or less, and to be known as the Tambaqui Association Contract issued by ECOPETROL and the State of Casanare, Colombia. Financial statements were not required to be filed in connection with the Form 8-K. ITEM 14. CONTROLS AND PROCEDURES EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES The registrant's chief executive officer and chief financial officer have evaluated our disclosure controls and procedures as of March 20, 2003, and they have concluded that these controls and procedures are effective. CHANGES IN INTERNAL CONTROLS There are no significant changes in internal controls or in other factors that could significantly affect these controls subsequent to March 20, 2003. INTENTIONALLY LEFT BLANK 14 SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. HOUSTON AMERICAN ENERGY CORP. Dated March 28, 2003 By /s/ John F. Terwilliger ---------------------------- John F. Terwilliger, President In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
Name Signature Title Date - ------------------- ----------------------- ----------------------- -------------- John F. Terwilliger /s/ John F. Terwilliger Director, President, March 28, 2003 Treasurer and Secretary
15
INDEX TO FINANCIAL STATEMENTS Independent Auditor's Report. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2 Balance Sheet as of December 31, 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-3 Statement of Loss From April 2, 2001 (Date of Inception) to December 31, 2002 . . . . . . . . F-4 Statement of Shareholders' Deficit Accumulated in Development Stage From April 2, 2001 (Date of Inception) to December 31, 2002 . . . . . . . . . . . . . . . . . F-5 Statement of Cash Flows Unaudited From April 2, 2001 (Date of Inception) to December 31, 2002 F-6 Notes to the Financial Statements From April 2, 2001 (Date of Inception) to December 31, 2002 F-7
F-1 HOUSTON AMERICAN ENERGY CORP. A DEVELOPMENT STAGE COMPANY INDEPENDENT AUDITOR'S REPORT We have audited the accompanying balance sheet of Houston American Energy Corp. (a development stage company) as of December 31, 2002 and the related statements of loss, shareholders' deficit, and cash flows for the year December 31, 2002, for the period from April 2, 2001 (date of inception), to December 31, 2001 and for the period from April 2, 2001 (date of inception), to December 31, 2002. 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 audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit 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 over-all financial statement presentation. We believe that our audit provides 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 Houston American Energy Corp. as of December 31, 2002, and the results of its operations and its cash flows for the year December 31, 2002 and for the period from April 2, 2001 (date of inception) to December 31, 2001, and from April 2, 2001 (date of inception) to December 31, 2002, in conformity with accounting principles generally accepted in the United States of America. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company is in the development stage as of December 31, 2002 has suffered recurring losses from operations, has a net working capital deficit, which raises substantial doubt about its ability to continue as a going concern. As discussed in Note 2 to the financial statements, successful completion of the Company's fund raising activities and, ultimately, the attainment of profitable operations is dependent upon future events, including obtaining adequate financing to fulfill its development activities and achieving a level of revenue adequate to support the Company's cost structure. The financial statements do not include any adjustments that might result from the outcome of these uncertainties. Thomas Leger & Co., L.L.P. February 21, 2003 Houston, Texas F-2
HOUSTON AMERICAN ENERGY CORP. A DEVELOPMENT STAGE COMPANY BALANCE SHEET DECEMBER 31, 2002 ASSETS ------ CURRENT ASSETS Cash $ 939 Accounts receivable 7,140 Prepaid expenses 7,026 ------------ TOTAL CURRENT ASSETS 15,105 ------------ PROPERTY, PLANT AND EQUIPMENT Oil and gas properties, full cost method Costs subject to amortization 785,268 Costs not being amortized 188,418 Office equipment 5,595 ------------ Total property, plant and equipment 979,281 Accumulated depreciation and depletion oil and gas properties (745,661) ------------ PROPERTY, PLANT AND EQUIPMENT, NET 233,620 ------------ OTHER ASSETS 4,745 ------------ TOTAL ASSETS $ 253,470 ============ LIABILITIES AND SHAREHOLDERS' DEFICIT - --------------------------------------------------------------- CURRENT LIABILITIES Accounts payable $ 5,245 Accrued interest on shareholder loans 149,706 Notes payable, shareholder 1,128,523 ------------ TOTAL CURRENT LIABILITIES 1,283,474 ------------ SHAREHOLDERS' DEFICIT Common stock, par value $.001; 100,000,000 shares authorized, 13,424,883 shares outstanding 13,425 Additional paid-in capital 283,575 Deficit accumulated in development stage (1,327,004) ------------ TOTAL SHAREHOLDERS' DEFICIT (1,030,004) ------------ TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT $ 253,470 ============ THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-3
HOUSTON AMERICAN ENERGY CORP. A DEVELOPMENT STAGE COMPANY STATEMENT OF LOSS From April 2, For The Year Ended 2001 (Date of -------------------------- Inception) to December 31, December 31, ------------ ------------ --------------- 2002 2001(a) 2002 ------------ ------------ --------------- REVENUE $ 25,805 $ 14,814 $ 40,619 ------------ ------------ --------------- EXPENSES OF OPERATIONS Lease operating expense 19,397 11,019 30,416 General and administrative expense Accounting and legal 93,688 19,927 113,615 Rent 38,000 3,167 41,167 Shareholder relations 30,092 - 30,092 Printing and duplicating 6,082 309 6,391 Registration fees 11,825 - 11,825 Telephone and fax 9,583 - 9,583 Dues and subscription 3,623 - 3,623 Miscellaneous 4,625 1,017 5,642 Depreciation and depletion 24,166 37,592 61,758 Interest expense 112,405 43,602 156,008 Write-off of merger expenses - 256,470 256,470 Write-down of oil and gas properties due to ceiling limitation 109,573 574,331 683,904 Gain from settled accounts payable (42,870) - (42,870) ------------ ------------ --------------- Total expenses 420,189 947,434 1,367,623 ------------ ------------ --------------- FEDERAL INCOME TAXES - - - ------------ ------------ --------------- NET LOSS $ (394,384) $ (932,620) $ (1,327,004) ============ ============ =============== BASIC AND DILUTED LOSS PER SHARE $ (0.03) $ (0.08) ============ ============ BASIC WEIGHTED AVERAGE SHARES 12,119,842 11,403,414 ============ ============ (a) THE 2001 FINANCIAL INFORMATION IS FOR THE PERIOD FROM APRIL 2, 2001 (DATE OF INCEPTION) TO DECEMBER 31, 2001. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-4
