As
filed
with the Securities and Exchange Commission on December 5, 2007
Registration
Statement No. 333-_______
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
SB-2
REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933
GULF
WESTERN PETROLEUM CORPORATION
(Name
of
small business issuer in its charter)
|
Nevada
|
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1311
|
|
98-0489324
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|
(State
or jurisdiction of
incorporation
or organization)
|
|
(Primary
Standard Industrial
Classification
Code Number)
|
|
(I.R.S.
Employer
Identification
No.)
|
4801
Woodway Drive, Suite 306W
Houston,
Texas 77056
(713)
355-7001
(Address
and telephone number of principal executive offices)
Wm.
Milton Cox
Chairman
and Chief Executive Officer
Gulf
Western Petroleum Corporation
4801
Woodway Drive, Suite 306W
Houston,
Texas 77056
Telephone:
(713) 355-7001
Facsimile:
(713) 979-3728
(Name,
address and telephone number of agent for service)
Copies
to:
Nick
D. Nicholas
Porter
& Hedges, L.L.P.
1000
Main Street, 36
th
Floor
Houston,
Texas 77002
Telephone: (713)
226-6000
Facsimile: (713)
226-6237
Approximate
date of proposed sale to the public: As soon as practicable after the effective
date of the registration statement.
If
any of
the securities being registered on this Form are to be offered on a delayed
or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, other
than securities offered only in connection with dividend or interest
reinvestment plans, check the following box:
x
If
this
form is filed to register additional securities for an offering pursuant
to Rule
462(b) under the Securities Act of 1933, as amended, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering.
¨
If
this
form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the
same
offering.
¨
If
this
form is a post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the
same
offering.
¨
If
delivery of the prospectus is expected to be made pursuant to Rule 434, check
the following box.
¨
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CALCULATION
OF REGISTRATION FEE
|
|
Title
of Each Class of Securities
To
be Registered
|
Amount
to be
Registered
(1)
|
|
Proposed
Maximum
Offering
Price
Per
Share (2)
|
|
|
Proposed
Maximum
Aggregate
Offering
Price
(2)
|
|
|
Amount
of
Registration
Fee
|
|
|
Common
Stock, $.001 par value per share
|
14,573,718
shares
|
|
$
|
0.39
|
|
|
$
|
5,683,750
|
|
|
$
|
175
|
|
|
|
(1)
|
Represents
the number of shares beneficially owned by the selling stockholders,
including shares underlying a warrant and notes held by such selling
stockholders on the date hereof, which shares may be resold by
the selling
stockholders. Pursuant to Rule 416 under the Securities Act, there
are
also being registered hereby such additional indeterminate number
of
shares as may become issuable pursuant to the antidilution provisions
of
the warrant and notes and issuable upon exercise of the warrant
and
conversion of the notes in connection with stock splits, stock
dividends,
recapitalizations or similar
events.
|
|
|
(2)
|
Estimated
solely for the purpose of calculating the registration
fee. Pursuant to Rule 457(c) under the Securities Act, the
registration fee is calculated on the basis of the average of
the bid and ask prices for the common stock on the
Over-the-Counter Bulletin Board on December 4,
2007.
|
The
Registrant hereby amends this registration statement on such date or dates
as
may be necessary to delay its effective date until the Registrant shall file
a
further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933, as amended, or until the registration statement shall
become effective on such date as the Commission, acting pursuant to said
Section
8(a), may determine.
|
The
information in this prospectus is not complete and may be
changed. The selling stockholders may not sell these securities
until the registration statement filed with the Securities and
Exchange
Commission is effective. This prospectus is not an offer to
sell these securities and it is not soliciting an offer to buy
these
securities in any state where the offer or sale is not
permitted.
|
Subject
to completion dated December 5, 2007
Preliminary
Prospectus
14,573,718
Shares
Gulf
Western Petroleum Corporation
Common
Stock
_______________________________________
This
prospectus relates to the resale of 14,573,718 shares of our common stock
held
by the selling stockholders, including 9,487,180 shares issuable upon conversion
of outstanding notes, and 3,586,538 issuable upon exercise of outstanding
warrants, owned by the selling stockholders.
We
are
not offering any shares of our common stock for sale under this prospectus,
and
we will not receive any of the proceeds from the resale of the shares of
common
stock issuable upon conversion of the notes or exercise of the
warrant. We will, however, receive proceeds from the exercise of the
warrant. The warrants, when exercised, will entitle the holder to
receive a certain number of shares at initial exercise prices of $0.26 and
$0.30
per share. Therefore, if the warrants are exercised in full, we will
issue 3,568,538 shares of our common stock and we will receive aggregate
proceeds of approximately $937,500.
