UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q/A
 
Amendment-1
 
x  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2009
 
OR
 
o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
 
For the transition period from
_____________
 
to
____________
 
Commission File Number:
___________ 000-30781 _____________
 
TERRA ENERGY RESOURCES, LTD.
(Formerly TERRA MEDIA, LTD.)
(Exact name of registrant as specified in its character)
 
Delaware  
 
71-0913458  
(State or other jurisdiction of incorporation
or  
 
(I.R.S. Employer Identification No.)  
or ganization)  
  
  
17/6 Bell Lane
 
Gibraltar
 
011-35055027643
(Issuer's Telephone Number)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerator filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act (Check one):
 
Large accelerated filer  o       Accelerated filer ¨        Non-accelerated filer x
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes x No ¨
 
The Registrant’s common stock outstanding as of September 30, 2009 was 44,694,500 Shares.

 
 
 
Table of Contents

Special Note Regarding Forward Looking Information 
3 
   
PART I 
  
  
 
Item 1. 
Financial Statements: 
3 
 
  
Balance Sheets as of September 30, 2009 (unaudited) and December 31, 2008 
  
  
(audited); 
4 
  
  
Statements of Operations for the nine months ended September 30,  2009 and
  
  
2008 and  for the period from inception (April 7, 2004) to September 30, 2009 (unaudited);
5 
  
  
Statements of Operations for the three months ended September 30, 2009 and 2008 (unaudited)
6 
  
  
Statements of Cash Flows for the nine months ended September  30, 
  
  
2009 and 2008 and for the period from inception (April 7, 2004) to September 30, 2009 (unaudited)
7 
  
  
Notes to Financial Statements 
8-9 
  
Item 2. 
Management’s Discussion and Analysis of Financial Condition and Results of 
  
  
Operations 
10 
     
PART II 
 
  
     
Item 1. 
Legal Proceedings 
13 
Item 2. 
Unregistered Sales of Equity Securities and use of Proceeds 
14 
Item 3. 
Defaults Upon Senior Securities 
14 
Item 4. 
Submission of Matters to a Vote of Security Holders 
14 
Item 5. 
Other Information 
14 
Item 6. 
Exhibits 
15 
  
SIGNATURE 
15 

 
2
 

QUARTERLY REPORT ON FORM 10-Q FOR
 
TERRA ENERGY RESOURCES, LTD.
 
  SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
 
To the extent that the information presented in this Quarterly Report on Form 10-Q for the quarter ended September 30, 2009 discusses financial projections, information or expectations about the products or markets of our company, or otherwise makes statements about the future events, such statements are forward-looking. We are making these forward-looking statements in reliance on the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Although we believe that the expectations reflected in these forward-looking statements are based on reasonable assumptions, there are a number of risks and uncertainties that could cause actual results to differ materially from such forward-looking statements. These risks and uncertainties are described, among other places in this Quarterly Report, in “Management’s Discussion and Analysis.” Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof.
 
In addition, we disclaim any obligations to update any forward-looking statements to reflect events or circumstances after the date of this Quarterly Report. When considering such forward-looking statements, readers should keep in mind the risks referenced above and the other cautionary statements in this Quarterly Report.
 
PART I
 
ITEM 1. FINANCIAL STATEMENTS
 
The condensed financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading.
 
In the opinion of the Company, all adjustments, consisting of only normal recurring adjustments necessary to present fairly the financial position of the Company as of September 30, 2009, and the results of its operations and cash flows for the periods ended September 30, 2009 and 2008, have been made. The results of its operations for such interim period are not necessarily indicative of the results to be expected for the entire year. These condensed financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2008.
 
3
 
TERRA ENERGY RESOURCES, LTD
 
(a development stage company)
Balance Sheets
 
   
September 31,
   
December 31,
 
   
2009
   
2008
 
   
(Unaudited)
       
ASSETS
           
Current Assets
           
Cash
  $ -     $ 36  
Prepaid corporate taxes
    -       250  
Total current assets
    -       286  
                 
Property and equipment
    -       2,487  
Other assets
               
Coal lease
    -       50,000  
Capitalized software costs
    -       54,000  
Total Assets
  $ -     $ 106,773  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
               
Current Liabilities
               
Bank overdraft
  $ -     $ 85  
Accrued expenses
    15,612       50,000  
Officer loan payable, non-interest bearing, due on demand
    55,800       78,437  
Total current liabilities
    71,412       128,522  
                 