HOUSTON AMERICAN ENERGY CORP. A DEVELOPMENT STAGE COMPANY STATEMENT OF SHAREHOLDERS' DEFICIT FROM APRIL 2, 2001 (DATE OF INCEPTION) TO DECEMBER 31, 2002 Deficit Accumulated Common Stock in the ------------------- Paid - in Development Shares Amount Capital Stage Total ---------- ------- ---------- ------------- ------------ Balance at inception, April 2, 2001 - $ - $ - $ - $ - Stock issued for cash 1,000,000 1,000 - - 1,000 Retroactive adjustment for stock split on September 25, 2001 10,403,414 - - - - Additional contributed capital from majority shareholder - 10,403 - - 10,403 Net loss - - - (932,620) (932,620) ---------- ------- ---------- ------------- ------------ Balance at December 31, 2001 11,403,414 11,403 - (932,620) (921,217) Stock issued for - Reverse merger with Texas Nevada Oil and Gas Co. 596,469 597 - - 597 Cash 1,350,000 1,350 268,650 - 270,000 Consulting services 75,000 75 14,925 - 15,000 Net loss - - - (394,384) (394,384) ---------- ------- ---------- ------------- ------------ Balance at December 31, 2002 13,424,883 $13,425 $ 283,575 $ (1,327,004) $(1,030,004) ========== ======= ========== ============= ============ (a) THE 2001 FINANCIAL INFORMATION IS FOR THE PERIOD FROM APRIL 2, 2001 (DATE OF INCEPTION) TO DECEMBER 31, 2001. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-5
HOUSTON AMERICAN ENERGY CORP. A DEVELOPMENT STAGE COMPANY STATEMENT OF CASH FLOWS FROM APRIL 2, FOR THE YEAR ENDED 2001 (DATE OF DECEMBER 31, INCEPTION) TO -------------------- DECEMBER 31, 2002 2001(a) 2002 -------------------- --------------- --------------- CASH FLOW FROM OPERATING ACTIVITIES Loss from operations $ (394,384) $ (932,620) $ (1,327,004) ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH FROM OPERATIONS Depreciation and depletion 24,166 37,592 61,758 Write-down oil and gas properties 109,573 574,331 683,904 Non-cash expenses 38,076 257,646 295,722 Gain from payable settlement (42,871) - (42,871) Increase in accounts receivable (1,921) (5,218) (7,139) (Increase) decrease in prepaid expense 1,116 (8,142) (7,026) (Increase) decrease in other assets 796 (5,541) (2,371) Increase in accounts payable - - - and accrued expenses 108,076 90,341 196,043 -------------------- --------------- --------------- Net cash (used) provided by operations (157,373) 8,389 (148,984) -------------------- --------------- --------------- CASH FLOW FROM INVESTING ACTIVITIES Acquisition of properties and assets (210,427) - (210,427) -------------------- --------------- --------------- CASH FLOW FROM FINANCING ACTIVITIES Sale of common stock 285,000 1,000 286,000 Loans from principal shareholder 74,350 - 74,350 -------------------- --------------- --------------- Cash flow from financing activities 359,350 1,000 360,350 -------------------- --------------- --------------- INCREASE (DECREASE) IN CASH (8,450) 9,389 939 Cash, beginning of period 9,389 - - -------------------- --------------- --------------- Cash, end of period $ 939 $ 9,389 $ 939 ==================== =============== =============== SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES Oil and gas properties acquired $ - $ 768,854 $ 768,854 Non-cash expense 38,076 257,646 295a,722 Note payable for oil and gas properties and expenses 20,888 1,026,500 1,047,388 (a) THE 2001 FINANCIAL INFORMATION IS FOR THE PERIOD FROM APRIL 2, 2001 (DATE OF INCEPTION) TO DECEMBER 31, 2001. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-6 HOUSTON AMERICAN ENERGY CORP. A DEVELOPMENT STAGE COMPANY NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2002 NOTE 1 - NATURE OF COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Houston American Energy Corp. (a Delaware Corporation) (the "Company") was incorporated on April 2, 2001. The Company was organized to engage in the acquisition, exploration and development of domestic and foreign oil and gas properties. The Company completed a stock split as of September 25, 2001, which resulted in total outstanding shares of 11,403,414. The Company has retroactively applied this stock split to all share amounts and per share amounts in these financial statements and footnotes. The Company completed a reverse merger with Texas Nevada Oil and Gas Co. ("TNOG") in January 2002. The Company issued 596,469 shares of common stock to the shareholders of TNOG. As the majority surviving ownership in the merger, the Company changed the name to Houston American Energy Corp. and treated the transaction as an acquisition of TNOG. OIL AND GAS REVENUES- The Company recognizes oil and gas revenue from its - ----------------------- interest in producing wells as oil and gas is produced and sold from those wells. The Company does not anticipate that the oil and gas sold will be significantly different from our production entitlement. OIL AND GAS PROPERTIES AND EQUIPMENT - The Company follows the full cost method - ------------------------------------- of accounting for oil and gas property acquisition, exploration and development activities. Under this method, all productive and nonproductive costs incurred in connection with the exploration for and development of oil and gas reserves are capitalized. Capitalized costs include lease acquisition, geological and geophysical work, delay rentals, costs of drilling, completing and equipping successful and unsuccessful oil and gas wells and related internal costs that can be directly identified with acquisition, exploration and development activities, but does not include any cost related to production, general corporate overhead or similar activities. Gain or loss on the sale or other disposition of oil and gas properties is not recognized unless significant amounts of oil and gas reserves are involved. No corporate overhead has been capitalized as of December 31, 2002. The capitalized costs of oil and gas properties, plus estimated future development costs relating to proved reserves are amortized