UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB/A-2
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934.
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2007
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934.
FOR THE TRANSITION PERIOD FROM TO
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COMMISSION FILE NUMBER: 000-32747
GULF COAST OIL & GAS, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
NEVADA 98-0128688
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5847 SAN FELIPE, SUITE 1700 77057
HOUSTON, TX (Zip Code)
(Address of principal executive offices)
Issuer's Telephone Number: (713) 589-4620
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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 $.001
(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 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]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). YES [ ] NO [X]
State issuer's revenues for its most recent fiscal year: $223,462
State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was sold, or the average bid and asked price of such common equity, as of a
specified date within the past 60 days: approximately $285,165 as of April 8,
2008. The aggregate market value was based upon 950,552,788 shares held by
non-affiliates and the closing price of $0.0003 per share for common stock on
the Over-the-Counter Bulletin Board as of April 8, 2008.
(ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PAST FIVE YEARS)
Check whether the issuer has filed all documents and reports required to be
filed by section 12, 13, or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. YES [ ] NO [ ]
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date: 967,052,788 as of April 8, 2008.
(DOCUMENTS INCORPORATED BY REFERENCE)
If the following documents are incorporated by reference, briefly describe them
and identify the part of the Form 10-KSB (e.g., Part 1, Part II, etc.) into
which the document is incorporated: (1) any annual report to security-holders;
(2) any proxy or information statement; and (3) any prospectus filed pursuant to
Rule 424(b) or (c) of the Securities Act of 1933 ("Securities Act"). The listed
documents should be clearly described for identification purposes (e.g., annual
report to security holders for fiscal year ended December 24, 1990). NONE
Transitional Small Business Disclosure Format: YES [ ] NO [X]
GULF COAST OIL & GAS, INC.
FORM 10-KSB/A-2
TABLE OF CONTENTS
PAGE
PART I
Item 1. DESCRIPTION OF BUSINESS 1
Item 2. DESCRIPTION OF PROPERTY 4
Item 3. LEGAL PROCEEDINGS 4
Item 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS 4
PART II
Item 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND SMALL BUSINESS ISSUER PURCHASES 4 OF EQUITY SECURITIES
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION 6
Item 7. FINANCIAL STATEMENTS 14
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON 14
ACCOUNTING AND FINANCIAL DISCLOSURE
Item 8A CONTROLS AND PROCEDURES 14
Item 8B OTHER INFORMATION 16
PART III
Item 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 16
Item 10. EXECUTIVE COMPENSATION 17
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS 18
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 18
Item 13. EXHIBITS 18
Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES 20
FINANCIAL STATEMENTS F-1
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EXPLANATORY NOTE
Gulf Coast Oil & Gas, Inc. ("we" or the "Company") is filing this Amendment No.
2 to its annual report on Form 10-KSB for the year ended December 31, 2007 to
amend our disclosure in Item 8A Controls and Procedures. As required by Rule
13a-15 or 15d-15 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), our Chief Executive Officer/Chief Financial Officer carried out
an evaluation of the effectiveness of the design and operation of our disclosure
controls and procedures pursuant to Rule 13a-15(e) or 15d-15(e) under the
Exchange Act as of the end of the period covered by this report. Based on the
foregoing evaluation, we initially concluded that our disclosure controls and
procedures were effective. However, after reviewing a comment letter from the
SEC dated July 21, 2008 and subsequent discussions with the SEC Division of
Corporation Finance staff, we realized that we failed to disclose management's
assessment of internal control over financial reporting in our annual report on
Form 10-KSB for the year ended December 31, 2007 filed with the SEC on April 15,
2008. Therefore, we subsequently amended our annual report on Form 10-KSB for
the year ended December 31, 2007 to enhance our disclosure regarding disclosure
controls and procedures and to include disclosure about management's assessment
of internal control over financial reporting. Due to this earlier omission, we
now conclude that our disclosure controls and procedures were not effective as
of December 31, 2007.
PART I
This report on Form 10-KSB/A-2 contains "forward-looking statements". These
statements involve important known and unknown risks, uncertainties and other
factors and can be identified by phrases using "estimate," "anticipate,"
"believe," "project," "expect," "intend," "predict," "potential," "future,"
"may," "should" and similar expressions or words. Our future results,
performance or achievements may differ materially from the results, performance
or achievements discussed in the forward-looking statements. There are numerous
factors that could cause actual results to differ materially from the results
discussed in forward-looking statements, including changes in existing laws or
the introduction of new laws, regulations or policies (including environmental
regulations) that could increase the cost of oil and gas exploration and
extraction, fluctuations in the market price of oil and gas, advances in
technology that may reduce dependence on oil and gas as a source of energy, and
other risk factors detailed in this report and in our other SEC filings. This
list provides examples of factors that could affect the results described by
forward-looking statements contained in this Form 10-KSB/A-2. However, this list
is not intended to be exhaustive; many other factors could impact our business
and it is impossible to predict with any accuracy which factors could result in
which negative impacts. Although we believe that the forward-looking statements
contained in this Form 10-KSB/A-2 are reasonable, we cannot provide you with any
guarantee that the anticipated results will be achieved. All forward-looking
statements in this Form 10-KSB/A-2 are expressly qualified in their entirety by
the cautionary statements contained in this section and you are cautioned not to
place undue reliance on the forward-looking statements contained in this Form
10-KSB/A-2. In addition to the risks listed above, other risks may arise in the
future, and we disclaim any obligation to update information contained in any
forward-looking statement.
ITEM 1. DESCRIPTION OF BUSINESS
OVERVIEW
We are an exploration stage company engaged in the oil and gas exploration
business in the continental United States. We expect that the majority of our
initial projects will have a comparatively lower risk profile in order to
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increase our chances of obtaining positive cash flow in the near term. However,
we may also seek to acquire interests in riskier projects that have the
potential of developing into major oil or gas fields, and will consider
acquiring an interest (working and/or royalty) in proven (based upon offset
production and geology reports) but undeveloped drilling locations.
We were originally incorporated in Nevada under the name First Cypress
Technologies, Inc. on September 14, 1999. In July 2003, the Company changed its
name to First Cypress, Inc. and then in October 2003 the Company changed its
name to Otish Mountain Diamond Company. We changed our name to Gulf Coast Oil &
Gas, Inc., on January 13, 2005. Our common stock is currently quoted on the NASD
Over-the-Counter Bulletin Board ("OTC-BB") under the symbol "GCOG.OB".
We believe potentially profitable oil and gas projects exist in the United
States that, because of their relatively small barrel potential, have been
neglected by major oil companies. We seek to identify and invest in such
opportunities. The Company intends to continue to operate the business with low
overhead to maintain a strong cash position, while seeking out relatively lower
risk drilling and exploration projects that do not require significant upfront
capital investment.
Prior to the first quarter of 2007, we had not produced revenues and have been
dependent on debt and equity financings to finance our operations. During the
year ended December 31, 2007, we generated total revenues of approximately
$223,462. We generated $209,821 in revenues from our working interests in three
producing wells located in Corpus Christi, Texas (the "Corpus Christi Project")
and $13,641 in interest income.
OIL AND GAS PROJECTS
SARATOGA PROSPECT
On June 8, 2005, we paid $100,000 to Bourgeois Energy, Inc. to acquire a 75%
working interest in the exploration and development of land referred to as the
Saratoga Prospect located in the Saratoga Chalk Formation on the outskirts of
the Town of Many, in Sabine Parish, Louisiana. The Saratoga prospect is located
within the Upper Cretaceous, a historically productive trend whose success is
attributable to the presence of cretaceous age fractured chalk. Under the terms
of the Agreement with Bourgeois Energy, we had one year from the date of
acquisition of leasehold interests to advance to Bourgeois Energy the remaining
costs of the project (which may be advanced in stages for drilling and
completion activities, respectively), which we estimate at $380,000. In August
of 2006, the Company paid $30,000 to renew the leases in Louisiana for two
additional years.
At present, the Company intends to renew the leases before they expire and is
actively seeking a drilling partner.
CORPUS CHRISTI PROJECT
On May 9, 2006, the Company paid a deposit of $262,500 towards an interest in
oil and gas property (the Weil 8-C Well) in Corpus Christi, Texas. Pursuant to
the agreements entered into with the operator, the Company acquired an undivided
28% working interest and a 21% net revenue interest in the Weil 8-C Well in
exchange for a 46.66% billing interest.
On August 1, 2006, the Company paid $108,251.20 to hookup the Weil 8-C Well and
prepare it for production.
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On August 15, 2006, the Company paid a deposit of $104,533.18 towards an
interest in an additional well known as the Weil 3-C Well in Corpus Christi,
Texas. Pursuant to the agreements entered into with the operator, the Company
acquired an undivided 28% working interest and a 21% net revenue interest in the
Weil 3-C Well for a 46.66% billing interest.
On August 31, 2006, the Company paid a deposit of $134,520.78 towards an
interest in an additional well known as the Weil 7-C Well in Corpus Christi,
Texas. Under the agreement, the Company acquired an undivided 28% working
interest and a 21% net revenue interest in the Weil 7-C Well for a 46.66%
billing interest.
On September 19, 2006, the Company paid $135,948.57 to bring the Weil 3-C and
Weil 7-C Wells into production and convert both the Weil 2-C and Weil 6-C wells
on the property to salt water disposal wells. It is the intent of the Company to
offer salt water disposal services to neighboring companies as a side revenue
generating service.
During 2007, the Company spent approximately $175,212 for work done on the
Corpus Christi Project. As of the date hereof, each of the three wells (Weil
8-C, Weil 3-C and Weil 7-C) is in production. In early 2007, we anticipated that
revenues from the three producing wells of the Corpus Christi Project would be
sufficient to fund our overhead costs for the near term. While the Corpus
Christi Project has generated $209,821 in revenues for us, the wells have not
recently produced at anticipated levels. As a result, the Company intends to
expend additional monies reworking Weil 8-C in an effort to stimulate production
by entering additional up-hole zones. There can be no assurances that we will be
successful in our efforts to stimulate production and production from these
wells may continue to be insufficient to fund ongoing expenses.