Stockholders' Equity (Deficiency)
               
Preferred Stock, $0.001 par value; authorized 5,000,000 shares; none issued and outstanding
    -       -  
Common Stock, $0.001 par value; authorized 100,000,000 shares, issued and outstanding  44,694,500 and 44,694,500 shares, respectively
    44,694       44,694  
Additional paid-in capital
    350,324       350,324  
Deficit accumulated during the development stage
    (466,430 )     (416,767 )
Total stockholders' equity (deficiency)
    (71,412 )     (21,749 )
Total Liabilities and Stockholders' Equity (Deficiency)
  $ -     $ 106,773  

See notes to financial statements.

 
4
 

TERRA ENERGY RESOURCES, LTD
(a development stage company)

Statements of Operations
(Unaudited)
 

   
For the nine
months ended
September 30,
2009
   
For the nine
months ended
September 30,
2008
   
For the period
from inception
(April 7, 2004)
to September
30, 2009
 
                   
Sales
  $ -     $ -     $ 584  
Cost of goods sold
    -       -       195  
Gross profit
    -       -       389  
                         
Operating expenses
                       
Selling, general and administrative expenses (including stock-based compensation of $0, $0, and $316,300, respectively
    6,412       1,850       412,997  
Depreciation expense
    -       2,148       10,571  
Impairment of coal lease
    50,000       -       50,000  
                         
Total operating expenses
    56,412       3,998       473,568  
                         
Loss from operations
    (56,412 )     (3,998 )     (473,179 )
Gain from disposal of Ding Dong School, Ltd.
    6,749       -       6,749  
                         
Net Loss
  $ (49,663 )   $ (3,998 )   $ (466,430 )
                         
Net loss per share
                       
                         
Basic and diluted
  $ (0.00 )   $ (0.00 )        
                         
Weighted average common   shares outstanding, basic and diluted
    44,694,500       44,694,500          

See notes to financial statements.

 
5
 

TERRA ENERGY RESOURCES, LTD
(a development stage company)

Statements of Operations
(Unaudited)
 
 
   
For the three
months ended
September 30,
2009
   
For the three
months ended
September 30,
2008
 
             
Sales
  $ -     $ -  
Cost of goods sold
    -       -  
Gross profit
    -       -  
                 
Operating expenses
               
Selling, general and administrative expenses
    6,412       800  
Depreciation expense
    -       714  
Impairment of coal lease
    50,000       -  
                 
Total operating expenses
    56,412       1,514  
                 
Loss from operations
    (56,412 )     (1,514 )
Income taxes
    -       -  
                 
Net Loss
  $ (56,412 )   $ (1,514 )
                 
Net loss per share
               
                 
Basic and diluted
  $ (0.00 )   $ (0.00 )
                 
Weighted average common   shares outstanding, basic and diluted
    44,694,500       44,694,500  

See notes to financial statements.

 
6
 

TERRA ENERGY RESOURCES, LTD
(a development stage company)

Statements of Cash Flows
(Unaudited)
 

   
For the nine
months ended
September 30,
2009
   
For the nine
months ended
September 30,
2008
   
For the period
from inception
(April 7, 2004)
to September
30, 2009
 
                   
Cash Flows from Operating Activities
                 
Net loss
  $ (49,663 )   $ (3,998 )   $ (466,430 )
Adjustments to reconcile net loss to net cash used for operating activities:
                       
Depreciation
    -       2,148       10,571  
Impairment of coal lease
    50,000       -       50,000  
Gain from disposal of Ding Dong School, Ltd
    (6,749 )     -       (6,749 )
Common stock issued for consulting services
    -       -       276,300  
Common stock issued for legal services
    -       -       40,000  
Changes in operating assets and liabilities:
                       
Prepaid corporate taxes
    -       -       (250 )
Accrued expenses
    612       -       50,612  
Payroll taxes payable
    -       (1,868 )     -  
Net cash provided by (used in) operating activities
    (5,800 )     (3,718 )     (45,946 )
                         
Investing Activities
                       
Coal lease acquired
    -       -       (50,000 )
Equipment acquired
    -       -       (13,085 )
Net cash used in investing activities
    -       -       (63,085 )
                         