on a units-of-production method over the estimated productive life of the reserves. Unevaluated oil and gas properties are excluded from this calculation. The capitalized oil and gas property costs, less accumulated amortization, are limited to an amount (the ceiling limitation) equal to the sum of: (a) the present value of estimated future net revenues from the projected production of proved oil and gas reserves, calculated at prices in effect as of the balance sheet date (with consideration of price changes only to the extent provided by contractual arrangements) and a discount factor of 10%; (b) the cost of unproved and unevaluated properties excluded from the costs being amortized; (c) the lower of cost or estimated fair value of unproved properties included in the costs being amortized; and (d) related income tax effects. Excess costs are charged to proved properties impairment expense. An allowance for impairment of $109,573 and $574,331 was provided at December 31, 2002 and 2001, respectively. UNEVALUATED OIL AND GAS PROPERTIES - Unevaluated oil and gas properties consist - ----------------------------------- principally of our cost of acquiring and evaluating undeveloped leases, net of an allowance for impairment and transfers to depletable oil and gas properties. When leases are developed, expire or are abandoned, the related costs are transferred from unevaluated oil and gas properties to depletable oil and gas properties. Additionally, the Company reviews the carrying costs of unevaluated oil and gas properties for the purpose of determining probable future lease expirations and abandonments, and prospective discounted future economic benefit attributable to the leases. The Company records an allowance for impairment based on a review of present value of future cash flows. Any resulting charge is made to operations and reflected as a reduction of the carrying value of the recorded asset. F-7 HOUSTON AMERICAN ENERGY CORP. A DEVELOPMENT STAGE COMPANY NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2002 NOTE 1 - NATURE OF COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (CONTINUED) Unevaluated oil and gas properties not subject to amortization include the following at December 31, 2002: Acquisition costs $ 68,000 Evaluation costs 120,418 -------- $188,418 ======== The carrying value of unevaluated oil and gas prospects include $57,747 expended for properties in the South American country of Colombia. The Company is maintaining their interest in these properties and development has or is anticipated to commence within the next twelve months. INCOME TAXES - Deferred income taxes are provided on a liability method whereby - ------------- deferred tax assets and liabilities are established for the difference between the financial reporting and income tax basis of assets and liabilities as well as operating loss and tax credit carry forwards. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. OFFICE AND EQUIPMENT - Office equipment is stated at cost and are depreciated - ---------------------- using the straight-line method over the estimated useful lives of the assets, generally 5 years. Routine repairs and maintenance costs are charged to operations as incurred while the costs of significant improvements are capitalized. Depreciation expense and accumulated depreciation for the year ended December 31, 2002 was $1,119 and $1,679. PREFERRED STOCK - The Company has authorized 10,000,000 shares of preferred - ---------------- stock with a par value of $0.001. The Board of Directors shall determine the designations, rights, preferences, privileges and voting rights of the preferred stock as well as any restrictions and qualifications thereon. No shares of preferred stock have been issued. STATEMENT OF CASH FLOWS - Cash equivalents consists of demand deposits and cash - ------------------------ investments with initial maturity dates of less than three months. The Company paid no interest or taxes during the period of the accompanying financial statements. NET LOSS PER SHARE - Basic loss per share is computed by dividing the net loss - -------------------- available to common shareholders by the weighted average of common shares outstanding during the period, as retroactively adjusted by the stock split described in the second paragraph of Note 1. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock, where such exercise or conversion would result in a lower EPS amount. At December 31, 2002 and 2001, there were no convertible or dilutive common share equivalents outstanding. USE OF ESTIMATES - The preparation of financial statements in conformity with - ------------------ generally accepted accounting principles requires the Company to make estimates and assumptions that could affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. GENERAL AND ADMINISTRATIVE EXPENSE - Includes approximately $43,000 of expenses - ----------------------------------- that were incurred and subsequently settled by the Company for less than their value. Invoices totaling $68,000 were liquidated for approximately $25,000 and the difference, including other payable adjustments and compromises, has been included in the statement of operations as a Gain from Settled Accounts Payable. The settled charges were principally from legal costs and the expenses associated with becoming a public reporting company. RECENT ACCOUNTING PRONOUNCEMENT - In August 2001, the FASB issued Statement No. - -------------------------------- 144 "Accounting for the impairment of Long-Lived Assets". This statement supersedes Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of", and the accounting and reporting provisions of F-8 HOUSTON AMERICAN ENERGY CORP. A DEVELOPMENT STAGE COMPANY NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2002 NOTE 1 - NATURE OF COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (CONTINUED) APB Opinion 30, "Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions", for the disposal of a segment of a business. The statement is effective for the Company in fiscal 2003. The Company does not expect the adoption of Statement No. 144 to have a material impact on our future results of operations or financial position. In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations. SFAS No. 143 requires liability recognition for retirement obligations