EMPLOYEES
We currently have one (1) employee, Rahim Rayani, our Chief Executive Officer.
We have entered into a consulting agreement with C. Craig Bourgeois, a
geologist. Mr. Bourgeois has assisted us in identifying potential oil and gas
prospects. Mr. Bourgeois is the sole shareholder of Bourgeois Energy, Inc. We
contemplate using other independent contractors from time to time as the need
arises.
COMPETITION
We operate in the highly competitive areas of oil and natural gas exploration,
exploitation, acquisition and production. We face intense competition from a
large number of independent, technology-driven companies as well as both major
and other independent oil and natural gas companies in a number of areas such
as:
o seeking to acquire desirable producing properties or new leases for
future exploration;
o marketing our oil and natural gas production; and
o seeking to acquire the equipment and expertise necessary to operate
and develop those properties.
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The oil and gas exploration industry is made up of both large, well organized,
well funded competitors and some small start-up companies, many of which have
substantially greater financial, technical, marketing and human resource
capabilities than we have. Many of our competitors have financial and other
resources substantially in excess of those available to us. This highly
competitive environment could harm our business.
GOVERNMENT REGULATION AND ENVIRONMENTAL COMPLIANCE
Our oil and natural gas exploration and production activities are subject to
extensive laws, rules and regulations promulgated by federal and state
legislatures and agencies, including the Federal Energy Regulatory Commission
(FERC) and the Environmental Protection Agency.
Although we do not intend to own or operate any pipelines or facilities that are
directly regulated by FERC, its regulation of third party pipelines and
facilities could indirectly affect our ability to transport or market our
production. Moreover, FERC has in the past, and could in the future impose price
controls on the sale of natural gas. In addition, we believe we are in
substantial compliance with all applicable laws and regulations, however, we are
unable to predict the future cost or impact of complying with such laws and
regulations because they are frequently amended, interpreted and reinterpreted.
ITEM 2. DESCRIPTION OF PROPERTY
With respect to the Company's interest in the Saratoga Prospect and the Corpus
Christi Project, please see "Item 1 - Description of Business".
The Company currently leases on a month to month basis 250 sq. ft. of office
space located at 5847 San Felipe, Suite 1700, Houston, Texas 77057. The current
rental is $600.00 per month. This facility has sufficient space to meet our near
term needs.
ITEM 3. LEGAL PROCEEDINGS
We are not a party to any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of our security holders during the fourth
quarter of the fiscal year ended December 31, 2007.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Gulf Coast Oil & Gas, Inc.'s Common Stock trades on the OTC-BB under the symbol
GCOG.OB. The high and low closing bid information for our Common Stock is based
on information received from Pink Sheets, LLC based on trading information as
reported by the NASD Composite Feed or other qualified inter-dealer quotation
medium.
QUARTER ENDED HIGH LOW
March 31, 2006 $ 0.082 $ 0.023
June 30, 2006 $ 0.056 $ 0.025
September 30, 2006 $ 0.034 $ 0.020
December 31, 2006 $ 0.075 $ 0.011
March 31, 2007 $ 0.016 $ 0.006
June 30, 2007 $ 0.008 $ .0025
September 30, 2007 $ .0023 $ .0007
December 31, 2007 $ .0017 $ .0006
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The quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commission and may not represent actual transactions. As of April 8, 2008, there
were 42 shareholders of record of our common stock.
We have never declared or paid any cash dividends on the capital stock and do
not anticipate paying any cash dividends on the capital stock in the foreseeable
future. We intend to retain the earnings, if any, to finance the expansion of
the business. The declaration and payment of dividends in the future, if any,
will be determined by the Board of Directors in light of conditions then
existing, including our earnings, financial condition, capital requirements and
other factors.
SECURITIES ISSUED DURING FISCAL YEAR ENDING DECEMBER 31, 2007
On February 1, 2006, we entered into a Securities Purchase Agreement with
Cornell Capital Partners, L.P. ("Cornell Capital"), Certain Wealth, Ltd. and
TAIB Bank, B.S.C.(c) (the "Buyers") pursuant to which the Buyers agreed to
purchase secured convertible debentures in the principal amount of $2,000,000
(collectively, the "Debentures"). On February 2, 2006 we sold and issued
$1,000,000 in principal amount of debentures to the Buyers. On April 5, 2006, we
sold and issued an additional $1,000,000 in principal amount of debentures to
the Buyers (the "Second Closing").
Pursuant to the Securities Purchase Agreement, we were obligated to register for
resale a total of 514,403,292 shares of common stock for issuance under the
Debentures, and 30,000,000 for issuance under the Warrants. As a condition to
the receipt of the second $1,000,000, we agreed to pursue an amendment to our
Articles of Incorporation to increase the authorized shares to permit the
issuance by the Company of the number of shares it was required to register. We
filed a Definitive Proxy Statement with the Securities and Exchange Commission
on March 15, 2006 and received the consent from a majority of the common shares
on April 24, 2006. We filed the Registration Statement with the Securities and
Exchange Commission on April 7, 2006 and the Registration Statement was declared
effective on September 11, 2006.
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The debentures are convertible at the option of the Buyers any time up to
maturity into shares of our common stock, par value $0.001 per share, at the
price per share equal to the lesser of (a) $.02916 (the "Fixed Price") or (b) an
amount equal to eighty percent (80%) of the lowest volume weighted price of our
common stock, as quoted by Bloomberg, LP, for the five (5) trading days
immediately preceding the conversion date, which may be adjusted pursuant to the
other terms of the Debentures (the "Issuance Formula").
If the closing bid price of our common stock is less than the Fixed Price, we
can redeem a portion or all amounts outstanding under the debentures prior to
February 1, 2009 (or April 5, 2009 for the debentures issued in the Second
Closing) for a price equal to the principal amount and accrued interest thereon
being redeemed, plus a redemption premium of twenty percent (20%) of the
principal amount being redeemed.
We also entered into a Security Agreement pursuant to which we have granted the
Buyers a security interest in and to substantially all our assets to secure
repayment of the Debentures.
In connection with the Securities Purchase Agreement, we also issued to Cornell
Capital five-year warrants to purchase 30,000,000 shares of our common stock at
the following exercise prices: 7,500,000 at $0.02 per share, 7,500,000 at $0.03
per share, 5,000,000 at $0.04 per share, 5,000,000 at $0.05 per share, and
5,000,000 at $0.06 per share.
As of December 31, 2007, the Company has issued 551,831,717 shares of common
stock to the Buyers of the Debentures in exchange for $1,056,972 of debt.
NOTICE OF DEFAULT
The Company received a letter dated March 17, 2008 from YA Global Investments,
L.P. (f/k/a Cornell Capital Partners, L.P.) ("YA") serving as notice that the
Company is in default under the terms of the Debentures and related agreements.
YA's letter states that the Company is in default for, among other things, the
Company's failure to reserve a sufficient number of authorized shares of common
stock to allow for full conversion of the Debentures and YA demanded full
payment of the YA debenture. Pursuant to the terms of the Debentures, the
Company covenanted that it would reserve a sufficient number of authorized
common shares to permit the conversion of the Debentures.
As of the date hereof, YA has not taken any further action pursuant to the
notice of default. The Company is currently evaluating options for attempting to
increase the number of authorized common shares in order to cure the default.
The Company has also had oral discussions with representatives of Taib Bank
B.S.C. (c) and Certain Wealth, Ltd. concerning the default and potential cure.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
THE FOLLOWING DISCUSSION OF THE FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF
GULF COAST OIL & GAS, INC. SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL
STATEMENTS AND NOTES THERETO INCLUDED ELSEWHERE IN THIS REPORT.
THIS DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. GULF COAST'S ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE
ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS,
INCLUDING, BUT NOT LIMITED TO COMPETITION AND OVERALL MARKET CONDITIONS.
GENERAL
We are an exploration stage company engaged in the oil and gas exploration
business in the continental United States. We expect that the majority of our
initial projects will have a comparatively lower risk profile in order to
increase our chances of obtaining positive cash flow in the near term. However,
we may also seek to acquire interests in riskier projects that have the
potential of developing into major oil or gas fields, and will consider
acquiring an interest (working and/or royalty) in proven (based upon offset
production and geology reports) but undeveloped drilling locations.
LIQUIDITY AND FINANCIAL CONDITION
At December 31, 2007, cash and cash equivalents were $234,383. Current
liabilities at December 31, 2007 were $454,523.
At December 31, 2007, other assets included $22,821 in deferred financing and a
deposit on interest in unproved oil and gas leases of $928,810.
As of December 31, 2007, we had a working capital deficit of ($43,680) as
compared to a working capital surplus of $423,423 at December 31, 2006.
During 2007, the Company spent approximately $175,212 for work done on the
Corpus Christi Project. As of the date hereof, each of the three wells (Weil
8-C, Weil 3-C and Weil 7-C) is in production.
In early 2007, we anticipated that revenues from the three producing wells of
the Corpus Christi Project would be sufficient to fund our overhead costs for
the near term. While the Corpus Christi Project has generated $209,821 in
revenues for us, the wells have not recently produced at anticipated levels. As
a result, the Company intends to expend additional monies reworking Weil 8-C in
an effort to stimulate production by entering additional up-hole zones. There
can be no assurances that we will be successful in our efforts to stimulate
production and production from these wells may continue to be insufficient to
fund ongoing expenses. If the rework is unsuccessful, we will have to seek
additional financing to remain in business. The Company does not currently have
sufficient liquid assets to engage in any further oil and gas projects unless
additional financing is obtained. There can be no assurance that such financing
will be available to the Company or on terms acceptable to the Company.
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RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 2007 COMPARED TO YEAR ENDED DECEMBER 31, 2006
REVENUES
The Company generated $223,462 in revenues during the year ended December 31,
2007 while the Company did not generate any revenues in the year ended December
31, 2006 (except for interest income).
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses during the year ended December 31, 2007
decreased to $724,517 from $783,780 in the same period in 2006. This decrease
was primarily due to a decrease in professional fees.
NET LOSS TO COMMON SHAREHOLDERS
Net loss to common shareholders was $537,701 or $(0.00) per share for the year
ended December 31, 2007 as compared to a net loss of $754,715 or $(0.01) per
share for the year ended December 31, 2006. The decrease in net loss for the
year was principally due to the receipt of revenues from producing oil and gas
wells in 2007.