Financing Activities
                       
Officer loan payable
    5,764       1,862       84,201  
Bank overdraft
    -       -       85  
Sale of shares of common stock
    -       -       13,100  
Capital contributions
    -       -       11,618  
Net cash provided by financing activities
    5,764       1,862       109,004  
                         
Net increase (decrease) in cash
    (36 )     (1,856 )     -  
                         
Cash - beginning of period
    36       2,048       -  
                         
Cash - end of period
  $ -     $ 192     $ -  
                         
Supplemental information:
                       
Interest paid
  $ -     $ -     $ -  
Income taxes paid
  $ -     $ -     $ -  
                         
Non-Cash transactions:
                       
Issuance of shares of common stock as consulting fees
  $ -     $ -     $ 276,300  
Issuance of shares of common stock as legal fees
  $ -     $ -     $ 40,000  
Contribution of software
  $ -     $ 9,000     $ 54,000  
Office loan reclassified to contributed capital
  $ -     $ -     $ 3,918  

See notes to financial statements.

 
7
 
 
TERRA ENERGY RESOURCES, LTD
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30 2009
(Unaudited)
 
1. 
ORGANIZATION AND BUSINESS OPERATIONS
 
Terra Energy Resources, Ltd. (the “Company”), formerly Terra Media, Ltd., was incorporated in Delaware on February 28, 2001.  The Company was dormant until June 30, 2006 when it acquired Ding Dong School, Ltd. (“DDS”), a New Jersey corporation organized on April 7, 2004 and engaged in the educational products business.  On August 7, 2008, the Company entered into a Sublease Agreement to mine and remove merchantable coal in Leslie County, Kentucky.
 
Effective January 1, 2009, the Company sold DDS back to its former stockholder with no proceeds to the Company.  At the date of sale, DDS had assets of $56,773 and liabilities of $63,522.  Accordingly, the Company recognized a gain from disposal of DDS of $6,749 in the three months ended March 31, 2009.
 
2.
INTERIM FINANCIAL INFORMAITION
 
The unaudited financial statements as of September 30, 2009 and for the periods ended September 30, 2009 and 2008 have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with instructions to Form 10-Q. In the opinion of management, the unaudited financial statements have been prepared on the same basis as the annual financial statements and reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the financial position as of September 30,2009 and the results of operations and cash flows for the periods ended September 30, 2009 and 2008. The financial data and other information disclosed in these notes to the interim financial statements related to these periods are unaudited. The results for the three and nine months ended September 30, 2009 are not necessarily indicative of the results to be expected for any subsequent quarter of the entire year ending December 31, 2009. The balance sheet at December 31, 2008 has been derived from the audited financial statements at that date.
 
Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to the Securities and Exchange Commission’s rules and regulations.  These unaudited financial statements should be read in conjunction with our audited financial statements and notes thereto for the year ended December 31, 2008 as included in our Form 10-K filed with the Securities and Exchange Commission on April 15, 2009.

 
8
 
 
3 
COAL LEASE
 
On August 7, 2008, the Company entered into a Sublease Agreement with The Lost Creek Land and Mineral Company(“Lost Creek”) to mine and remove the merchantable coal on a tract of property in Leslie County, Kentucky described in a Lease Agreement dated August 14, 2007. The term of the Sublease is 5 years, in the event that the Company is mining and removing said coal from said seam at the end of the 5 th year, the Company may have an additional 5 year term.  Pursuant to the agreement, the Company agreed to hire Lost Creek to mine the coal and to pay Lost Creek $20.00 per ton of coal sold; Lost Creek agreed to pay the 8% royalty due under the underlying lease, Also, the Company paid Lost Creek in 2008 a $50,000 initial nonrefundable royalty, recoupable against $5.00 of the $20.00 per ton royalty due Lost Creek for each ton mined and sold by Lost Creek on behalf of the Company.
 
On April 13, 2009, Lost Creek received notice that the lessor of the property was asserting breaches of the Coal Lease that underlies and controls the sublease which the Company has with Lost Creek.  Subsequently, Lost Creek advised the Company that it does not intend to defend its rights to the subleased seam. Accordingly, the Company recorded an impairment charge of $50,000 and reduced the balance of the Coal Lease from $50,000 to $0 at September 30, 2009.
 
4. 
SUBSEQUENT EVENTS
 
The Company has evaluated subsequent events through the filing date of this Form 10-Q and has determined that there were no subsequent events to recognize or disclose in these financial statements.