associated with tangible long-lived assets, such as producing well sites and other assets associated with oil and gas activities. SFAS 143 requires that the fair value of a liability for an asset retirement obligation be recorded in the period in which it is incurred and the corresponding cost capitalized by increasing the carrying amount of the related long-lived asset. The liability is accreted to its present value of each period, and the capitalized cost is depreciated over the useful life of the related asset. If the liability is settled for an amount other than the recorded amount, a gain or loss is recognized. The Company will adopt SFAS No. 143 effective January 1, 2003. Management does not expect this standard to have an impact on the financial position at the date of adoption (January 1, 2003). NOTE 2 - DEVELOPMENT STAGE The Company is in the development stage and has minimum revenue to support its operations. It is dependent on the majority shareholder to fund its operations and cost associated with the acquisition, exploration and development of oil and gas properties. Management has and will continue to attempt to obtain funds through private and/or public securities offerings. NOTE 3 - NOTES PAYABLE Notes payable at December 31, 2002, in the amount of $1,128,523, is due to a majority shareholder. The note bears interest at 10%, and the principal and interest is due on demand with all our oil and gas properties serving as collateral. NOTE 4 - RELATED PARTIES The Company's producing oil and gas properties were purchased, at cost, from an affiliate of a major shareholder. NOTE 5 - INCOME TAXES The following table sets forth a reconciliation of the statutory federal income tax for the year ended December 31, 2002 and for the period from April 2, 2001 (date of inception) to December 2001.
2002 2001 ---------- ---------- Loss before income taxes $(394,384) $(932,620) ========== ========== Income tax computed at statutory rates $(134,091) $(317,091) Adjustment to net operating loss carryforward 30,560 - Permanent differences, nondeductible expenses - 69,165 Increase in valuation allowance 103,531 247,926 ---------- ---------- Tax provision $ - $ - ========== ==========
F-9 HOUSTON AMERICAN ENERGY CORP. A DEVELOPMENT STAGE COMPANY NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2002 NOTE 5 - INCOME TAXES, (CONTINUED) No federal income taxes have been paid since the inception of the Company. The Company has a net operating loss carry forward of approximately $842,100 which will expire in 2016 and 2017. DEFERRED INCOME TAXES - ----------------------- The tax effects of the temporary differences between financial statement income and taxable income are recognized as a deferred tax asset and liability. Significant components of the deferred tax asset and liability as of December 31, 2002 are set out below.
Deferred tax asset: Net operating loss carry forwards $ 286,312 Valuation allowance (348,874) Tax over book depreciation, depletion and capitalization methods on oil and gas properties 24,344 Book over tax accrued interest payments 38,218 ---------- Net deferred tax asset $ - ==========
NOTE 6 - COMMITMENT As of December 31, 2002, the Company had lease obligation for office space that expires on November 30, 2006. YEAR AMOUNT ----------- 2003 $ 38,000 2004 38,000 2005 38,000 2006 34,833 ----------- Total $ 148,833 =========== NOTE 7 - SUPPLEMENTAL INFORMATION ON OIL AND GAS EXPLORATION, DEVELOPMENT AND PRODUCTION ACTIVITIES (UNAUDITED) This footnote provides unaudited information required by Statement of Financial Accounting Standards No. 69, "Disclosures about Oil and gas Producing Activities". CAPITAL COSTS - -------------- Capitalized costs and accumulated depletion relating to our oil and gas producing activities as of December 2002, all of which are conducted within the continental United States of America and Colombia, South America are summarized below: F-10 HOUSTON AMERICAN ENERGY CORP. A DEVELOPMENT STAGE COMPANY NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2002 NOTE 7 - SUPPLEMENTAL INFORMATION ON OIL AND GAS EXPLORATION, DEVELOPMENT AND PRODUCTION ACTIVITIES (UNAUDITED) - (CONTINUED)
South American country of USA Columbia ---------- --------------- Properties subject to amortization $ 785,267 $ - Unevaluated properties 130,670 57,748 Less accumulated amortization and Impairment (743,982) - ---------- --------------- Capitalized costs $ 171,955 $ 57,748 ========== ===============
COSTS INCURRED - --------------- Costs incurred in oil and gas property acquisition, exploration and development activities at December 31, 2002 are summarized below:
Property acquisition costs: Proved $ 18,333 Unproved 192,094 -------- Total costs incurred $210,427 ========
RESERVE INFORMATION AND RELATED STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET - ----------------------------------------------------------------------------- CASH FLOWS - ----------- The following supplemental un-audited presentation of proved reserve quantities and related standardized measure of discounted future net cash flows provides estimates only and does not purport to reflect realizable values or fair market values of our reserves. Volumes reported for proved reserves are based on reasonable estimates. These estimates are consistent with current knowledge of the characteristics and production history of the reserves. The Company emphasizes that reserve estimates are inherently imprecise and that estimates of new discoveries are more imprecise than those of producing oil and gas properties. Accordingly, significant changes to these estimates can be expected as future information becomes available. Proved reserves are those estimated reserves of crude oil (including condensate and natural gas liquids) and natural gas that geological and engineering data demonstrate with reasonable certainly to be recoverable in future years from known reservoirs under existing economic and operating conditions. Proved developed reserves are those expected to be recovered through existing wells, equipment, and operating methods. The standardized measure of discounted future net cash flows relating to proved oil and gas reserves is computed by applying year-end prices of oil and gas (with consideration of price changes only to the extent provided by contractual arrangements) to the estimated future production of proved oil and gas reserves, less estimated future expenditures (based on year-end costs) to be incurred in developing and producing the proved reserves, less estimated related future income tax expenses (based on year-end statutory tax rates, with consideration of future tax rates already legislated), and assuming continuation of existing economic conditions. Future income tax expenses give effect to permanent differences and tax credits but do not reflect the impact of continuing operations including property acquisitions and exploration. The estimated future cash flows are then discounted using a rate of ten percent a year to reflect the estimated timing of the future cash flows. F-11 NOTE 7 - SUPPLEMENTAL INFORMATION ON OIL AND GAS EXPLORATION, DEVELOPMENT AND PRODUCTION ACTIVITIES (UNAUDITED) - (CONTINUED)