Our
common stock is traded on the Over-The-Counter Bulletin Board under the symbol
“GWPC.OB.” The last reported sale price for our common stock on the
Over-The-Counter Bulletin Board on December 4, 2007 was $0.38.
We
do not
intend to apply to have the warrant or the notes listed on any securities
exchange or included in any automated quotation system, and there is no active
trading market for them.
Investing
in our common stock involves significant risks that are described in the
“Risk
Factors” section beginning on page 3 of this prospectus.
_______________
Neither
the Securities and Exchange Commission nor any state securities commission
has
approved or disapproved of these securities or determined if this prospectus
is
truthful or complete. Any representation to the contrary is a criminal
offense.
The
date
of this prospectus is ________, 2007
TABLE
OF CO
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You
should rely only on the information contained in this prospectus. We have
not
authorized anyone to provide you with different information. We are not making
an offer of our common stock in any state where the offer is not permitted.
You
should not assume that the information contained in this prospectus is accurate
as of any date other than the date on the front of this
prospectus.
PROS
PECT
US
SUMMARY
The
following summary should be read together with the information contained
in
other parts of this prospectus and the documents we incorporate by reference
to
fully understand the offering as well as the other considerations that are
important to you in making a decision about whether to invest in our common
stock. As used in this prospectus, unless the context otherwise requires,
“we,”
“us” or “our” refers to Gulf Western Petroleum Corporation and its subsidiaries
unless otherwise indicated or the context requires otherwise. We have provided
definitions for some of the industry terms used in this prospectus in the
“Glossary of Terms” in Appendix A.
Our
Company
We
are
engaged in the exploration and development of natural gas and oil reserves
within the United States, and holds oil and gas leases in Texas, Kansas and
Kentucky. We are actively pursuing oil and gas prospects and
opportunities principally through our network of relationships with individuals
and companies in the business of oil and gas exploration and
production.
Our
principal executive offices are located at 4801 Woodway Drive, Suite 306W,
Houston, Texas 77056, and our phone number is (713) 355-7001. Our website
address is www.gulfwesternpetroleum.com. Information on our website
is not incorporated by reference into this prospectus and does not constitute
part of this prospectus.
The
Offering
On
September 10, 2007, we entered into a Securities Purchase Agreement with
Metage
Funds Limited and NCIM Limited (together, the “Buyers”), pursuant to which,
among other things, we sold to the Buyers (1) 1,500,000 shares of our common
stock, par value $0.001 per share, (2) senior secured convertible notes in
an
original aggregate principal amount of $3,700,000, and (3) a
warrant to purchase up to an aggregate of 3,461,538 shares of the
Common Stock at an exercise price of $0.26 per share, subject to certain
adjustments to the number of shares and the exercise price described in the
Warrant. We also entered into a registration rights agreement with
the Buyers providing registration rights for the shares of common stock issued
at closing and the shares issuable upon exercise of the warrant and conversion
of the notes. The registration statement of which this prospectus is
a part was filed in response to a requirement of registration under the
registration rights agreement.
This
prospectus relates to the resale of 14,573,718 shares of our common stock
owned
by the Buyer and issuable upon the conversion of outstanding notes and exercise
of outstanding warrants owned by the Buyers, including 9,487,180 shares issuable
upon conversion of outstanding notes, and 3,586,538 issuable upon exercise
of
outstanding warrants, owned by the Buyer. We refer to the Buyers
elsewhere herein as the selling stockholders.
Use
of Proceeds
We
will
not receive any of the proceeds from the resale of the shares of common
stock. We will, however, receive proceeds from the exercise of the
warrant. The warrant, when exercised, will entitle the holder to
receive a certain number of shares at initial exercise prices of $0.26 and
$0.30
per share. Therefore, if the warrant is exercised in full, we will
issue 3,586,538 shares of our common stock and we will receive aggregate
proceeds of approximately $937,500. We intend to use the proceeds
primarily to provide working capital for the development of wells in the
Frio
formation in Texas
Over-The-Counter
Bulletin Board Symbol
Our
common stock is traded on the Over-The-Counter Bulletin Board under the symbol
“GWPC.OB.” The warrants are not, and will not be, listed on any
securities exchange or included in any automated quotation system.