ACCUMULATED DEFICIT
Since inception, we have incurred substantial operating losses and may incur
substantial additional operating losses over the next several years. As of
December 31, 2007, our accumulated deficit was $7,588,126.
PLAN OF OPERATION
In early 2007, we anticipated that revenues from the three producing wells of
the Corpus Christi Project would be sufficient to fund our overhead costs for
the near term. While the Corpus Christi Project has generated $209,821 in
revenues for us, the wells have not recently produced at anticipated levels. As
a result, the Company intends to expend additional monies reworking Weil 8-C in
an effort to stimulate production by entering additional up-hole zones. There
can be no assurances that we will be successful in our efforts to stimulate
production and production from these wells may continue to be insufficient to
fund ongoing expenses.
The Company will need additional capital in order to participate in additional
drilling projects. The timing of any additional financing will depend in part on
the existing cash flow and the success of the Corpus Christi Project and
Saratoga Prospect. We have no commitments for any financing and such financing
may not be available when needed.
-8-
RISK FACTORS
WE ARE SUBJECT TO VARIOUS RISKS THAT MAY MATERIALLY HARM OUR BUSINESS, FINANCIAL
CONDITION AND RESULTS OF OPERATIONS. IF ANY OF THESE RISKS OR UNCERTAINTIES
ACTUALLY OCCURS, OUR BUSINESS, FINANCIAL CONDITION OR OPERATING RESULTS COULD BE
MATERIALLY HARMED. IN THAT CASE, THE TRADING PRICE OF OUR COMMON STOCK COULD
DECLINE AND YOU COULD LOSE ALL OR PART OF YOUR INVESTMENT.
RISKS RELATED TO OUR BUSINESS
OUR AUDITORS HAVE EXPRESSED AN OPINION THAT THERE IS SUBSTANTIAL DOUBT ABOUT OUR
ABILITY TO CONTINUE AS A GOING CONCERN.
In its report dated April 13, 2008 our auditors, Pollard-Kelley Auditing
Services, Inc., expressed an opinion that there is substantial doubt about
our ability to continue as a going concern. Our accompanying consolidated
financial statements have been prepared on a going concern basis, which
contemplates the continuation of operations, realization of assets and
liquidation of liabilities in the ordinary course of business. Since
inception, we have incurred operating losses and may incur additional
operating losses over the next several years. As of December 31, 2007, we
had an accumulated deficit of approximately $7,588,126.
We have financed our operations since inception primarily through equity
financings, loans from shareholders and other related parties. We may need
to raise additional capital to implement our business plan. Such capital is
expected to come from the sale of securities. No assurances can be given
that such financing will be available in sufficient amounts or at all. Our
ability to continue our operating will be dependent upon obtaining such
further financing. These conditions raise substantial doubt about our
ability to continue as a going concern. The accompanying consolidated
financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
WE HAVE AN INSUFFICIENT NUMBER OF AUTHORIZED SHARES OF THE COMPANY'S COMMON
STOCK TO ALLOW FOR THE CONVERSION OF THE DEBENTURES AND THE EXERCISE OF CERTAIN
WARRANTS.
The Company's Articles of Incorporation currently authorize the issuance
of 1,000,000,000 shares of common stock. As of April 8, 2008, the Company
had 967,052,788 shares of common stock issued and outstanding. The Company
is currently in default under the Debentures because it has not taken
steps to increase its authorized common stock. In addition, without
additional authorized shares it will be extremely difficult, if not
impossible, for the Company to attract additional investment. The Company
needs to increase the number of authorized shares of common stock in order
to have an adequate reserve of common stock available for issuance upon
exercise of outstanding convertible securities and for future issuance in
equity financings.
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The Company is currently evaluating options for increasing its authorized
shares and plans to attempt to increase its authorized shares in the
second quarter of 2008.
WE HAVE A HISTORY OF OPERATING LOSSES AND HAVE BEEN UNPROFITABLE SINCE
INCEPTION.
We incurred net losses of approximately $7,394,900 from August 4, 2003
(date of inception) to December 31, 2007, including approximately $537,701
of net loss to common shareholders in the year ended December 31, 2007.
Although we will attempt to achieve profitability through our pursuit of
our business plan, we have only generated limited revenues to date and
cannot assure you that we will obtain significant revenues or achieve
profitability.
THE DEBENTURES CONTAIN CERTAIN COVENANTS PROHIBITING US FROM RAISING CAPITAL AT
LESS THAN THE MARKET PRICE.
The Debentures held by the Buyers contain covenants that, subject to
certain exceptions, restrict the following activities:
(i) Raising capital from the sale of stock or other securities
convertible into stock at a price less than the market price of our
common stock on the date of issuance; or
(ii) Granting a security interest in our assets, which security interest
may be needed in order to obtain borrowings or capital from a
lender.
The existence of these covenants may severely limit our ability to borrow
money or raise capital from the sale of stock or convertible securities
because any potential purchaser will want to pay a discount to the market
price of our stock or because any potential lender will likely require
collateral in the form of a security interest on our assets to secure a
loan.
FUTURE SALES BY OUR STOCKHOLDERS MAY ADVERSELY AFFECT OUR STOCK PRICE AND OUR
ABILITY TO RAISE FUNDS IN NEW STOCK OFFERINGS.
Sales of our common stock in the public market could lower the market price
of our common stock. Sales may also make it more difficult for us to sell
equity securities or equity-related securities in the future at a time and
price that our management deems acceptable or at all. As of April 8, 2008,
we had 967,052,788 shares of common stock outstanding, without taking into
account additional shares issuable upon exercise of the convertible
debentures or warrants.
-10-
THE INVESTORS UNDER THE DEBENTURES WILL PAY LESS THAN THE THEN-PREVAILING MARKET
PRICE OF OUR COMMON STOCK.
The common stock to be issued under the Debentures is being issued at the
lower of (i) a fixed price of $0.029716 or (ii) a 20% discount to the
volume weighted average price for the five trading days immediately before
the conversion. These discounted sales could cause the price of our common
stock to further decline.
THE ISSUANCE OF STOCK UNDER THE DEBENTURES COULD ENCOURAGE SHORT SALES BY THIRD
PARTIES, WHICH COULD CONTRIBUTE TO THE FUTURE DECLINE OF OUR STOCK PRICE.
The significant downward pressure on the price of our common stock caused
by the issuance of material amounts of common stock under the Debentures
could encourage short sales by third parties. In a short sale, a
prospective seller borrows stock from a shareholder or broker and sells the
borrowed stock. The prospective seller hopes that the stock price will
decline, at which time the seller can purchase shares at a lower price to
repay the lender. The seller profits when the stock price declines because
it is purchasing shares at a price lower than the sale price of the
borrowed stock. Such sales could place further downward pressure on the
price of our common stock by increasing the number of shares being sold.
OUR BUSINESS AND GROWTH WILL SUFFER IF WE ARE UNABLE TO ATTRACT AND RETAIN KEY
PERSONNEL.
Our success depends in large part upon the services of a number of key
employees and consultants. If we lose the services of one or more of our key
employees or consultants, it could have a significant negative impact on our
business. In addition, our long term success will in large part be dependent
upon our ability to attract and retain qualified geologists, geophysicists,
and other personnel.
WE FACE SIGNIFICANT COMPETITION, AND MANY OF OUR COMPETITORS HAVE RESOURCES IN
EXCESS OF OUR AVAILABLE RESOURCES.
We plan to operate in the highly competitive areas of oil and natural gas
exploration, exploitation, acquisition and production. We face intense
competition from a large number of independent, technology-driven companies
as well as both major and other independent oil and natural gas companies
in a number of areas such as:
o seeking to acquire desirable producing properties or new leases for
future exploration;
o marketing our oil and natural gas production; and
o seeking to acquire the equipment and expertise necessary to operate
and develop those properties.
Many of our competitors have financial and other resources substantially in
excess of those available to us. This highly competitive environment could
harm our business.
-11-
OPERATING HAZARD AND UNINSURED RISKS.
Drilling activities are subject to many risks, including the risk that no
commercially productive reservoirs will be encountered. There can be no
assurance that new wells we drill will be productive or that we will recover
all or any portion of our investment. Drilling for oil and natural gas may
involve unprofitable efforts, not only from dry wells, but also from wells
that are productive, but do not produce sufficient net revenues to return a
profit after drilling, operating and other costs. The cost and timing of
drilling, completing and operating wells is often uncertain. Our drilling
operations may be curtailed, delayed or canceled as a result of numerous
factors, many of which are beyond our control, including title problems,
weather conditions, delays by project participants, compliance with
governmental requirements and shortages or delays in the delivery of
equipment and services. Our future drilling activities may not be successful
and, if unsuccessful, such failure may have a material adverse effect on our
business, financial condition or results of operations.
Our operations are subject to hazards and risks inherent in drilling for and
producing and transporting oil and natural gas, such as fires, natural
disasters, explosions, encountering formations with abnormal pressures,
blowouts, cratering, pipeline ruptures and spills, any of which can result
in the loss of hydrocarbons, environmental pollution, personal injury claims
and other damage to our properties and those of others. We do not currently
maintain insurance against some these risks. The occurrence of an event that
is not covered, or not fully covered by insurance could have a material
adverse effect on our business, financial condition and results of
operations.
REGULATORY RISKS.
Our oil and natural gas exploration and production activities will be
subject to extensive laws, rules and regulations promulgated by federal and
state legislatures and agencies, including the Federal Energy Regulatory
Commission (FERC) and the Environmental Protection Agency. Failure to comply
with such laws, rules and regulations can result in substantial penalties.
The legislative and regulatory burden on the oil and gas industry will
increase our cost of doing business and will affect our profitability.
Although we do not intend to own or operate any pipelines or facilities that
are directly regulated by FERC, its regulation of third party pipelines and
facilities could indirectly affect our ability to transport or market our
production. Moreover, FERC has in the past, and could in the future impose
price controls on the sale of natural gas. In addition, we believe we are in
substantial compliance with all applicable laws and regulations, however, we
are unable to predict the future cost or impact of complying with such laws
and regulations because they are frequently amended, interpreted and
reinterpreted.