DECEMBER 31, --------- --------- 2002 2001(a) --------- --------- GAS (mcf) -------------------- Proved developed reserves: Beginning of year 27,999 - Extensions and discoveries - 34,169 Revision of previous estimates (170) - Production (8,957) (6,170) --------- --------- End of year 18,872 27,999 ========= ========= Standard measure of discounted future net cash flows: Future cash inflows $ 65,760 $ 55,399 Future production cost (19,993) (27,827) --------- --------- Future net cash flow 45,767 27,572 10% annual discount for estimated timing of cash flows (4,478) (3,905) --------- --------- Standardized measure of discounted future net cash flow relating to proved gas reserves $ 41,289 $ 23,677 ========= ========= Changes in standardized measure: Changes due to current year operations: Sales of gas, net of production costs $ (4,843) $ (3,795) Extensions and discoveries - 27,462 Changes due to revisions in standaradized value Prices and production cost: 23,940 - Revision of previous quantity estimates (280) - Accretioned discount 2,367 - Production rates (timing) and other (3,562) - --------- --------- Net 17,622 23,667 Beginning of year 23,667 - --------- --------- End of year $ 41,289 $ 23,667 ========= ========= (a) The 2001 information is for the period from April 2, 2001 (date of inception) to December 31, 2001.
F-12 EX-10.20 3 doc2.txt EXHIBIT 10.20 No. 2002-48702 ______________________________________________________________________________ MILLENNIUM SEISMIC, INC. | IN THE DISTRICT COURT OF | | vs. | HARRIS COUNTY, TEXAS | | HOUSTON AMERICAN ENERGY CORP., and | JOHN F. TERWILLIGER | 280TH JUDICIAL DISTRICT _____________________________________________________________________________ COMPROMISE SETTLEMENT AGREEMENT AND COMPLETE RELEASE OF ALL LAWSUITS This Compromise Settlement Agreement and Complete Release Of All Lawsuits (this "Agreement") is entered by and between MILLENNIUM SEISMIC, INC. ("Millennium") and HOUSTON AMERICAN ENERGY CORP. and JOHN F. TERWILLIGER (collectively, the "Houston American Parties"). RECITALS WHEREAS, Millennium filed this lawsuit (the "Lawsuit"), in which Millennium sought damages, all as shown in Millennium's Petition, reference to which is hereby made for all purposes as though those same pleadings were fully copied and set forth at length herein; and WHEREAS, the Houston American Parties filed a counterclaim against Millennium (the "Counterclaim"), all as shown in the Houston American Parties' Special Exceptions, Answer, and Counterclaim, reference to which is hereby made for all purposes as though those same pleadings were fully copied and set forth at length herein; and WHEREAS, bona fide disputes and controversies continue to exist between Millennium and the Houston American Parties as to any liability of the Houston American Parties for claims and damages alleged in the Lawsuit and any liability of Millennium for claims and damages alleged in the Counterclaim, and because of such disputes and controversies, Millennium and the Houston American Parties desire to fully compromise, release and settle any and all direct and derivative claims relating to the Lawsuit or the Counterclaim and to the incidents or events described therein as to which Millennium or the Houston American Parties now have or may have in the future against the other and/or their heirs, executors, personal representatives, successors and assigns, affiliates or agents, both Millennium and the Houston American Parties, intending that all of the terms and conditions of their settlement shall be fully set forth in this Agreement; and WHEREAS, it is understood and agreed by Millennium and the Houston American Parties that this Agreement is executed for the purpose of settling all disputes between them and is not to be construed as an admission of any liability, which Millennium and the Houston American Parties have expressly denied and continue to deny; NOW, THEREFORE, in consideration of the foregoing and the following mutual covenants and agreements, Millennium and the Houston American Parties agree as follows: 1. Dismissal of the Lawsuit. Contemporaneously with the execution of -------------------------- this Agreement, Millennium shall enter a joint motion to dismiss the Lawsuit in a document that shall effectively dismiss the Lawsuit in its entirety, with prejudice as to its refiling, which motion shall reference the existence of this Agreement and shall dispose of all claims brought or which could have been brought in the Lawsuit. 2. Dismissal of the Counterclaim. Contemporaneously with the execution ----------------------------- of this Agreement, the Houston American Parties shall enter a joint motion to dismiss the Counterclaim in a document that shall effectively dismiss the Counterclaim in its entirety, with prejudice as to its refiling, which motion shall reference the existence of this Agreement and shall dispose of all claims brought or which could have been brought in the Counterclaim. 