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SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, DC 20549
 FORM 10-QSB
 (Mark One)
 þ
    
    QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 FOR THE QUARTERLY PERIOD ENDED September 30, 2007
 o
    
    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 FOR THE TRANSITION PERIOD FROM  TO
 BAYOU CITY EXPLORATION, INC.
  NEVADA
    
    61-1306702(State or Other Jurisdiction of 
Incorporation of Organization)
    
    (IRS Employer Identification No.)
 
 
 
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PART IFINANCIAL INFORMATIONITEM 1.
    
    FINANCIAL STATEMENTS (UNAUDITED)FINANCIAL STATEMENTS OF REGISTRANTBALANCE SHEETS AS OF SEPTEMBER 30, 2007 AND DECEMBER 31, 2006
    
    
    3STATEMENTS OF OPERATIONS FOR THE THREE MONTHS AND NINE MONTHS
    
    
    4ENDED SEPTEMBER 30, 2007 AND 2006STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006
    
    
    5NOTES TO FINANCIAL STATEMENTS
    
    
    6ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF OPERATIONS
    
    
    11ITEM 3.
    
    CONTROLS AND PROCEDURES
    
    
    16PART IIOTHER INFORMATIONITEM 1.
    
    LEGAL PROCEEDINGS
    
    
    17ITEM 2.
    
    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
    
    
    17ITEM 3.
    
    DEFAULTS UPON SENIOR SECURITIES
    
    
    17ITEM 4.
    
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    17ITEM 5.
    
    OTHER INFORMATION
    
    
    17ITEM 6.
    
    EXHIBITS
    
    
    17EX-31.1EX-31.2EX-32.1EX-32.2EX-31.1EX-31.2EX-32.1EX-32.2
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SEPTEMBER 30,
    
    
    DECEMBER 31,2007
    
    
    2006(UNAUDITED)ASSETSCURRENT ASSETS:Cash
    
    $
    55,520
    
    
    $
    1,178,946Accounts receivable:Managed limited partnerships
    
    
    199
    
    
    
    12,883Related parties
    
    
    1,805
    
    
    
    19,081Trade and other
    
    
    88,571
    
    
    
    524,277Prepaid expenses and other current assets
    
    
    
    
    
    
    33,909TOTAL CURRENT ASSETS
    
    
    146,095
    
    
    
    1,769,096PROPERTY AND EQUIPMENT, NET
    
    
    596,378
    
    
    
    595,244OTHER NONCURRENT ASSETS
    
    
    7,024
    
    
    
    7,024TOTAL ASSETS
    
    $
    749,497
    
    
    $
    2,371,364LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)CURRENT LIABILITIES:Accounts payable and accrued expenses
    
    $
    383,299
    
    
    $
    1,034,539Accounts payable-related parties
    
    
    280,147
    
    
    
    223,731AFE advances from JIB owners
    
    
    54,120
    
    
    
    377,439Current portion of long term debt
    
    
    473,458
    
    
    
    86,299TOTAL CURRENT LIABILITIES
    
    
    1,191,024
    
    
    
    1,722,008LONG TERM LIABILITY-P&A COSTS
    
    
    60,661
    
    
    
    67,291LONG TERM DEBT
    
    
    2,884
    
    
    
    65,483TOTAL LIABILITIES
    
    
    1,254,569
    
    
    
    1,854,782COMMITMENTS AND CONTINGENCIES
    
    
    
    
    
    
    STOCKHOLDERS EQUITY (DEFICIT):Preferred Stock, $0.001 par value; 5,000,000 shares
authorized; Series E 23,300 shares issued and
outstanding at September 30, 2007 and December 31,
2006 (liquidation preference of $233,000 at
September 30, 2007 and December 31, 2006)
    
    
    23
    
    
    
    23Common Stock, $0.005 par value; 150,000,000 shares
authorized; 26,281,133 shares issued and
outstanding at September 30, 2007 and December 31,
2006
    
    
    131,406
    
    
    
    131,406Additional paid-in capital
    
    
    13,214,604
    
    
    
    13,214,604Accumulated deficit
    
    
    (13,851,105
    )
    
    
    (12,829,451
    )TOTAL STOCKHOLDERS EQUITY (DEFICIT)
    
    
    (505,072
    )
    
    
    516,582TOTAL LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)
    
    $
    749,497
    
    
    $
    2,371,364
 
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THREE MONTHS ENDED
    
    
    NINE MONTHS ENDEDSEPTEMBER 30,
    
    
    SEPTEMBER 30,2007
    
    
    2006
    
    
    2007
    
    
    2006OPERATING REVENUES:Prospect fees from others
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    22,500Prospect fees from related parties
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    40,000Management fees
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    40,000Oil and gas sales
    