-12-
Many states (including Louisiana) require permits for drilling operations,
drilling bonds and reports concerning operations and impose other
requirements relating to the exploration and production of oil and natural
gas. These states also have statutes or regulations addressing conservation
matters, including provisions for the unitization or pooling of oil and
natural gas properties, the establishment of maximum rates of production
from wells and the regulation of spacing, plugging and abandonment of such
wells.
ENVIRONMENTAL MATTERS.
Our operations and properties will be, like the oil and gas industry in
general, subject to extensive and changing federal, state and local laws
and regulations relating to environmental protection, including the
generation, storage, handling, emission, transportation and discharge of
materials into the environment, and relating to safety and health. The
recent trend in environmental legislation and regulation generally is
toward stricter standards, and this trend will likely continue. These laws
and regulations may require the acquisition of a permit or other
authorization before construction or drilling commences and for certain
other activities; limit or prohibit seismic acquisition, construction,
drilling and other activities on certain lands lying within wilderness and
other protected areas; and impose substantial liabilities for pollution
resulting from our operations.
The permits required for many of our operations are subject to revocation,
modification and renewal by issuing authorities. Governmental authorities
have the power to enforce compliance with their regulations, and violations
are subject to fines or injunction, or both. Changes in existing
environmental laws and regulations or in interpretations thereof could have
a significant impact on us, as well as the oil and gas industry in general.
The Comprehensive Environmental Response, Compensation and Liability Act
(CERCLA) and comparable state statutes impose strict and arguably joint and
several liabilities on owners and operators of certain sites and on persons
who disposed of or arranged for the disposal of hazardous substances found
at such sites. It is not uncommon for the 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.
The Resource Conservation and Recovery Act (RCRA) and comparable state
statutes govern the disposal of solid waste and hazardous waste and
authorize imposition of substantial fines and penalties for noncompliance.
Although CERCLA currently excludes petroleum from its definition of
hazardous substance, state laws affecting our operations impose clean-up
liability relating to petroleum and petroleum related products. In
addition, although RCRA classifies certain oil field wastes as
non-hazardous, such exploration and production wastes could be reclassified
as hazardous wastes, thereby making such wastes subject to more stringent
handling and disposal requirements.
-13-
OIL AND NATURAL GAS PRICES FLUCTUATE WIDELY AND LOW PRICES COULD HAVE A MATERIAL
ADVERSE IMPACT ON OUR BUSINESS AND FINANCIAL RESULTS BY LIMITING OUR LIQUIDITY
AND FLEXIBILITY TO CARRY OUT DRILLING.
Our revenues, operating results and future rate of growth will depend
highly upon the prices we receive for our oil and natural gas production.
Historically, the markets for oil and natural gas have been volatile and
are likely to continue to be volatile in the future. Market prices of oil
and natural gas depend on many factors beyond our control, including:
o worldwide and domestic supplies of oil and natural gas;
o the ability of the members of the Organization of Petroleum Exporting
Countries to agree to and maintain oil price and production controls;
o political instability or armed conflict in oil-producing regions;
o the price and level of foreign imports;
o the level of consumer demand;
o the price and availability of alternative fuels;
o the availability of pipeline capacity;
o weather conditions;
o domestic and foreign governmental regulations and taxes; and
o the overall economic environment.
We cannot predict future oil and natural gas price movements and prices often
vary significantly. Significant declines in oil and natural gas prices for an
extended period may have the following effects on our business:
o limit our financial condition, liquidity, ability to finance planned
capital expenditures and results of operations;
o reduce the amount of oil and natural gas that we can produce
economically;
o cause us to delay or postpone some of our capital projects;
o reduce our revenues, operating income and cash flow; and
o reduce the carrying value of our oil and natural gas properties.
-14-
RISKS RELATED TO OUR STOCK
THE MARKET PRICE OF OUR COMMON STOCK MAY BE VOLATILE, WHICH COULD CAUSE THE
VALUE OF AN INVESTMENT IN OUR STOCK TO DECLINE.
The market price of shares of our common stock has been and is likely to
continue to be highly volatile. Factors that may have a significant effect
on the market price of our common stock include the following:
o sales of large numbers of shares of our common stocks in the open
market, including shares issuable at a fluctuating conversion price at
a discount to the market price of our common stock;
o our operating results;
o our need for additional financing;
o governmental regulation; and
o other factors and events beyond our control.
In addition, our common stock has been relatively thinly traded. Thinly
traded common stock can be more volatile than common stock trading in an
active public market. We cannot predict the extent to which an active
public market for the common stock will develop.
The stock market in general has experienced extreme volatility that often
has been unrelated to the operating performance of particular companies.
These broad market and industry fluctuations may adversely affect the
trading price of our common stock, regardless of our actual operating
performance.
As a result of potential stock price volatility, investors may be unable to
resell their shares of our common stock at or above the cost of their
purchase prices. In addition, companies that have experienced volatility in
the market price of their stock have been the subject of securities class
action litigation. If we were to become the subject of securities class
action litigation, this could result in substantial costs, a diversion of
our management's attention and resources and harm to our business and
financial condition.
FUTURE SALES BY OUR STOCKHOLDERS MAY ADVERSELY AFFECT OUR STOCK PRICE AND OUR
ABILITY TO RAISE FUNDS IN NEW STOCK OFFERINGS.
Sales of our common stock in the public market following this offering
could lower the market price of our common stock. Sales may also make it
more difficult for us to sell equity securities or equity-related
securities in the future at a time and price that our management deems
acceptable or at all.
As of April 8, 2008, we had 967,052,788 shares of common stock outstanding,
without taking into account shares issuable upon exercise of the
outstanding debentures and warrants.
-15-
OUR COMMON STOCK MAY BE AFFECTED BY LIMITED TRADING VOLUME AND MAY FLUCTUATE
SIGNIFICANTLY.
There has been a limited public market for our common stock and there can be
no assurance that an active trading market for our common stock will
develop. An absence of an active trading market could adversely affect our
shareholders' ability to sell our common stock in short time periods, or
possibly at all. Our common stock has experienced, and is likely to
experience in the future, significant price and volume fluctuations that
could adversely affect the market price of our common stock without regard
to our operating performance. In addition, we believe that factors such as
quarterly fluctuations in our financial results and changes in the overall
economy or the condition of the financial markets could cause the price of
our common stock to fluctuate substantially.
OUR COMMON STOCK IS DEEMED TO BE "PENNY STOCK", WHICH MAY MAKE IT MORE DIFFICULT
FOR INVESTORS TO SELL THEIR SHARES DUE TO SUITABILITY REQUIREMENTS.
Our common stock is deemed to be "penny stock" as that term is defined in
Rule 3a51-1 promulgated under the Securities Exchange Act of 1934. These
requirements may reduce the potential market for our common stock by
reducing the number of potential investors. This may make it more difficult
for investors in our common stock to sell shares to third parties or to
otherwise dispose of them. This could cause our stock price to decline.
Penny stocks are stock:
o with a price of less than $5.00 per share;
o that are not traded on a "recognized" national exchange;
o whose prices are not quoted on the NASDAQ automated quotation system
(NASDAQ-listed stocks must still have a price of not less than $5.00
per share); or
o in issuers with net tangible assets less than $2.0 million (if the
issuer has been in continuous operation for at least three years) or
$5.0 million (if in continuous operation for less than three years),
or with average revenues of less than $6.0 million for the last three
years.
Broker/dealers dealing in penny stocks are required to provide potential
investors with a document disclosing the risks of penny stocks. Moreover,
broker/dealers are required to determine whether an investment in a penny
stock is a suitable investment for a prospective investor.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Our financial statements and supplementary data are attached hereto commencing
with Page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
-16-
ITEM 8A. CONTROLS AND PROCEDURES
DISCUSSION OF CONTROLS AND PROCEDURES
As required by Rule 13a-15 or 15d-15 under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), our Chief Executive Officer/Chief Financial
Officer carried out an evaluation of the effectiveness of the design and
operation of our disclosure controls and procedures pursuant to Rule 13a-15(e)
or 15d-15(e) under the Exchange Act as of the end of the period covered by this
report. Based on the foregoing evaluation, we initially concluded that our
disclosure controls and procedures are effective. However, after reviewing a
comment letter from the SEC dated July 21, 2008 and subsequent discussions with
the SEC Division of Corporation Finance staff, we realized that we failed to
disclose management's assessment of internal control over financial reporting in
our annual report on Form 10-KSB for the year ended December 31, 2007 filed with
the SEC on April 15, 2008. Therefore, we subsequently amended our annual report
on Form 10-KSB for the year ended December 31, 2007 to enhance our disclosure
regarding disclosure controls and procedures and to include disclosure about
management's assessment of internal control over financial reporting. Due to
this earlier omission, we now conclude that our disclosure controls and
procedures were not effective as of December 31, 2007.
Our management does not expect that our disclosure controls and procedures or
our internal control over financial reporting will necessarily prevent all fraud
and material error. Our disclosure controls and procedures are designed to
provide reasonable assurance of achieving our objectives. Further, the design of
a control system must reflect the fact that there are resource constraints, and
the benefits of controls must be considered relative to their costs. Because of
the inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, within the Company have been detected. These inherent limitations include
the realities that judgments in decision-making can be faulty, and that
breakdowns can occur because of simple error or mistake. Additionally, controls
can be circumvented by the individual acts of some persons, by collusion of two
or more people, or by management override of the internal control. The design of
any system of controls also is based in part upon certain assumptions about the
likelihood of future events, and there can be no assurance that any design will
succeed in achieving its stated goals under all potential future conditions.
Over time, control may become inadequate because of changes in conditions, or
the degree of compliance with the policies or procedures may deteriorate.
-17-
INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining adequate internal
control over financial reporting for the Company as defined in Rules 13a-15(f)
and 15d-15(f) under the Exchange Act. Our internal control over financial
reporting is designed to provide reasonable assurance regarding the (i)
effectiveness and efficiency of operations, (ii) reliability of financial
reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles, and (iii) compliance
with applicable laws and regulations.