RISK
F
ACT
ORS
An
investment in our common stock involves a high degree of risk. You
should consider carefully the risks and uncertainties described below and
the
other information included in, or incorporated by reference into, this
prospectus, including our financial statements and related notes, before
deciding to invest in our common stock. If any of the following risks
or uncertainties actually occurs, our business, financial condition and
operating results would likely suffer. In that event, the market
price of the offered securities could decline and you could lose all or part
of
the money you paid to buy our common stock.
Risks
Related to our Business
Without
additional financing, there is substantial doubt about our ability to continue
as a going concern
.
Our
audited consolidated financial statements as of August 31, 2007 and 2006
and for
each of the two years ended August 31, 2007 and 2006, and from inception
(January 20, 2005) to August 31, 2007 were prepared assuming that we will
continue as a going concern. We are in our development stage and have
had limited operations and no revenues from our inception through August
31,
2007. Our independent accountants in their audit report have
expressed substantial doubt about our ability to continue as a going
concern. Our continued operations are dependent on our ability to
achieve profitability and to generate and maintain positive operating cash
flows. This is driven by our ability to complete equity and debt
financings sufficient to fund the acquisition, drilling and development of
profitable oil and gas properties. Such financings may not be
available to us or may not be on reasonable terms. Our financial
statements do not include any adjustments that may result from the outcome
of
this uncertainty.
We
have a very limited history of operations in oil and natural gas exploration
and
production and accordingly may not be successful in carrying out our business
objectives
.
We
were
incorporated in the State of Nevada on February 21, 2006 as Georgia Exploration,
Inc., a Vancouver based mineral resource exploration company with interests
in
14 non-oil and gas mineral claims in British Columbia. On January 3,
2007, we consummated a merger with Wharton Resources Corp. Upon
completion of the merger, our core business and strategic focus became the
exploration and development of oil and natural gas reserves in the United
States.
We
have
raised limited financing and have incurred operating losses since our inception,
with total losses of approximately $3,817,250 through August 31,
2007. Although our management team has experience in the U.S. oil and
gas industry, we have no track record of successful oil and gas exploration
and
development activities that would allow an investor to assess the likelihood
of
us, or guarantee that we will be successful, as an oil and natural gas
exploration and production company. We may fail to achieve or
maintain successful operations, even in favorable market
conditions. There is a substantial risk that we will not be
successful in our exploration activities, or if initially successful, in
thereafter generating any operating revenues or otherwise achieving sustained
and recurring operating cash flows.
We
may require additional funding, and our failure to raise additional capital
necessary to support and expand our operations could reduce our ability to
compete and could harm our business
.
Over
the
next twelve months, we plan to spend approximately $12.8 million for oil
and
natural gas exploration, drilling and development expenditures, and
approximately $1.6 million for general and administrative, operating and
public
company expenses, and working capital requirements. See “Plan of
Operations” for more information. Based on our plan of operation, our
current available cash and projected operating cash flows are not sufficient
to
fund our capital and operating requirements over the next twelve month
period. In particular, our current and projected operating cash flows
from our Frio formation oil and gas production in Dewitt and Lavaca Counties,
Texas are not sufficient to repay the total $3.7 million principal balance
due
on September 10, 2008 under the notes issued to the selling
stockholders. The first six months of interest on these notes
totaling $277,500 is due on March 10, 2008. We are dependent on
external financing sources to raise funds sufficient to repay the principal
balance due on these notes at maturity.
To
execute our plans, we will require substantial financing and are actively
working on options to raise equity and/or debt financing through private
placements and public offerings. However, in the event that we are unable
to
raise the financing to meet our needs, or if we are able to obtain sufficient
financing from investors or private lenders but it is on commercial terms
unacceptable to us or our stockholders, we will be required to scale back
or
slow our capital investment program. Should we raise funds through equity
and
debt placements, existing equity and ownership in us could be negatively
affected due to the dilution of existing equity ownership of our
shares.
The
notes issued to the selling stockholders mature in twelve months and are
secured
by substantially all of our assets, so the failure to repay the notes could
cause us to cease operations
.
As
noted
above, the notes issued to the selling stockholders are due on September
10,
2008 and are secured by a lien on substantially all of our assets, including
our
oil and gas lease interests and our equity interests in our
subsidiaries. We are dependent on external financing sources to raise
funds sufficient to repay the principal due under these notes at maturity.
Alternate external financing may be comprised of equity and debt, which may
or
may not be available to us on reasonable terms. If we are not
successful in or unable to repay the $3.7 million principal balance on the
maturity of the notes, since substantially all our assets are pledged as
security to the lenders, we may be unable to continue our business and as
a
result may be required to scale back or cease operations for our business,
the
result of which would be that our stockholders would lose some or all of
their
investment.