 
9
 
 
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Plan of Operation

The statements contained in this prospectus are not purely historical statements, but rather include what we believe are forward-looking statements. The forward-looking statements are based on factors set forth in the following discussion and in the discussions under "Risk Factors" and "Business." Our actual results could differ materially from results anticipated in these forward-looking statements. All forward-looking statements included in this document are based on information available to us on the date hereof, and we assume no obligation to update any such forward-looking statements.

Overview

We are a development stage corporation that acquires coal leases. Our Company, Terra Energy Resources, Ltd., formerly Terra Media, Ltd., a Delaware corporation, was formed on February 28, 2001 to engage in the sale of CD’s and later, in the development of educational software. A share exchange agreement, effective as of June 15, 2006, was executed by and between Ding Dong School and the Company, wherein the shareholders of Ding Dong School exchanged their shares with shares of the Company.

On March 1, 2004, our Certificate of Incorporation was voided by the State of Delaware for non-payment of franchise taxes in the amount of $114.40, including interest, fees and penalties, for 2002 and $164.49, including taxes, fees and penalties, for 2003, which outstanding amounts were paid on June 27, 2005. On June 27, 2005, a Certificate for Renewal and Revival of our Certificate of Incorporation (the "Certificate") was filed with the State of Delaware, which restored, renewed and revived our Certificate of Incorporation commencing on February 29, 2004. In accordance with Delaware Corporation law, upon the filing of the Certificate, our Certificate of Incorporation was renewed and revived with the same force and effect as if it had not been voided. Such reinstatement validated all contracts, acts, and matters, done and performed by our officers and agents within the scope of our Certificate of Incorporation during the time the Certificate of Incorporation was voided. We were not assessed any franchise taxes for the year 2004 because our Certificate of Incorporation was revoked and voided in 2004. On March 6, 2006, we paid our franchise taxes for 2005 in the amount of $162.03.

Events and Uncertainties Critical to Our Business

We have had limited operations and like all new businesses face certain uncertainties, including expenses, difficulties, complications and delays frequently encountered in connection with conducting operations, including capital requirements and management's potential underestimation of initial and ongoing costs. We have had little or no revenues since our inception. Also, there is no guarantee that we may be able to generate any interest in our product that will result in any sales in the future. There is no guarantee that we will be able to generate sufficient sales to make our operations profitable. We may continue to have little or no sales and continue to sustain losses in the future. If we continue to sustain losses we will be forced to curtail our operations and go out of business. Our success depends in a large part on our ability to acquire and successfully exploit coal leases. While we are currently seeking to acquire such leases and exploit one that we have obtained there is no guarantee that these efforts will result in any substantial sales. Because of lack of funding, we are unable to currently pay market prices for coal leases and thus are compelled to look for additional financing. There can be no assurance that such financing will be obtained and the failure to obtain such financing will materially and adversely affect our business.

 
10
 

If we are able to obtain funding to become fully operational, there is no guarantee that we will be able to find coal leases and the personnel who will be able to work closely with us to help locate and exploit such leases and acquire others.

Critical Accounting Policies

Our financial statements are prepared in accordance with accounting principles generally accepted in the United States, which require management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The critical accounting policies that affect our more significant estimates and assumptions used in the preparation of our financial statements are reviewed and any required adjustments are recorded on a monthly basis.

Revenue Recognition

Revenue is recognized when products are shipped or services are rendered.

  Research and Development

Research and development costs are charged to expense as incurred.

 
11
 

Off-Balance Sheet Arrangements

We do not have any commercial commitments or off balance sheet financing.

Plan of Operations

 The Company has not had any revenues since 2006.  Due to lack of working capital, it is uncertain whether we will be able to develop our coal lease.

 At present, costs of operations has been, and if necessary will continue to be, funded by our sole officer and director until such time as we are able to complete a private placement. There are no formal or written agreements with respect to the advance of funds to us by our officer. Such funds will be disbursed on an as needed basis until the financing is raised. Catherine Ballonqui has advanced funds to us to cover the costs associated with the acquisition of our sole lease our officers, directors and affiliates are not legally bound to provide funding to us. If Ms. Ballonqui does not pay for these expenses, we will be forced to obtain funding. We currently do not have any arrangements to obtain additional financing. In view of our limited operating history, our ability to obtain additional funds is limited. Additional financing may only be available, if at all, upon terms which may not be commercially advantageous to us to acquire leases, pay permitting and mining costs and as a result we may be forced to go out of business.