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
Management conducted an assessment of the effectiveness of the small business
issuer's internal control over financial reporting as of December 31, 2007 based
upon criteria set forth in the Internal Control- Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission. Based on
management's evaluation, management has concluded that our internal control over
financial reporting was effective as of December 31, 2007. We have not
identified any current material weaknesses considering the nature and extent of
our current operations and any risks or errors in financial reporting under
current operations.
This annual report does not include an attestation report of the Company's
registered public accounting firm regarding internal control over financial
reporting. Management's report was not subject to attestation by the Company's
registered public accounting firm pursuant to temporary rules of the Securities
and Exchange Commission that permits us to provide only management's report in
this annual report.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There have not been any changes in our internal control over financial reporting
during the quarter ended December 31, 2007 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
ITEM 8B. OTHER INFORMATION
None.
-18-
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information concerning our directors and
executive officers as of the date hereof:
NAME AGE POSITION
Rahim Rayani 33 Chairman of the Board, Chief
Executive Officer and President
RAHIM RAYANI, CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
Mr. Rayani has been the Chairman of the Board and Chief Executive Officer of the
Company since June of 2005. Since 2003, Mr. Rayani has worked independently,
providing management consulting and investment banking services to companies,
focusing on the oil and gas and resource mining sectors. From 2001 to 2003, Mr.
Rayani was an Investor Relations Executive with Mindshare Communications, Inc.,
where he managed investor relations services for companies in the mining, oil &
gas, and technology sectors.
Our directors hold office until the next annual meeting of our stockholders and
until their successors have been duly elected and qualified.
AUDIT COMMITTEE
Since we have only one director, we do not have an audit committee. At such time
as we can attract other directors to serve on the Board, we plan to establish an
audit committee. Mr. Rayani is not a "financial expert".
CODE OF ETHICS
The Company adopted a Code of Ethics in April of 2004 that applies to its Chief
Executive Officer and Principal Accounting and Financial Officer.
SECTION 16 (A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the
Company's directors, executive officers and persons who own more than 10% of a
class of the Company's equity securities which are registered under the Exchange
Act to file with the Securities and Exchange Commission initial reports of
ownership and reports of changes of ownership of such registered securities.
Such executive officers, directors and greater than 10% beneficial owners are
required by Commission regulation to furnish the Company with copies of all
Section 16(a) forms filed by such reporting persons.
To our knowledge, based solely on a review of the copies of such reports
furnished to the Company and on representations that no other reports were
required, no Forms 3, 4 or 5 relating to our common stock were filed late during
2007.
-19-
ITEM 10. EXECUTIVE COMPENSATION
Compensation paid to Officers and Directors is set forth in the Summary
Compensation Table below. The Company may reimburse its Officers and Directors
for any and all out-of-pocket expenses incurred relating to the business of the
Company.
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning the compensation paid by
us during the three years ended on December 31, 2007 to our Chief Executive
Officer and our other executive officers and executive officers of our
subsidiaries, who were serving as executive officers on December 31, 2007 and
received total salary and bonus in excess of $100,000 during fiscal year 2007
(the "Named Executive Officers").
CHANGE IN
PENSION
VALUE AND
NON-EQUITY NONQUALIFIED
INCENTIVE DEFERRED
STOCK OPTION PLAN COMPENSATION ALL OTHER
NAME AND PRINCIPAL AWARDS AWARDS COMPENSATION EARNINGS COMPENSATION TOTAL
POSITION YEAR SALARY ($) BONUS ($) ($) ($) ($) ($) ($) ($)
-----------------------------------------------------------------------------------------------------------------------------
Rahim Rayani 2007 $100,000(1) $42,500 -- -- -- -- -- $142,500
Chairman, Chief 2006 $120,000(1) $55,000 -- -- -- -- -- $175,000
Executive Officer and 2005 $ 56,000(2) -- -- -- -- -- -- $ 56,000
President
|
(1) A portion of Mr. Rayani's salary was deferred based on the financial
condition of the Company.
(2) Represents $8,000 per month for the last seven months of 2005. A portion
of this salary was deferred based on the financial condition of the
Company.
-20-
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth as of December 31, 2007, the number and
percentage of outstanding shares of our common stock beneficially owned by our
Named Executive Officers, directors and stockholders owning more than 5% of our
common stock and our executive officers and directors as a group:
SHARES
BENEFICIALLY PERCENTAGE OF
NAME OF OWNER OWNED(1) CLASS(2)
--------------------------------------------------------------------------------
Rahim Rayani, Chairman of the Board and CEO 16,500,000 1.7%
All Named Executive Officers and
Directors as a Group (1 person) 16,500,000 1.7%
---------------------------
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(1) All of the shares are owned directly by Mr. Rayani.
(2) Based on 967,052,788 shares of common stock outstanding as of April 8, 2008
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS; DIRECTOR INDEPENDENCE
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
DIRECTOR INDEPENDENCE
Our common stock is quoted on the OTC Bulletin Board interdealer quotation
system, which does not have director independence requirements. Under NASDAQ
Rule 4200(a)(15), a director is not considered to be independent if he or she is
also an executive officer or employee of the corporation, or if he or she has
accepted any compensation from the company in excess of $100,000 during any
12-month period in the prior three years. Rahim Rayani is the President and
Chief Executive Officer of the Corporation and is not deemed to be an
independent director under this definition.
-21-
ITEM 13. EXHIBITS
INDEX TO EXHIBITS
EXHIBIT NO. DOCUMENT DESCRIPTION LOCATION
----------- -------------------- --------
3.1 Articles of Incorporation filed September 14, 1999 (1)
3.2 Certificate of Designation filed October 7, 2003 (2)
3.3 Articles of Amendment to Articles of Incorporation filed October 15, 2003 (3)
3.4 Certificate of Amendment to Articles of Incorporation filed January 13, 2005 (4)
3.6 Amended and Restated Bylaws (5)
4.1 Specimen of Common Stock Certificate (1)
4.2 Form of Common Stock Purchase Warrant (2)
10.1 Securities Purchase Agreement dated as of February 1, 2006 between the Company and (5)
Cornell Capital Partners, LP, Certain Wealth, Ltd. and Taib Bank, B.S.C.(c)
10.2 Investor Registration Rights Agreement dated as of February 1, 2006 between the Company (5)
and Cornell Capital Partners, LP, Certain Wealth, Ltd. and Taib Bank, B.S.C.(c)
10.3 Security Agreement dated as of February 1, 2006 between the Company and Cornell Capital (5)
Partners, LP, Certain Wealth, Ltd. and Taib Bank, B.S.C.(c)
10.4 First Amendment to Investor Registration Rights Agreement dated as of March, 2006 between (5)
the Company and Cornell Capital Partners, LP, Certain Wealth, Ltd. and Taib Bank,
B.S.C.(c)
10.5 Agreement between the Company and Bourgeois Energy, Inc. dated June 17, 2005 relating to (5)
the Saratoga Prospect
10.6 Business Consulting Services Agreement between the Company and Bourgeois Energy, Inc. (5)
dated August 15, 2005
31.1 Certification of Chief Executive Officer and Principal Accounting and Financial Officer (6)
Pursuant to Section 302 of the Sarbanes-Oxley Act.
32.1 Certification of Chief Executive Officer and Principal Accounting and Financial Officer (6)
Pursuant to Section 906 of the Sarbanes-Oxley Act.
99.1 Secured Convertible Debenture issued February 1, 2006 in the amount of $500,000 to (5)
Cornell Capital Partners, LP (CCP-001)
99.2 Secured Convertible Debenture issued February 1, 2006 in the amount of $250,000 to (5)
Certain Wealth, Ltd. (CCP-002)
99.3 Secured Convertible Debenture issued February 1, 2006 in the amount of $250,000 to Taib (5)
Bank, B.S.C.(c)(CCP-003)
99.4 Warrant dated as of February 1, 2006 issued to Cornell Capital Partners, LP (7,500,000 (5)
shares)
99.5 Warrant dated as of February 1, 2006 issued to Cornell Capital Partners, LP (7,500,000 (5)
shares)
99.6 Warrant dated as of February 1, 2006 issued to Cornell Capital Partners, LP (5,000,000 (5)
shares)
99.7 Warrant dated as of February 1, 2006 issued to Cornell Capital Partners, LP (5,000,000 (5)
shares)
99.8 Warrant dated as of February 1, 2006 issued to Cornell Capital Partners, LP (5,000,000 (5)
shares)
|
-22-
(1) Filed as an exhibit to Registration Statement on Form SB-2, as amended,
filed on April 22, 2001 and incorporated herein by reference.
(2) Filed as Exhibit 3.1 to Report on Form 8-K filed on October 20, 2003 and
incorporated herein by reference.
(3) Filed as Exhibit 3.1 to Report on Form 8-K filed October 23, 2003 and
incorporated herein by reference.
(4) Filed as Exhibit 3 to Report on Form 8-K filed January 19, 2005 and
incorporated herein by reference.
(5) Filed as an Exhibit to the Company's Annual Report on Form 10-KSB for
the year ended December 31, 2005 and incorporated herein by reference.
(6) Filed herewith.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
AUDIT FEES
The aggregate fees billed for fiscal 2007 for professional services rendered by
Pollard-Kelley Auditing Services, Inc. as our principal accountant for the audit
of our annual financial statements and review of financial statements included
in our Form 10-QSB and services that are normally provided by the accountant in
connection with statutory and regulatory filings or engagements for fiscal year
2007 were $23,500.
The aggregate fees billed for fiscal 2006 for professional services rendered by
Pollard-Kelley Auditing Services as our principal accountant for the audit of
our annual financial statements and review of financial statements included in
our Form 10-QSB for fiscal year 2006 were $17,000.00.
AUDIT-RELATED FEES
The aggregate fees billed in each of fiscal 2007 and 2006 for assurance and
related services by our principal accountant that are reasonably related to the
performance of the audit or review of our financial statements (and are not
reported under Item 9(e)(1) of Schedule 14A) were $0 and $0, respectively.
TAX FEES
The aggregate fees billed in each of fiscal 2007 and 2006 for professional
services rendered by our principal accountant tax compliance, tax advice and tax
planning were $0 and $0, respectively.
