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SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, DC 20549
 
 FORM 10-QSB
  þ
    
    QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 FOR THE QUARTERLY PERIOD ENDED June 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
    
    (IRS Employer Identification No.)Incorporation of Organization)
 
 
 
  þ o
  o þ
    o þ




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PART I
 FINANCIAL INFORMATION
 ITEM 1.
    
    FINANCIAL STATEMENTS (UNAUDITED)FINANCIAL STATEMENTS OF REGISTRANTBALANCE SHEETS AS OF JUNE 30, 2007 AND DECEMBER 31, 2006
    
    
    3STATEMENTS OF OPERATIONS FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2007 AND 2006
    
    
    4STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2007 AND 2006
    
    
    5NOTES TO FINANCIAL STATEMENTS
    
    
    6ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF OPERATIONS
    
    
    10ITEM 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
    
    
    18EX-31.1EX-31.2EX-32.1EX-32.2
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JUNE 30,
    
    
    DECEMBER 31,2007
    
    
    2006(UNAUDITED)ASSETSCURRENT ASSETS:Cash
    
    $
    4,796
    
    
    $
    1,178,946Accounts receivable:Managed limited partnerships
    
    
    199
    
    
    
    12,883Related parties
    
    
    1,805
    
    
    
    19,081Trade and other
    
    
    101,787
    
    
    
    524,277Prepaid expenses and other current
assets
    
    
    
    
    
    
    33,909TOTAL CURRENT ASSETS
    
    
    108,587
    
    
    
    1,769,096PROPERTY AND EQUIPMENT, NET
    
    
    615,266
    
    
    
    595,244OTHER NONCURRENT ASSETS
    
    
    7,024
    
    
    
    7,024TOTAL ASSETS
    
    $
    730,877
    
    
    $
    2,371,364LIABILITIES
AND STOCKHOLDERS EQUITY (DEFICIT)CURRENT LIABILITIES:Accounts payable and accrued expenses
    
    $
    456,005
    
    
    $
    1,034,539Accounts payable-related parties
    
    
    343,186
    
    
    
    223,731AFE advances from JIB owners
    
    
    54,120
    
    
    
    377,439Current portion of long term debt
    
    
    122,954
    
    
    
    86,299TOTAL CURRENT LIABILITIES
    
    
    976,265
    
    
    
    1,722,008LONG TERM LIABILITY-P&A COSTS
    
    
    60,661
    
    
    
    67,291LONG TERM DEBT
    
    
    17,323
    
    
    
    65,483TOTAL LIABILITIES
    
    
    1,054,249
    
    
    
    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 June 30, 2007 and December 31,
2006 (liquidation preference of
$233,000 at June 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 June 30, 2007 and
December 31, 2006
    
    
    131,406
    
    
    
    131,406Additional paid-in capital
    
    
    13,214,604
    
    
    
    13,214,604Accumulated deficit
    
    
    (13,669,405
    )
    
    
    (12,829,451
    )TOTAL STOCKHOLDERS EQUITY (DEFICIT)
    
    
    (323,372
    )
    
    
    516,582TOTAL LIABILITIES AND STOCKHOLDERS
EQUITY (DEFICIT)
    
    $
    730,877
    
    
    $
    2,371,364
 
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THREE MONTHS ENDED
    
    
    SIX MONTHS ENDEDJUNE 30,
    
    
    JUNE 30,2007
    
    
    2006
    
    
    2007
    
    
    2006OPERATING REVENUES:Prospect fees from others
    
    $
    
    
    
    $
    5,834
    
    
    $
    
    
    
    $
    22,500Prospect fees from related parties
    
    
    
    
    
    
    40,000
    
    
    
    
    
    
    
    40,000Management fees
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    40,000Oil and gas sales
    
    
    15,398
    
    
    
    95,772
    
    
    
    19,508
    
    
    
    132,246TOTAL OPERATING REVENUES
    
    
    15,398
    
    
    
    141,606
    
    
    
    19,508
    
    
    
    234,746OPERATING COSTS AND EXPENSES:Lease operating expenses
    
    
    3,483
    
    
    
    43,974
    
    
    
    22,032
    
    
    
    57,133Impairment, abandonment, and dry hole costs
    
    
    
    
    
    
    
    
    
    
    11,598
    
    
    
    Exploration costs
    
    
    102,543
    
    
    
    92,505
    
    
    
    131,909
    
    
    
    177,462Depreciation, depletion and amortization
    
    
    25,763
    
    
    
    54,830
    
    
    
    41,534
    
    
    
    108,698Accretion expense
    
    
    
    
    
    
    1,000
    
    
    
    
    
    
    
    2,000Advertising and marketing costs
    
    
    
    
    
    
    122,645
    
    
    
    6,988
    
    
    
    224,680General and administrative costs
    
    
    224,293
    
    
    
    762,505
    
    
    
    624,775
    
    
    
    1,440,981TOTAL OPERATING COSTS
    
    
    356,082
    
    
    
    1,077,459
    
    
    
    838,836
    
    
    
    2,010,954OPERATING LOSS
    
    
    (340,684
    )
    
    
    (935,853
    )
    
    
    (819,328
    )
    
    
    (1,776,208
    )OTHER INCOME (EXPENSE):Interest Expense
    
    
    (3,124
    )
    
    
    (7,758
    )
    
    
    (6,646
    )
    
    
    (15,817
    )Loss on sale of assets
    
    
    
    
    
    
    (36,992
    )
    
    
    
    
    
