exoboxlogo2.jpgExobox Technologies Corp (OTCBB: EXBX, EXBX message board or EXBX.OB) share price went on a crazy rally on Thursday adding over 170% upon announcement of letter of intent. The company disclosed they have plans to buy $22.5 million worth of producing oil and gas well in Ohio Clinton and Marcellus Shale region.

Despite the large proven reserves the company would still need to pay $13.25 million for the ownership rights. The properties also have an accumulated debt up to $3 million which is included in the preliminary price. However you look at it, that's over half the price of what the reserves are worth. That is the first thing that should worry traders.

Secondly Exobox is a development stage company engaged in server security software development. Apart from operating a totally non-related business, the company also has no cash to cover the purchase. The price is likely to be paid with a mix of convertible notes, preferred stock and common stock up to 9.9% of company's current outstanding stock.

So basically they are a software development company that seeks to get additional money from oil and gas business. And they are prepared to give up nearly 10% of their company ownership for this opportunity. Currently we lack information to determine the possible outcomes of this deal but several scenarios are possible.

No company would give up producing wells. This means either the wells are not profitable to operate anymore (due to SG&A costs or oil/gas prices), or the sellers see some potential in Exobox's business and want to participate in it so badly.

More recent news also announced some shareholders have agreed to return 150 million of shares (or somewhat 32%) to the company. All is done in effort to gather resources necessary to pay for the wells if discussed LOI goes through. Guess this news reject the possibility of a pump and dump scenario, but it's still too early to say if the deal is liable and possibly profitable.