ALL OTHER FEES
The aggregate fees billed in each of fiscal 2007 and 2006 for products and
services provided by our principal accountant (other than the services reported
in Items 9(e)(1) through 9(e)(3) of Schedule 14A) were $0 and $0, respectively.
PRE-APPROVAL POLICIES AND PROCEDURES
The decision to retain our principal accountant was approved by the Board of
Directors in 2003 before current management was involved with the Company. We do
not have a separate audit committee.
-23-
SIGNATURES
In accordance with the requirements of the Exchange Act of 1934, the Registrant
has caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
GULF COAST OIL & GAS, INC.
By: /s/ Rahim Rayani
----------------
Rahim Rayani
Chief Executive Officer and President
(Principal Executive Officer)
By: /s/ Rahim Rayani
----------------
Rahim Rayani
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
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-24-
INDEX TO FINANCIAL STATEMENTS
PAGE(S)
FINANCIAL STATEMENTS -- AUDITED
Report of Independent Registered Public Accounting Firm. F-2
Balance Sheet as of December 31, 2007 F-3
Statements of Operations for the years ended December 31, 2007 and 2006 F-4
Statements of Cash Flows for the years ended December 31, 2007 and 2006 F-5
Statements of Stockholders' (Deficit) for the years ended
December 31, 2007 and 2006 F-6
|
Notes to Financial Statements for the years ended
December 31, 2007 and 2006 F-7
F-1
Pollard-Kelley Auditing Services, Inc...........................................
Auditing Services 3250 West Market St, Suite 307, Fairlawn, OH 44333
330-836-2558
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors
Gulf Coast Oil and Gas, Inc. and Subsidiary
|
We have audited the accompanying balance sheets of Gulf Coast Oil and Gas, Inc.
and Subsidiary as of December 31, 2007 and 2006, and the related statements of
income, changes in stockholders' equity, and cash flows for each of the two
years in the period ended December 31, 2007 and the period from August 4, 2003
through December 31, 2007 (since inception). 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 audits.
We conduct our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). 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 overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
The Company has not generated significant revenues or profits to date as
discussed in Note 8 to the financial statements. This factor among others may
indicate the Company will be unable to continue as a going concern. The
Company's continuation as a going concern depends upon its ability to generate
sufficient cash flow to conduct its operations and its ability to obtain
additional sources of capital and financing. Management's plans in relation to
these items are also discussed in Note 8 to the financial statements. The
accompanying consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company at December 31,
2007 and 2006, and the results of its operations and its cash flows for each of
the two years in the period ended December 31, 2007 and the period from August
4, 2003 through December 31, 2007 (since inception), in conformity with U.S.
generally accepted accounting standards.
Pollard-Kelley Auditing Services, Inc.
/S/ Pollard-Kelley Auditing Services, Inc.
-------------------------------------------
Independence, Ohio
April 13, 2008
|
F-2
GULF COAST OIL & GAS, INC.
(An Exploration Stage Company)
BALANCE SHEETS
December 31, 2007 and December 31, 2006 December 31, December 31,
ASSETS 2007 2006
----------- -----------
Current Assets
Cash in banks $ 234,383 $ 573,438
Accounts receivable -other -- --
Deferred financing 176,460 176,460
----------- -----------
Total Current Assets 410,843 749,898
Fixed Assets
Office equipment 7,537 7,537
Oil equipment 49,897 --
Less accumulated depreciation (12,342) (4,254)
----------- -----------
45,092 3,283
Other Assets
Website costs less accumulated
amortization of $500 and $0 314 450
Deferred financing - Non-current 22,821 199,281
Deposit on interest in unproved oil and gas leases 928,810 912,822
----------- -----------
951,945 1,112,553
----------- -----------
Total Assets $ 1,407,880 $ 1,865,734
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 62,198 $ 76,812
Due to shareholder 43,619 47,119
Accrued interest 313,075 166,912
Accrued expenses 35,631 35,631
----------- -----------
Total Current Liabilities 454,523 326,474
Long-Term Debt
Notes payable 943,028 1,965,551
Derivative Liability Arising From Warrants -- 8,333
Stockholders' Equity
Series A Preferred stock, 1,000,000 shares
authorized, 0 shares outstanding,
par value $.001 per share -- --
Common stock, 1,000,000,000 shares authorized,
673,639,728 and 134,878,634 shares
outstanding at respective period ends,
par value $.001 per share 673,640 134,879
Additional contributed capital 6,643,063 6,157,601
Deficit accumulated during exploration stage (7,588,126) (7,050,425)
Accumulated other comprehensive income 281,752 273,419
Stock subscription advances -- 49,902
----------- -----------
10,329 (434,624)
----------- -----------
Total Liabilities and Stockholders' Equity $ 1,407,880 $ 1,865,734
=========== ===========
See accompanying notes to financial statements.
See accompanying notes to financial statements.
|
F-3
GULF COAST OIL & GAS, INC.
(An Exploration Stage Company)
STATEMENT OF OPERATIONS
For the Years Ending December 31, 2007 and 2006, and for the
period beginning August 4, 2003 (Inception) through December 31, 2007
December 31, December 31, Since
2007 2006 INCEPTION
------------- ------------- -------------
Revenues
Sales $ 209,821 $ -- 209,821
Interest income 13,641 29,065 42,706
------------- ------------- -------------
223,462 29,065 252,527
Cost of sales
Exploration costs 36,646 -- 196,271
------------- ------------- -------------
Gross Profit 186,816 29,065 56,256
Expenses
Administrative 724,517 783,780 7,501,476
------------- ------------- -------------
(537,701) (754,715) (7,445,220)
Other income and expenses
Loss on sale of fixed assets -- -- (684)
Gain on settlement of debt -- -- 67,693
Foreign exchange (loss) gain -- -- (16,689)
------------- ------------- -------------
-- -- 50,320
------------- ------------- -------------
Loss from continuing operations (537,701) (754,715) (7,394,900)
------------- ------------- -------------
Discontinued operations
Mineral rights abandoned -- -- (193,226)
------------- ------------- -------------
Net Loss (537,701) (754,715) (7,588,126)
Other Comprehensive Income
Decrease in fair value of derivatives 8,333 273,419 273,419
------------- ------------- -------------
Net Comprehensive Income/(Loss) $ (529,368) $ (481,296) $ (7,314,707)
============= ============= =============
Net loss per share $ (0.00) $ (0.01)
Other comprehensive income per share $ 0.00 $ 0.00
Average shares outstanding 538,761,084 121,728,453
See accompanying notes to financial statements.
|
F-4
GULF COAST OIL & GAS, INC.
(An Exploration Stage Company)
STATEMENT OF CASH FLOWS
For the Years Ending December 31, 2007 and 2006, and for the
period beginning August 4, 2003 (Inception) through December 31, 2007
December 31, December 31, Since
2007 2006 INCEPTION
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss for the period $ (537,702) $ (754,715) $(7,588,127)
Adjustments to reconcile net earnings to net
cash provided (used) by operating activities:
Depreciation 8,088 1,694 23,399
Amortization 176,596 39,561 221,001
Services paid by stock 1,700 2,000 5,447,795
Mineral rights abandoned -- -- 195,226
Changes in Current assets and liabilities:
(Increase) decrease in Accounts receivable - other -- 5,248 --
(Increase) in Deferred financing -- (135,000) (135,000)
(Decrease) Increase in Accounts payable (14,614) 6,140 62,198
Increase in Due to shareholder (3,500) 23,983 20,483
Increase in Accrued interest 146,163 166,912 313,075
(Decrease) Increase in Accrued expenses -- -- 58,767
----------- ----------- -----------
NET CASH (USED) BY
OPERATING ACTIVITIES (223,269) (644,177) (1,381,183)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Mineral rights -- -- (91,534)
Purchase of Interest in unproved oil and gas
leases (15,988) (812,822) (928,810)
Purchase of Website costs -- -- (27,519)
Purchase of Fixed assets (49,896) (3,987) (74,163)
----------- ----------- -----------
NET CASH (USED) BY
INVESTING ACTIVITIES (65,884) (816,809) (1,122,026)
CASH FLOWS FROM FINANCING ACTIVITIES
Redemption of Preferred stock -- -- --
Proceeds from Notes payable -- 2,000,000 2,000,000
Sale of Common stock -- -- 737,400
Stock subscription advances (49,902) -- 49,902
----------- ----------- -----------
NET CASH PROVIDED BY
FINANCING ACTIVITIES (49,902) 2,000,000 2,787,302
----------- ----------- -----------
NET INCREASE IN CASH (339,055) 539,014 284,093
CASH FROM OTISH DIAMOND MERGER -- -- 192
CASH AT BEGINNING OF PERIOD 573,438 34,424 --
----------- ----------- -----------
CASH AT END OF PERIOD $ 234,383 $ 573,438 $ 284,285
=========== =========== ===========
See accompanying notes to financial statements.
|
F-5
GULF COAST OIL & GAS, INC.