1 3. Release of the Houston American Parties. In consideration for the ----------------------------------------- agreement by the Houston American Parties to the terms and conditions of this Agreement, plus other good and valuable consideration, inclusive of all attorneys' fees, interest, costs and expenses, the receipt and sufficiency of which are hereby acknowledged, Millennium, and its predecessors, successors, agents, consultants, attorneys, legal representatives, assigns, and third party entities acting in their behalf (collectively identified and referred to herein as the "Millennium Releasing Parties,") do hereby forever Release, Acquit, Relinquish and Forever Discharge the Houston American Parties, and their heirs, executors, personal representatives, successors and assigns, affiliates or agents, employees, attorneys, consultants, shareholders, officers, directors, and other legal representatives, and insurers (collectively identified and referred to herein as the "Houston American Released Parties") of and from any and all causes of action, claims, demands, suits, liabilities, costs, expenses, losses, damages, and attorneys' fees, past, present and future, known or unknown, fixed or contingent, liquidated or unliquidated, of any nature whatsoever relating or pertaining to, arising out of or to arise out of, resulting from or to result from the matters and events asserted in the pleadings on file in the Lawsuit, or which might have been asserted or could have been asserted therein by or on behalf of any of the Millennium Releasing Parties against any of the Houston American Released Parties, including but not limited to any claims, causes of action or theories of liability or recovery based on contract, tort, intentional tort, negligence, gross negligence, negligence per se, failure to warn, breach of fiduciary or special relationship, fraud, malice, alter ego, property damage, punitive damages, past or future medical expenses, physical pain and suffering, mental anguish, emotional distress, lost wages, disfigurement, impairment, lost consortium, or any other personal injury or property damage claims of any nature whatsoever, including attorneys' fees and interest thereon. The Millennium Releasing Parties acknowledge that it is the intention of all the parties hereto or mentioned herein that any and all other claims and/or relief of any kind or character whatsoever in connection with the Lawsuit by Millennium against the Houston American Parties are hereby forever WAIVED, RELEASED, DISCHARGED and RELINQUISHED. Millennium expressly waives and assumes the risk of claims for unknown and unanticipated injuries and damages to Millennium which exist on this date but about which Millennium knows nothing nor suspects to exist whether through ignorance, oversight, error, negligence or otherwise, and which, if known, would or might have a material affect on the Millennium's decision to enter this Agreement. 4. Release of Millennium. In consideration for the agreement by ----------------------- Millennium to the terms and conditions of this Agreement, plus other good and valuable consideration, inclusive of all attorneys' fees, interest, costs and expenses, the receipt and sufficiency of which are hereby acknowledged, the Houston American Parties, all of their predecessors, successors, agents, consultants, attorneys, heirs, beneficiaries, legal representatives, assigns, and third party entities acting in their behalf (collectively identified and referred to herein as the "Houston American Releasing Parties,") do hereby forever Release, Acquit, Relinquish and Forever Discharge Millennium, and its personal representatives, successors and assigns, affiliates or agents, employees, attorneys, consultants, shareholders, officers, directors, and other legal representatives, and insurers (collectively identified and referred to herein as the "Millennium Released Parties") of and from any and all causes of action, claims, demands, suits, liabilities, costs, expenses, losses, damages, and attorneys' fees, past, present and future, known or unknown, fixed or contingent, liquidated or unliquidated, of any nature whatsoever relating or pertaining to, arising out of or to arise out of, resulting from or to result from the matters and events asserted in the pleadings on file in the Counterclaim, or which might have been asserted or could have been asserted therein by or on behalf of any of the Houston American Releasing Parties against any of the Millennium Released Parties, including but not limited to any claims, causes of action or theories of liability or recovery based on contract, tort, intentional tort, negligence, gross negligence, negligence per se, failure to warn, breach of fiduciary or special relationship, fraud, malice, alter ego, property damage, punitive damages, past or future medical expenses, physical pain and suffering, mental anguish, emotional distress, lost wages, disfigurement, impairment, lost consortium, or any other personal injury or property damage claims of any nature whatsoever, including attorneys' fees and interest thereon. The Houston American Releasing Parties acknowledge that it is the intention of all the parties hereto or mentioned herein that any and all other claims and/or relief of any kind or character whatsoever in connection with the Counterclaim by the Houston American Parties against Millennium are hereby forever WAIVED, RELEASED, DISCHARGED and RELINQUISHED. The Houston American Parties expressly waive and assume the risk of claims for unknown and unanticipated injuries and damages to the Houston American Parties which exist on this date but about which the Houston American Parties know nothing nor suspect to exist whether through ignorance, oversight, error, negligence or otherwise, and which, if known, would or might have a material affect on the Houston American Parties' decision to enter this Agreement. 2 5. Hold Harmless by Millennium. In further consideration for this ------------------------------ Agreement, Millennium agrees to indemnify and hold harmless each of the Houston American Released Parties from any and all claims, differences, demands, losses, liabilities, damages, causes of action, defense costs and expenses, and attorneys' fees, of any nature, type or character whatsoever, including claims for contractual, statutory or equitable subrogation, whether known or unknown, whether for compensatory, punitive, exemplary or any other damages or indemnity of any kind or character in contract or in tort that may accrue of have accrued relating to or otherwise in connection with the allegations in the Lawsuit asserted by anyone claiming by, through or under Millennium or its personal representatives, successors and assigns. 