    
    16,080
    
    
    
    38,839
    
    
    
    35,588
    
    
    
    171,085TOTAL OPERATING REVENUES
    
    
    16,080
    
    
    
    38,839
    
    
    
    35,588
    
    
    
    273,585OPERATING COSTS AND EXPENSES:Lease operating expenses
    
    
    12,237
    
    
    
    22,229
    
    
    
    34,269
    
    
    
    79,362Impairment, abandonment, and dry hole costs
    
    
    
    
    
    
    
    
    
    
    11,598
    
    
    
    Exploration costs
    
    
    54,910
    
    
    
    99,529
    
    
    
    186,819
    
    
    
    276,991Depreciation, depletion and amortization
    
    
    20,763
    
    
    
    55,143
    
    
    
    62,297
    
    
    
    163,841Accretion expense
    
    
    
    
    
    
    1,000
    
    
    
    
    
    
    
    3,000Advertising and marketing costs
    
    
    5,791
    
    
    
    9,388
    
    
    
    12,779
    
    
    
    234,068General and administrative costs
    
    
    90,898
    
    
    
    662,709
    
    
    
    715,673
    
    
    
    2,103,690TOTAL OPERATING COSTS
    
    
    184,599
    
    
    
    849,998
    
    
    
    1,023,435
    
    
    
    2,860,952OPERATING LOSS
    
    
    (168,519
    )
    
    
    (811,159
    )
    
    
    (987,847
    )
    
    
    (2,587,367
    )OTHER INCOME (EXPENSE):Interest Expense
    
    
    (6,191
    )
    
    
    (4,816
    )
    
    
    (12,837
    )
    
    
    (20,633
    )Gain on sale of assets
    
    
    
    
    
    
    236,372
    
    
    
    
    
    
    
    199,380NET LOSS BEFORE INCOME TAX
    
    
    (174,710
    )
    
    
    (579,603
    )
    
    
    (1,000,684
    )
    
    
    (2,408,620
    )Income Tax Provision
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    NET LOSS
    
    
    (174,710
    )
    
    
    (579,603
    )
    
    
    (1,000,684
    )
    
    
    (2,408,620
    )SERIES E PREFERRED STOCK CASH DIVIDENDS
    
    
    (6,990
    )
    
    
    (6,990
    )
    
    
    (20,970
    )
    
    
    (20,970
    )NET LOSS ATTRIBUTABLE TO COMMON
STOCKHOLDERS
    
    $
    (181,700
    )
    
    $
    (586,593
    )
    
    $
    (1,021,654
    )
    
    $
    (2,429,590
    )NET LOSS PER COMMON SHARE
    
    $
    (0.01
    )
    
    $
    (0.02
    )
    
    $
    (0.04
    )
    
    $
    (0.09
    )Weighted Average Common Shares Outstanding
 Basic and Diluted
    
    
    26,281,133
    
    
    
    26,037,860
    
    
    
    26,281,133
    
    
    
    25,646,560
 
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NINE MONTHS ENDEDSEPTEMBER 30,2007
    
    
    2006CASH FLOWS FROM OPERATING ACTIVITIES:Net Loss
    
    $
    (1,000,684
    )
    
    $
    (2,408,620
    )Adjustments to reconcile net loss to net cash flows used in operating activities:Depreciation, depletion and amortization
    
    
    62,297
    
    
    
    163,841Impairment, abandonment, and dry hole costs
    
    
    11,598
    
    
    
    Accretion expense
    
    
    
    
    
    
    3,000Loss on sale of assets
    
    
    
    
    
    
    (199,380
    )Stock based compensation expense
    
    
    
    
    
    
    788,715Change in operating assets and liabilities:Accounts receivable-trade
    
    
    435,706
    
    
    
    30,353Accounts receivable-related party
    
    
    17,276
    
    
    
    218,961Prepaid expense and other assets
    
    
    46,593
    
    
    
    64,312AFE advances-JIB owners
    
    
    (323,319
    )
    
    
    (183,307
    )Accounts payable-related party
    
    
    56,416
    
    
    
    (47,600
    )Accounts payable and accrued liabilities
    
    
    (651,240
    )
    
    
    329,007Long Term Liability  P&A Costs
    
    
    (6,630
    )
    
    
    NET CASH USED IN OPERATING ACTIVITIES
    
    
    (1,351,987
    )
    
    
    (1,240,718
    )CASH FLOW FROM INVESTING ACTIVITIES:Purchase of furniture and computer equipment
    
    
    (10,821
    )
    