    
    (36,992
    )NET LOSS BEFORE INCOME TAX
    
    
    (343,808
    )
    
    
    (980,603
    )
    
    
    (825,974
    )
    
    
    (1,829,017
    )Income Tax Provision
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    NET LOSS
    
    
    (343,808
    )
    
    
    (980,603
    )
    
    
    (825,974
    )
    
    
    (1,829,017
    )SERIES E PREFERRED STOCK CASH DIVIDENDS
    
    
    (6,990
    )
    
    
    (6,990
    )
    
    
    (13,980
    )
    
    
    (13,980
    )NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS
    
    $
    (350,798
    )
    
    $
    (987,593
    )
    
    $
    (839,954
    )
    
    $
    (1,842,997
    )NET LOSS PER COMMON SHARE
    
    $
    (0.01
    
    
    $
    (0.04
    )
    
    $
    (0.03
    )
    
    $
    (0.07
    )Weighted Average Common Shares Outstanding  Basic and
Diluted
    
    
    26,281,133
    
    
    
    25,800,047
    
    
    
    26,281,133
    
    
    
    25,447,669
 
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SIX MONTHS ENDEDJUNE 30,2007
    
    
    2006CASH FLOWS FROM OPERATING ACTIVITIES:Net Loss
    
    $
    (825,974
    )
    
    $
    (1,829,017
    )Adjustments to reconcile net loss to net cash flows used in operating
activities:Depreciation, depletion and amortization
    
    
    41,534
    
    
    
    108,698Impairment, abandonment, and dry hole costs
    
    
    11,598
    
    
    
    Accretion expense
    
    
    
    
    
    
    2,000Loss on sale of assets
    
    
    
    
    
    
    36,992Stock based compensation expense
    
    
    
    
    
    
    567,685Change in operating assets and liabilities:Accounts receivable-trade
    
    
    422,490
    
    
    
    5,854Accounts receivable-related party
    
    
    17,276
    
    
    
    189,813Prepaid expense and other assets
    
    
    46,593
    
    
    
    (21,533
    )AFE advances-JIB owners
    
    
    (323,319
    )
    
    
    (100,857
    )Accounts payable-related party
    
    
    119,455
    
    
    
    (47,600
    )Accounts payable and accrued liabilities
    
    
    (578,534
    )
    
    
    322,787Long Term Liability  P&A Costs
    
    
    (6,630
    )
    
    
    NET CASH USED IN OPERATING ACTIVITIES
    
    
    (1,075,511
    )
    
    
    (765,178
    )CASH FLOW FROM INVESTING ACTIVITIES:Purchase of furniture and computer equipment
    
    
    (10,821
    )
    
    
    (27,983
    )Purchase of oil and gas properties
    
    
    (62,333
    )
    
    
    (438,926
    )Proceeds from sale of assets
    
    
    
    
    
    
    2,175Reimbursement of oil and gas properties
    
    
    
    
    
    
    597,686NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES
    
    
    (73,154
    )
    
    
    132,952CASH FLOWS FROM FINANCING ACTIVITIES:Payments on long term debt
    
    
    (11,505
    )
    
    
    (32,333
    )Proceeds from 2005 US exempt offering
    
    
    
    
    
    
    110,000Proceeds from 2005 Regulation S offering
    
    
    
    
    
    
    315,000Proceeds from exercise of common stock warrants
    
    
    
    
    
    
    404,480Dividends paid
    
    
    (13,980
    )
    
    
    (13,980
    )NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES
    
    
    (25,485
    )
    
    
    783,167NET (DECREASE) INCREASE IN CASH
    
    
    (1,174,150
    )
    
    
    150,941CASH AT BEGINNING OF PERIOD
    
    
    1,178,946
    
    
    
    1,307,747CASH AT END OF PERIOD
    
    $
    4,796
    
    
    $
    1,458,688Supplemental Disclosure of Non-Cash Investing Activities
Accounts Receivable from Sale of Assets
    
    $
    
    
    
    $
    79,372
 
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BAYOU CITY EXPLORATION, INC.
 
 NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
 1. OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 INTERIM REPORTING
   GENERAL
    nd
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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
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STOCK BASED COMPENSATION
  INCOME TAXES
  2. GOING CONCERN
   3. AFFILIATED OIL AND GAS PARTNERSHIPS
  4. RELATED PARTY TRANSACTIONS
 COMMON STOCK TRANSACTIONS:
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RECEIVABLES & PAYABLES WITH RELATED PARTIES:
  NOTE PAYABLE TO BR GROUP:
   PARTICIPATION AGREEMENT IN OIL AND GAS PROSPECTS:
     nd
 5. CONTINGENCIES
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6. SUBSEQUENT EVENTS
  nd
  
 MANAGEMENTS DISCUSSION AND ANALYSIS OF OPERATIONS
 GENERAL OPERATIONS
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DESCRIPTION OF PROPERTIES
   - 12 -




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Key Developed Properties :
      Key Undeveloped Properties :
   RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 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 SIX MONTHS ENDED JUNE 30, 2007 AND 2006
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OPERATING REVENUES
  DIRECT OPERATING COSTS
  EXPLORATION COSTS
  OTHER OPERATING EXPENSES
  INCOME TAX PROVISION
  CAPITAL RESOURCES AND FINANCIAL CONDITION
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CONTROLS AND PROCEDURES
    - 16 -




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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: August 14, 2007
    By:
    /s/ Robert D. BurrChief Executive Officer andPresident
and Acting Chief Financial Officer - 17 -