6. Hold Harmless by the Houston American Parties. In further --------------------------------------------------- consideration for this Agreement, the Houston American Parties agree to indemnify and hold harmless each of the Millennium Released Parties from any and all claims, differences, demands, losses, liabilities, damages, causes of action, defense costs and expenses, and attorneys' fees, of any nature, type or character whatsoever, including claims for contractual, statutory or equitable subrogation, whether known or unknown, whether for compensatory, punitive, exemplary or any other damages or indemnity of any kind or character in contract or in tort that may accrue of have accrued relating to or otherwise in connection with the allegations in the Counterclaim asserted by anyone claiming by, through or under the Houston American Parties or their heirs, executors, personal representatives, successors and assigns. 7. Covenant Not to Sue by Millennium. In consideration of this -------------------------------------- Agreement and the other consideration recited herein, Millennium, its personal representatives, successors and assigns hereby agree not to sue, make any claims against, nor institute any action or proceeding, nor seek recovery directly or indirectly against any of the Houston American Released Parties to recover damages of any kind or character, either to person or property, resulting from the incidents described in the Lawsuit or which may in any manner hereinafter arise out of the incidents described in the Lawsuit. 8. Covenant Not to Sue by the Houston American Parties. In ----------------------------------------------------------- consideration of this Agreement and the other consideration recited herein, the Houston American Parties, their heirs, executors, personal representatives, successors and assigns hereby agree not to sue, make any claims against, nor institute any action or proceeding, nor seek recovery directly or indirectly against any of the Millennium Released Parties to recover damages of any kind or character, either to person or property, resulting from the incidents described in the Counterclaim or which may in any manner hereinafter arise out of the incidents described in the Counterclaim. 9. Termination of the Exchange Agreement. In consideration of this ----------------------------------------- Agreement and the other consideration recited herein, that certain Exchange Agreement executed on July 19, 2002 by and between Millennium Seismic, Inc. and Houston American Energy Corp. (the "Exchange Agreement") including, but not limited to, any other agreements or instruments executed in connection therewith, are deemed terminated for all purposes and no longer have any force or effect. 10. Cancellation of Stock Certificate and Warrant. In consideration of --------------------------------------------- this Agreement and the other consideration recited herein, the certificate representing 1,000,000 shares of the common stock of Houston American Energy Corp., par value $0.001 per share, and the warrant to purchase 750,000 shares of the common stock of Houston American Energy Corp., par value $0.001 per share, delivered to Millennium pursuant to the Exchange Agreement are deemed cancelled as of the date of their issuance and the same have no further force or effect. Millennium has returned said certificate and warrant to the Houston American Parties. 11. Representations and Warranties of Millennium. Millennium expressly -------------------------------------------- represents and warrants to each and all of the Houston American Parties that: (a) Millennium is duly authorized to execute this Agreement; (b) All expenses of any and every nature and character whatsoever incurred by Millennium or on its behalf, past or future, arising from all of the incidents described in the Lawsuit and from the Lawsuit itself are not the obligation of any of the Houston American Released Parties; (c) There are no unresolved issues; 3 (d) Millennium's claims in the Lawsuit have not been assigned, pledged, or otherwise in any manner whatsoever sold or transferred or become subject to a lien, either by instrument, in writing or otherwise, including any right, interest or claim which Millennium may have now or in the future by reason of the incidents described in the Lawsuit or any matters arising out of or related thereto; and (e) No representations, if any, about the nature and extent of the claims of Millennium or damages thereunder made by any attorney or agent of any of the Houston American Released Parties, nor any representations, if any, regarding the nature and extent of legal liability or financial responsibility of any of the Houston American Released Parties have induced Millennium to enter into this Agreement. 12. Representations and Warranties of the Houston American Parties. ------------------------------------------------------------------ The Houston American Parties expressly represent and warrant to Millennium that: (a) The Houston American Parties are duly authorized and/or legally competent to execute this Agreement; (b) All expenses of any and every nature and character whatsoever incurred by the Houston American Parties or on their behalf, past or future, arising from all of the incidents described in the Counterclaim and from the Counterclaim itself are not the obligation of the Millennium Released Parties; (c) There are no unresolved issues; (d) The Houston American Parties' claims in the Counterclaim have not been assigned, pledged, or otherwise in any manner whatsoever sold or transferred or become subject to a lien, either by instrument, in writing or otherwise, including any right, interest or claim which the Houston American Parties may have now or in the future by reason of the incidents described in the Counterclaim or any matters arising out of or related thereto; and (e) No representations, if any, about the nature and extent of the claims of the Houston American Parties or damages thereunder made by any attorney or agent of the Millennium Released Parties, nor any representations, if any, regarding the nature and extent of legal liability or financial responsibility of any of the Millennium Released Parties have induced the Houston American Parties to enter into this Agreement. 