(An Exploration Stage Company)
STATEMENT OF STOCKHOLDERS EQUITY
For the period beginning August 4, 2003 (Inception) through December 31, 2007
Series A
ADDITIONAL
Preferred Stock Common Stock CONTRIBUTED RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT
---------------------------------------------------------------------------------------
Balance August 4, 2003 -- $ -- -- $ -- $ -- $ --
Shares issued for
services -- -- 24,300,000 24,300 (16,200) --
Shares issued for
cash -- -- 11,700,000 11,700 162,300 --
Shares issued for
mineral rights -- -- 9,000,000 9,000 62,250 --
Merger with Otish
Mountain Company 1,000,000 1,000 323,283 324 (216) (1,167)
Net loss for the
period -- -- -- -- -- (94,138)
----------- ----------- ----------- ----------- ----------- -----------
Balance December 31, 2003 1,000,000 1,000 45,323,283 45,324 208,134 (95,305)
Shares issued for
services -- -- 60,900,000 60,900 5,119,100 --
Shares issued for
mineral rights -- -- 150 -- 53 --
Shares issued for
cash -- -- 7,902,000 7,902 255,498 --
Redemption of
Preferred Shares (1,000,000) (1,000) -- -- -- --
Net loss for the
period -- -- -- -- -- (6,013,462)
------------------------- ----------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 2004 -- -- 114,125,433 114,126 5,582,785 (6,108,767)
Shares issued for
Debt -- -- 996,360 996 236,124 --
Shares sold -- -- 4,115,000 4,115 295,885 --
Shares issued for
services -- -- 300,000 300 23,700 --
Stock subscription
advance -- -- -- -- -- --
Net loss for the
period -- -- -- -- -- (186,943)
----------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 2005 -- -- 119,536,793 119,537 6,138,494 (6,295,710)
Shares issued for
debt -- -- 13,341,841 13,342 19,107 --
Shares issued for
services -- -- 2,000,000 2,000 -- --
Net (loss) income
for the period -- -- -- -- -- (754,715)
----------- ----------- ----------- ----------- ----------- -----------
Balance December 31, 2006 -- -- 134,878,634 134,879 6,157,601 (7,050,425)
Shares issued for
debt -- -- 537,061,084 537,061 485,462 --
Shares issued for
services -- -- 1,700,000 1,700 -- --
Repayment of
advanced funds -- -- -- -- -- --
Net (loss) income
for the period -- -- -- -- -- (537,701)
----------- ----------- ----------- ----------- ----------- -----------
Balance December 31, 2007 -- $ -- 673,639,718 $ 673,640 $ 6,643,063 $(7,588,126)
=========== =========== =========== =========== =========== ===========
ACCUMULATED
OTHER STOCK
COMPREHENSIVE SUBSCRIPTION
INCOME ADVANCES TOTAL
--------------------------------------------
Balance August 4, 2003 $ -- $ -- $ --
Shares issued for
services -- -- 8,100
Shares issued for
cash -- -- 174,000
Shares issued for
mineral rights -- -- 71,250
Merger with Otish
Mountain Company -- -- (59)
Net loss for the
period -- -- (94,138)
----------- ----------- -----------
Balance December 31,
2003 -- -- 159,153
Shares issued for
services -- -- 5,180,000
Shares issued for
mineral rights -- -- 53
Shares issued for
cash -- -- 263,400
Redemption of
Preferred Shares -- -- (1,000)
Net loss for the
period -- -- (6,013,462)
------------------------- ----------- ----------- -----------
Balance at December 31,
2004 -- -- (411,856)
Shares issued for
Debt -- -- 237,120
Shares sold -- -- 300,000
Shares issued for
services -- -- 24,000
Stock subscription
advance -- 49,902 49,902
Net loss for the
-----------
period -- -- (186,943)
----------- ----------- -----------
Balance at December 31,
2005 -- 49,902 12,223
Shares issued for
debt -- -- 32,449
Shares issued for
services -- -- 2,000
Net (loss) income
----------- -----------
for the period 273,419 -- (481,296)
----------- ----------- -----------
Balance December 31,
2006 273,419 49,902 (434,624)
Shares issued for
debt -- -- 1,022,523
Shares issued for
services -- -- 1,700
Repayment of
advanced funds -- (49,902) (49,902)
Net (loss) income
for the period 8,333 -- (529,368)
----------- ----------- -----------
Balance December 31, 2007 $ 281,752 $ -- $ 10,329
=========== =========== ===========
See accompanying notes to financial statements.
|
F-6
GULF COAST OIL & GAS, INC.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 2007
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
HISTORY
Otish Mountain Diamond Company (formerly First Cypress, Inc.), a Nevada
corporation, was organized on September 14, 1999. From inception to September
30, 2003, the Company had not generated any revenues and was considered a
development stage enterprise, as defined in Financial Accounting Standards Board
No. 7. The Company was in the process of developing an internet computer
software program known as EngineMax. Essentially, software development was
suspended in November 2002 due to cash flow constraints. In October 2002, the
Company acquired certain items constituting the "Money Club Financial" business
concept and business plan. Due to the Company's inability to raise the necessary
equity capital to further the Money Club Financial business concept, no monies
were spent furthering the business concept from the date of acquisition to
September 30, 2003. The Company discontinued its involvement in these operations
in the third quarter of 2003.
On November 30, 2003, the Company successfully acquired 100% of Otish Mountain
Diamond Corp. ("Otish Corp."). The business activities of Otish Corp. became the
business activities of the Company. In connection with the merger the
capitalization of the Company was amended to reflect a 220:1 reverse stock split
and to increase the authorized capital to 600,000,000 shares, consisting of
500,000,000 common shares with a par value of $0.001, and 100,000,000 preferred
shares with a par value of $0.001. Also, 1,000,000 shares of a Serial A
Preferred were issued for services rendered. Finally, the then president of the
Company entered into two agreements with the Company; one, assumed all the known
liabilities of the company, and the second, agreed to convert debt owed the
president of $236,000 into 236,000 shares of Company common stock.
The Company's income statement at the date of merger was as follows:
Revenues $ -0-
Expenses:
Exploration costs $36,293
Administrative $136,284
Net Loss $172,577
|
Otish Mountain Diamond Corp. was incorporated in the state of Nevada on August
4, 2003. The Company was formerly engaged in the mining and exploration business
and had mineral rights in the Otish Mountain and Superior Craton regions of
Canada.
On November 30, 2003, the Company declared a 1 for 220 reverse stock split. On
July 13, 2005, the Company declared a 3 for 1 forward stock split. All shares
amount referenced in these footnotes represent the share equivalents after
taking into account, to the extent applicable, the effect of the reverse stock
split and the forward stock split. All share amounts in the financial statements
have also been adjusted retroactively for the reverse and forward stock split.
In August and November 2003, the Company issued 40,909 shares of its common
stock and paid $77,745 for mineral rights in the Otish Mountain and Superior
Craton regions of Quebec, Canada.
F-7
GULF COAST OIL & GAS, INC.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 2007
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
In the first quarter of 2004 the Company issued 60,900,150 shares of common
stock for services valued at $5,180,053. Valuation was based on the approximate
trading value of the Company's shares on the date issued.
During the third quarter of 2004 the Company issued 7,902,000 shares of common
stock to liquidate $263,400 of advances.
On January 13, 2005, the Company changed its name to Gulf Coast Oil & Gas, Inc.
On April 15, 2005, the Company settled an accounts payable debt of $232,120 for
696,360 shares of common stock.
On May 2, 2005, the Company received $100,000 for 1,665,000 shares of common
stock.
On May 26, 2005, the Company settled a current period debt of $5,000 for 300,000
of common stock.
On June 17, 2005, the Company received $100,000 for 1,200,000 shares of common
stock.
On July 17, 2005, the Company received $50,000 for 625,000 shares of common
stock.
On August 15, 2005, the Company issued 300,000 shares of common stock for
consulting services valued at $24,000.
On September 26, 2005, the Company received $50,000 for 625,000 shares of common
stock.
On November 14, 2006, the Company issued 1,500,000 shares of common stock for
consulting services valued at $24,000.
On December 31, 2006, the Company issued 500,000 shares of common stock for
consulting services valued at $11,000.
On January 1, 2007, the Company issued 1,700,000 shares of common stock for
consulting services valued at $1,700.
FINANCIAL STATEMENT PRESENTATION
The Company was a shell at the time of the acquisition having only $192 in
assets; the acquisition was treated as a reverse merger whereby the acquired
company is treated as the acquiring company for accounting purposes.
AN EXPLORATION STAGE COMPANY
The Company is an Exploration Stage Company since it is engaged in the search
for mineral deposits, which are not in the development or productions stage. As
an exploration stage company the Company will present, Since Inception, results
on its statements of operations, stockholders' equity and cash flows.
F-8
GULF COAST OIL & GAS, INC.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 2007
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all
short-term debt securities purchased with a maturity of three months or less to
be cash equivalents. There was no cash paid during the periods for interest or
taxes.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost. Maintenance, repairs and renewals
are expensed as incurred. Depreciation of property and equipment is provided for
over their estimated useful lives, which range from three to five years, using
the straight-lined method.
WEBSITE DEVELOPMENT COSTS
The Company has expended $1,500 in Website Development Costs, for internal use
software. These costs are being amortized over a three year estimated life.
MINERAL RIGHTS
The Company uses the "full costs method" of accounting for its mineral reserves.
Under this method of accounting, properties are divided into cost centers. The
Company presently has two cost centers. All acquisition, exploration, and
development costs for properties within each cost center are capitalized when
incurred. The Company intends to deplete these costs equally over the estimated
units to be recovered from the properties. These costs were written off at
December 31, 2004 as part of the cost of mineral rights abandoned.
DEPOSIT ON INTEREST IN UNPROVED OIL AND GAS LEASES
On June 8, 2005, the Company paid $100,000 to acquire, subject to lease
availability, a 75% working interest in oil and gas leases in Louisiana. Under
the terms of the agreement the Company will pay 100% of the costs of
acquisition, exploration and development of the leases, the lease are subject to
overriding royalties, and has one year to submit the remaining portion of the
total costs. In the event the leases are unavailable, the funds advanced, less
expense incurred will be returned to the Company.
On August, 2006, the Company paid $30,000 to renew the lease in Louisiana for
two additional years.
On May 9, 2006, the Company paid a deposit of $262,500 on oil and gas property
(the Weil 8-C) in Corpus Christi Texas. Under the agreement, the Company
acquired an undivided 28% working interest and a 21% net revenue interest in the
Weil 8-C well for a 46.66% billing interest.
On August 1, 2006, the Company paid $104,533 to hookup the 8-C to bring the well
production ready. The facility had not been placed into service at December 31,
2006. When placed into service the asset will be moved from investments to fixed
assets and depreciated on a straight-line basis over a seven year life.
On August 15, 2006, the Company paid a deposit of $108,251 on oil & gas
property, namely, the Weil 3-C, in Corpus Christi Texas. Under the agreement,
the Company acquired an undivided 28% working interest and a 21% net revenue
interest in the Weil 3-C well for a 46.66% billing interest.