    
    (34,231
    )Purchase of oil and gas properties
    
    
    (64,208
    )
    
    
    (634,515
    )Proceeds from sale of assets
    
    
    
    
    
    
    156,853Reimbursement of oil and gas properties
    
    
    
    
    
    
    597,686NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES
    
    
    (75,029
    )
    
    
    85,793CASH FLOWS FROM FINANCING ACTIVITIES:Payments on long term debt
    
    
    (13,319
    )
    
    
    (51,591
    )Proceeds from line of credit from related party
    
    
    337,879Proceeds from 2005 US exempt offering
    
    
    
    
    
    
    110,000Proceeds from 2005 Regulation S offering
    
    
    
    
    
    
    315,000Proceeds from 2006 Regulation S offering
    
    
    
    
    
    
    131,250Proceeds from exercise of common stock warrants
    
    
    
    
    
    
    404,480Proceeds from exercise of stock options
    
    
    
    
    
    
    5,000Stock issuance costs
    
    
    
    
    
    
    (31,000
    )Dividends paid
    
    
    (20,970
    )
    
    
    (20,970
    )NET CASH PROVIDED BY FINANCING ACTIVITIES
    
    
    303,590
    
    
    
    862,169NET DECREASE IN CASH
    
    
    (1,123,426
    )
    
    
    (292,756
    )CASH AT BEGINNING OF PERIOD
    
    
    1,178,946
    
    
    
    1,307,747CASH AT END OF PERIOD
    
    $
    55,520
    
    
    $
    1,014,991Supplemental Disclosure of Non-Cash Investing Activities:Related party debt forgiveness on property disposition
    
    $
    
    
    
    $
    198,188Cash paid for interest
    
    $
    3,542
    
    
    $
    20,633
 
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BAYOU CITY EXPLORATION, INC.
 
 NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
 1. OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 INTERIM REPORTING
  GENERAL
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USE OF ESTIMATES
  RECLASSIFICATIONS
  RECENTLY ISSUED ACCOUNTING STANDARDS
  Fair Value Measures
 The Fair Value Option for Financial Assets and
Financial Liabilities
 SERIES E PREFERRED STOCK DIVIDENDS
   STOCK BASED COMPENSATION
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INCOME TAXES
       2. GOING CONCERN
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3. AFFILIATED OIL AND GAS PARTNERSHIPS
  4. RELATED PARTY TRANSACTIONS
 COMMON STOCK TRANSACTIONS:
  RECEIVABLES FROM RELATED PARTIES:
  PAYABLES AND NOTES PAYABLES TO RELATED PARTIES:
  September
    
    December30, 2007
    
    31, 2006Trade payable to BR Group
    
    $
    0
    
    
    $
    27,000Payable to BR Group for proceeds from sale of asset
    
    
    23,000
    
    
    
    Drilling Advances payable to Gulf Coast Drilling Co.
    
    
    162,000
    
    
    
    197,000Payable to minority shareholders for operating capital
    
    
    85,000
    
    
    
    Note payable to BR Group
    
    
    123,000
    
    
    
    130,000Line of Credit payable to BR Group for operating capital
    
    
    338,000
    
    
    
    Accrued Interest
    
    
    9,000
    
    
    
    Total Payable or Notes Payable to Related Parties
    
    $
    740,000
    
    
    $
    354,000
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PARTICIPATION AGREEMENT IN OIL AND GAS PROSPECTS:
       5. CONTINGENCIES
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MANAGEMENTS DISCUSSION AND ANALYSIS OF OPERATIONS
 GENERAL OPERATIONS
     nd
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DESCRIPTION OF PROPERTIES
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Key Developed Properties :
      Key Undeveloped Properties :
 McAllen Project
 South Texas El Sauz Project
 Raymondville Project
 RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006
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OPERATING REVENUES
  DIRECT OPERATING COSTS
  EXPLORATION COSTS
  OTHER OPERATING EXPENSES
  INCOME TAX PROVISION
  RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006
  OPERATING REVENUES
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DIRECT OPERATING COSTS
  EXPLORATION COSTS
  OTHER OPERATING EXPENSES
  INCOME TAX PROVISION
  CAPITAL RESOURCES AND FINANCIAL CONDITION
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CONTROLS AND PROCEDURES
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PART II
 
 OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 ITEM 5. OTHER INFORMATION
  
 ITEM 6. EXHIBITS
 
 
 SIGNATURES
  BAYOU CITY EXPLORATION, INC.Date: November 13, 2007
    
    By:
    
    /s/ Robert D. BurrChief Executive Officer and 
President
and Acting Chief Financial Officer
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