13. Applicable Law. Millennium and the Houston American Parties agree --------------- that this Agreement may be signed in multiple counterparts, shall be construed and interpreted in accordance with the laws of Texas, and that venue for any dispute in connection with this Agreement shall be Harris County, Texas. 14. Attorneys' Fees. Each party shall pay its respective attorneys' ---------------- fees in connection with the Lawsuit, the Counterclaim, and this Agreement. 15. Entire Agreement and Successors in Interest. This Agreement ------------------------------------------------ contains the entire agreement between Millennium and the Houston American Parties with regard to matters set forth herein, and shall be binding upon and inure to the benefit of the respective executors, administrators, personal representatives, heirs, successors and assigns of Millennium and each of the Houston American Parties. 4 IN WITNESS WHEREOF, this Agreement has been executed the ___ day of December, 2002. MILLENNIUM SEISMIC, INC. By /s/ Jesse R. Marion ---------------------- Jesse R. Marion, President HOUSTON AMERICAN ENERGY CORP. By /s/ John F. Terwilliger -------------------------- John F. Terwilliger, President /s/ John F. Terwilliger ---------------------------- JOHN F. TERWILLIGER EX-10.21 4 doc3.txt EXHIBIT 10.21 PROMISSORY NOTE $1,128,522.63 December 31, 2002 After date, without grace, for value received, HOUSTON AMERICAN ENERGY CORP., a Delaware corporation having its principal office and place of business in Harris County, Texas (the "Maker") hereby promises to pay to the order of JOHN F. TERWILLIGER, an individual having his principal office and place of business in Harris County, Texas (the "Payee"), the original principal amount of ONE MILLION ONE HUNDRED TWENTY-EIGHT THOUSAND FIVE HUNDRED TWENTY-TWO & sixty-three cents, together with interest, as hereinafter described. This Note is payable in lawful money of the United States of America at 801 Travis, Suite 2020, Houston, Harris County, Texas 77002, or such other place as the Payee may designate in writing to the Maker. This note may be assigned by Payee at any time without prior notice to Maker. This Note shall be due and payable on demand as to both principal and interest. Interest at a rate of ten percent (10%) per annum shall accrue on the unpaid principal balance of this Note. If this Note is not paid at maturity, however maturity may be brought about, all principal due on the date of such maturity shall bear interest from the date of such maturity at the maximum contract rate of interest which the Payee may charge the Maker under applicable law. Interest on this Note shall be computed for the actual number of days elapsed and on the basis of a year consisting of 360 days. If, for any reason whatever, the interest paid on this Note shall exceed the maximum non-usurious amount permitted by law, the Payee shall refund to the Maker such portion of said interest as may be necessary to cause the interest paid on this Note to equal the maximum non-usurious amount permitted by law, and no more. All sums paid or agreed to be paid to the Payee for the use, forbearance or detention of the indebtedness evidenced hereby shall to the extent permitted by applicable law be amortized, prorated, allocated and spread throughout the full term of this Note until payment in full. The Maker shall be entitled to prepay this Note in whole or in part at any time without the payment of a prepayment premium. In the event of default in the payment of this Note or under any instrument executed in connection with this Note, the Maker agrees to pay on demand all costs incurred by the Payee (i) in the collection of any sums, including, but not limited to, principal, interest, expenses, and reimbursements due and payable on this Note, and (ii) in the enforcement of the other terms and provisions of this Note, whether such collection or enforcement be accomplished by suit or otherwise, including the Payee's reasonable attorney's fees. Except as otherwise provided for herein, each maker, surety, guarantor and endorser of this Note expressly waives all notices, including, but not limited to, all demands for payment, presentations for payment, notice of opportunity to cure default, notice of intention to accelerate the maturity, notice of protest and notice of acceleration of the maturity, notice of protest and notice of acceleration of the maturity of this Note, and consents that this Note may be renewed and the time of payment extended without notice and without releasing any of the parties. Any check, draft, money order or other instrument given in payment of all or any portion of this Note may be accepted by the Payee or any other holder hereof and handled in collection in the customary manner, but the same shall not constitute payment hereunder or diminish any rights of the Payee or any other holder hereof, except to the extent that actual cash proceeds of such instrument are unconditionally received by the Payee or any other holder hereof and applied to the indebtedness as herein provided. This Note shall be governed by and construed in accordance with the laws of the State of Texas and applicable federal law. HOUSTON AMERICAN ENERGY CORP. By /s/ John F. Terwilliger ---------------------------- John F. Terwilliger, President EX-99.1 5 doc4.txt EXHIBIT 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SUBSECTION 1350 AS ADOPTED PURSUANT TO SUBSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 I, John F. Terwilliger, certify that: 1. I have reviewed this annual report on Form 10-KSB of Houston American Energy Corp.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: (a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and (c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 28, 2003 /s/ John F. Terwilliger - ----------------------------- John F. Terwilliger Chief Executive Officer EX-99.2 6 doc5.txt EXHIBIT 99.2 CERTIFICATION PURSUANT TO 18 U.S.C. SUBSECTION 1350 AS ADOPTED PURSUANT TO SUBSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 I, John F. Terwilliger, certify that: 1. I have reviewed this annual report on Form 10-KSB of Houston American Energy Corp.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: (a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and (c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 28, 2003 /s/ John F. Terwilliger - ---------------------------- John F. Terwilliger Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----