F-9
GULF COAST OIL & GAS, INC.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 2007
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
On August 31, 2006, The Company paid a deposit of $134,520.78 on oil & gas
property, namely, the Weil 7-C, in Corpus Christi Texas. Under the agreement,
the Company acquired an undivided 28% working interest and a 21% net revenue
interest in the Well 7-C well for a 46.66% billing interest.
On September 19, 2006, the Company paid $135,948.57 to bring the 3-C and 7-C
wells into production as well as convert both the 2-C and 6-C wells on property
to Salt Water disposal wells. It is the intent of the Company to offer Salt
Water disposal services to neighboring companies as a side revenue generating
service. The facility had not been placed into service at December 31, 2006.
When placed into service the assets will be moved from investments to fixed
assets and depreciated on a straight-line basis over a seven year life.
USE OF ESTIMATES
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
NOTE 2 - MINERAL RIGHTS
Otish Mountain Diamond Corporation
On August 19, 2003 the Company purchased the mineral rights for 60,933 acres in
the Otish Mountain and Superior Craton regions of Quebec, Canada. The claims
were purchased for $42,506 and 17,045 shares of common stock. The Company is
required to spend a minimum of $135 CDN per mining claim on exploration before
the expiration date of each claim. The Company is required to spend $105 CDN per
claim maintenance/renewal fee to the appropriate governmental authority before
the expiration date of the mining claim. If the Company fails to meet its
obligations under this agreement the seller has the option to make the
expenditures and to reassume title to the mining claims.
On November 4, 2003 the Company purchased the mineral rights for 775 acres in
the Otish Mountain region of Quebec, Canada. The Claims were purchased for
$1,855 and 3409 shares of common stock. The Company is required to pay a 2%
royalty of the net smelter returns and a 2% royalty on the gross overriding
royalty as defined in the agreement. The Company shall also pay to the seller
$5,000 CDN minimum annual advance royalty beginning on November 1, 2004 and each
year thereafter. The Company is also required to keep the property in good
standing for 1 year or the seller shall be entitled to reacquire the claims.
On November 4, 2003 the Company entered into a joint venture agreement for the
mineral rights for 15,361 acres in the Otish Mountain region of Quebec, Canada.
The investment was $33,383 and 20454 shares of common stock. The Company paid
the required claim tax/renewal fees of $12,495 CDN by the due date of November
27, 2003. The Company was required to make a minimum advanced royalty payment of
$15,000 CDN once mining stage began. Royalties were subject to underlying
royalties of 2% of the net smelter returns and 2% of the gross overriding
royalty as defined in the agreement. The Company's total outlay for the joint
venture was not to exceed $375,000 CDN. The Company owned 45% of the joint
venture.
F-10
GULF COAST OIL & GAS, INC.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 2007
NOTE 2 - MINERAL RIGHTS - CONTINUED
At December 31, 2004 the Company decided to abandon the above mineral rights.
The balance of the rights and the net book value of the website development
costs were expensed. The total amount written off was $195,226.
NOTE 3 - DEPOSIT ON INTEREST IN UNPROVED OIL AND GAS LEASES
On June 8, 2005, the Company paid $100,000 to acquire, subject to lease
availability, a 75% working interest in oil and gas leases in Louisiana. Under
the terms of the agreement the Company will pay 100% of the costs of
acquisition, exploration and development of the leases, the leases are subject
to overriding royalties, and has one year
to submit the remaining portion of the total costs. In the event the leases are
unavailable, the funds advanced, less expenses incurred will be returned to the
Company.
On August, 2006, the Company paid $30,000 to renew the lease in Louisiana for
two additional years.
On May 9, 2006, the Company paid a deposit of $262,500 on oil and gas property
(the Weil 8-C) in Corpus Christi Texas. Under the agreement, the Company
acquired an undivided 28% working interest and a 21% net revenue interest in the
Weil 8-C well for a 46.66% billing interest.
On August 1, 2006, The Company paid $104,533 to hookup the 3-C to bring the well
production ready. The facility had not been placed into service at December 31,
2006. When placed into service the asset will be moved from investments to fixed
assets and depreciated on a straight-line basis over a seven year life.
On August 15, 2006, the Company paid a deposit of $108,251 on oil & gas
property, namely, the Weil 3-C, in Corpus Christi Texas. Under the agreement,
the Company acquired an undivided 28% working interest and a 21% net revenue
interest in the Weil 3-C well for a 46.66% billing interest.
On August 31, 2006, The Company paid a deposit of $134,520.78 on oil & gas
property, namely, the 7-C in Corpus Christi Texas. Under the agreement, the
Company acquired an undivided 28% working interest and a 21% net revenue
interest in the Well 7-C well for a 46.66% billing interest.
On September 19, 2006, the Company paid $135,948.57 to bring the 3-C and 7-C
wells into production as well as convert both the 2-C and 6-C wells on property
to Salt Water disposal wells. It is the intent of the Company to offer Salt
Water disposal services to neighboring companies as a side revenue generating
service. The facility had not been placed into service at December 31, 2006.
When placed into service the asset will be moved from investments to fixed
assets and depreciated on a straight-line basis over a seven year life.
During the second quarter 2007 the Company invested $15,988 on the Corpus
Christi Project. In the first quarter of 2007, all the wells, except the
Louisiana wells generated revenues. Accordingly $49,897 was transferred to
depreciable assets and $732,926 to Oil reserves.
F-11
GULF COAST OIL & GAS, INC.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 2007
NOTE 4 - NOTES PAYABLE
On February 1, 2006, the Company entered into a Securities Purchase Agreement
with Cornell Capital Partners, L.P., Certain Wealth, Ltd., and TAIB Bank, B.S.C.
pursuant to which the Buyers agreed to purchase secured convertible debentures
in the principal amount of $2,000,000. On February 2, 2006 the Company sold and
issued $1,000,000 in principal amount of Debentures to the Buyers. In connection
with the Securities Purchase Agreement, the Company issued Cornell Capital
five-year warrants to purchase 30,000,000 shares of our common stock at the
following exercise prices: 7,500,000 at $0.02 per share, 7,500,000 at $0.03 per
share, 5,000,000 at $0.04 per share, 5,000,000 at $0.05 per share, and 5,000,000
at $0.06 per share.
The debentures are convertible at the option of the Buyers any time up to
maturity into shares of the Company's common stock. The debentures have a
three-year term and accrue interest at 10% per year. All unpaid interest and
principal are due on or before February 1, 2009.
On April 5, 2006, the Company sold the balance, $1,000,000, of the secured
convertible debentures. The terms and conditions are the same. The debentures
have a three-year term and accrue interest at 10% per year. All unpaid interest
and principal are due on or before April 5, 2009.
On September 14, 2006, the Company exchanged 892,857 shares of common stock for
the retirement of $20,000 of convertible notes payable.
In the fourth quarter of 2006, the Company exchanged 12,448,984 shares of common
stock for the retirement of $12,449 of convertible notes payable.
In the first quarter of 2007, the Company exchanged 22,730,158 shares of common
stock for the retirement of $170,000 of convertible notes payable.
In the second quarter of 2007, the Company exchanged 88,728,878 shares of common
stock for the retirement of $277,049 of convertible notes payable.
In the Third quarter of 2007, the Company exchanged 291,837,000 shares of common
stock for the retirement of $440,280 of convertible notes payable/
In the Fourth quarter of 2007, the Company exchanged 135,193,840 shares of
common stock for the retirement of $135,194 of convertible notes payable.
At year end, the Company no longer had the necessary shares of common stock in
treasury to effect the conversion of the notes to common stock as required under
the convertible loan agreements. The Company is now in default on the balance of
the Debentures.
Maturities of long term debt:
2006 $ -0-
2007 $ -0-
2008 $ -0-
2009 $ 943,028
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F-12
GULF COAST OIL & GAS, INC.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 2007
NOTE 5 - DERIVATIVE LIABILITY ARISING FROM WARRANTS
The Company accounts for debt with embedded conversion features and warrant
issues in accordance with EITF 98-5: ACCOUNTING FOR CONVERTIBLE SECURITIES WITH
BENEFICIAL CONVERSION FEATURES OR CONTINGENCY ADJUSTABLE CONVERSION and EITF No.
00-27: APPLICATION OF ISSUE NO 98-5 TO CERTAIN CONVERTIBLE INSTRUMENTS.
Conversion features determined to be beneficial to the holder are valued at fair
value and recorded to additional paid in capital. The Company determines the
fair value to be ascribed to the detachable warrants issued with the convertible
debentures utilizing the BLACK-SCHOLES method. Any discount derived from
determining the fair value to the debenture conversion features and warrants is
amortized to financing cost over the life of the debenture. The unamortized
discount, if any, upon the conversion of the debentures is expensed to financing
cost on a pro rata basis.
Debt issue with the variable conversion features are considered to be embedded
derivatives and are accountable in accordance with FASB 133; ACCOUNTING FOR
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. The fare value of the embedded
derivative is recorded to derivative liability. This liability is required to be
marked each reporting period. The resulting discount on the debt is amortized to
interest expense over the life of the related debt.
NOTE 6 - SERIES A PREFERRED STOCK
Each share of preferred has 15 votes compared to each share of common, which has
only one vote. In the second quarter 2004 all outstanding shares of Preferred
Stock were redeemed for $1,000.
NOTE 7 - RELATED PARTIES
The Company owes its present President $43,619 and $47,119 for compensation and
expense reimbursement at December 31, 2007 and December 31, 2006 respectively.
NOTE 8 - GOING CONCERN
The Company has not generated significant revenues or profits to date. This
factor among others may indicate the Company will be unable to continue as a
going concern. The Company's continuation as a going concern depends upon its
ability to generate sufficient cash flow to conduct its operations and its
ability to obtain additional sources of capital and financing.
In early 2007, the Company anticipated that revenues from the three producing
wells of the Corpus Christi Project would be sufficient to fund its overhead
costs for the near term. While the Corpus Christi Project has generated $209,821
in revenues, the wells have not recently produced at anticipated levels. As a
result, the Company intends to expend additional monies reworking Weil 8-C in an
effort to stimulate production by entering additional up-hole zones. There can
be no assurances that we will be successful in our efforts to stimulate
production and production from these wells may continue to be insufficient to
fund ongoing expenses. The accompanying financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
F-13