Liquidity and Capital Resources

As of September 30, 2009, we had cash of $0, as compared to $36 at December 31, 2008. Based upon our current cash reserves and forecasted operations, we believe that we will need to obtain at least $250,000 in outside funding to implement our plan of operation over the next twelve months. Based on our current cash balance, and the desire of Catherine Ballonqui to continue funding our operations at a minimal level, management believes that we can satisfy our cash requirements for the next five months. However, there are no formal or written agreements with respect to the advance of funds to the Company by our officers, directors and affiliates for payment of said costs. Accordingly, our officers, directors and other affiliates are not legally bound to provide funding to us. Because of our limited operations, if our sole officer and director do not pay for our expenses, we will be forced to obtain funding. We currently do not have any arrangements to obtain additional financing from other sources. In view of our limited operating history, our ability to obtain additional funds is limited. Additional financing may only be available, if at all, upon terms which may not be commercially advantageous to us.

The working capital deficiency at September 30, 2009 was $71,412 as compared to negative working capital of $128,236 at December 31, 2008. These factors create substantial doubt about our ability to continue as a going concern. The recovery of assets and the continuation of future operations are dependent upon our ability to obtain additional debt or equity financing and our ability to generate revenues sufficient to continue pursuing our business purpose.

 
12
 

The issuance of additional equity securities by us could result in a significant dilution in the equity interests of our current stockholders.
 
PART II – OTHER INFORMATION
 
ITEM 1. LEGAL PROCEEDINGS
 
From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have, individually or in the aggregate, a material adverse affect on our business, financial condition or operating results, except for the notification we received asserting breach of the sole coal sublease owned by us. We intend to assert our continuing right to mine coal pursuant to said sublease. If we were to lose this sublease our business would be adversely affected.

 
13
 
 
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES, USE OF PROCEEDS AND PURCHASES OF EQUITY SECURITIES
 
The only sales of unregistered securities of the Registrant during the past three fiscal years were:
 
Common Stock
 
On June 15, 2006, the Company issued 11,634,500 shares of common stock to certain Ding Dong School, Ltd. shareholders of record as of December 31, 2005 the Company’s predecessor, in exchange for 11,634,500 Ding Dong School, Ltd. shares, pursuant to the Plan of Share Exchange and Reorganization, dated June 15, 2006.
 
In 2007, the Company sold an aggregate of 355,000 shares of common stock for an aggregate of $2,500 at $.007 per share through our Registered offering.
 
On October 23, 2008, pursuant to the terms of a Stock Purchase Agreement, Catherine Ballonqui purchased 29,358,003 shares of the issued and outstanding common stock of Terra Energy Resources, Ltd. (the “Company”) from Thomas P. Monahan and John Swint, shareholders of the Company, for $241,350 in cash placed into attorney's escrow and a contractual obligation to pay an additional $300,000 in cash not later than December 31, 2009 (as extended).   The total of 29,358,003 shares represents approximately 66% of the outstanding common stock of the Company. Catherine Ballonqui used personal funds to purchase the shares of the Company.
 
ITEM 3. DEFAULTS ON SENIOR SECURITIES
 
Not applicable.
 
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
 
Registrant submitted no matters to a vote of its security holders during its fiscal quarter ended September 30, 2009.
 
ITEM 5. OTHER INFORMATION
 
Not applicable.
 
 
14
 
 
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
 
In the quarterly period ended September 30, 2009, the Company filed one Form 8-K dated August 4, 2009, which related to the change in our certifying accountant.
 
Exhibit No.
 
   
Description
 
   
31
Certifications.
   
32
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
   
*      4.1
Form of certificate evidencing shares of common stock.
 
* Previously filed by reference from Form SB-2 filed with the Commission on November 13, 2006.
 
  SIGNATURES
 
     Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of 1934, the Registrant has duly caused this quarterly report upon Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized on this 23 rd day of  December, 2009.
 
TERRA ENERGY RESOURCES, LTD.
 
BY:
/s/ Catherine Balloqui
Catherine Balloqui, President, Secretary, Treasurer,
Director, and Chief Financial Officer
and Controller (Principal Accounting Officer)
 
15
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