Our
related party transactions may cause conflicts of interests that may adversely
affect our ability to operate our business
.
We
have
entered into and may, in the future, enter into various transactions and
agreements with entities wholly or partially owned by our officer and directors,
including Orbit Energy, LLC, which is owned by CodeAmerica Investments, LLC,
for
which Wm. Milton Cox, our Chairman and CEO, is the Managing Member, and Paragon
Capital, LLC for which Bassam Nastat, our President and a Director, serves
as
Manager. We believe that the transactions and agreements that we have
entered into with related parties are on terms that are at least as favorable
to
us as could reasonably have been obtained at such time from third
parties. However, these relationships could create, or appear to
create, potential conflicts of interest when members of our senior management
are faced with decisions that could have different implications for us and
those
entities or their affiliates.
Potential
conflicts of interest can exist if a related party director or officer has
to
make a decision that has different implications for us and the related party.
No
assurance can be given as to how potentially conflicted
board members or officers will evaluate their fiduciary duties or how such
individuals will act under such circumstances. Furthermore, the appearance
of
conflicts, even if such conflicts do not materialize, might adversely affect
the
public's perception of us, as well as our relationship with other companies
and
our ability to enter into new relationships in the future, which could have
a
material adverse effect on our ability to do business.
Our
exploration and development operations are subject to many risks which may
affect our ability to profitably extract oil and natural gas reserves or
achieve
targeted returns. In addition, continued growth requires that we acquire
and successfully develop additional oil and natural gas reserves.
Oil
and
natural gas exploration may involve unprofitable efforts, not only from dry
wells, but from wells that are productive but do not produce sufficient net
revenues to return a profit after drilling, operating and other costs.
Completion of a well does not assure a profit on the investment or recovery
of
drilling, completion and operating costs. In addition, drilling hazards or
environmental damage could greatly increase the cost of operations, and various
field operating conditions may adversely affect the production from successful
wells. These conditions include delays in obtaining governmental approvals
or
consents, shut-ins of connected wells resulting from extreme weather conditions,
insufficient storage or transportation capacity or other geological and
mechanical conditions. While diligent well supervision and effective maintenance
operations can contribute to maximizing production rates over time, production
delays and declines from normal field operating conditions cannot be eliminated
and can be expected to adversely affect revenue and cash flow levels to varying
degrees.
Our
commercial success depends on our ability to find, acquire, develop and
commercially produce oil and natural gas reserves. Without the continual
addition of new reserves, any existing reserves and the production therefrom
will decline over time as such existing reserves are depleted. A future
increase in our reserves will depend not only on our ability to explore and
develop any properties we may have from time to time, but also on our ability
to
select and acquire suitable producing properties or prospects. No
assurance can be given that we will be able to continue to locate satisfactory
properties for acquisition or participation. Moreover, if such
acquisitions or participations are identified, we may determine that current
markets, terms of acquisition and participation or pricing conditions make
such
acquisitions or participations economically disadvantageous. There is no
assurance that commercial quantities of oil and natural gas will be discovered
or acquired by us.
Our
oil and natural gas operations are subject to operating hazards that may
increase our operating costs to prevent such hazards, or may materially affect
our operating results if any of such hazards were to
occur.
Oil
and
natural gas exploration, development and production operations are subject
to
all the risks and hazards typically associated with such operations, including
hazards such as fire, explosion, blowouts, cratering, sour gas releases and
spills, each of which could result in substantial damage to oil and natural
gas
wells, production facilities, other property and the environment or in personal
injury. Oil and natural gas production operations are also subject to all
the
risks typically associated with such operations, including encountering
unexpected formations or pressures, premature decline of reservoirs and the
invasion of water into producing formations. Losses resulting from the
occurrence of any of these risks could have a material adverse effect on
our
results of operations, liquidity and financial condition.
To
date,
we have not generated revenues from production of our oil and natural gas
lease
interests. Our oil and natural gas exploration and development
activities will be focused on the exploration and development of our oil
and
natural gas rights which are high-risk ventures with uncertain prospects
for
success. In addition, we will not have earnings to support our
activities should the wells drilled or properties acquired prove not to be
commercially viable. No assurance can be given that commercial quantities
of oil and natural gas will be successfully produced as a result of our
exploration and development efforts. Further there is no guarantee
that we will generate sufficient revenues from production of our
reserves.
Our
exploration and development activities will depend in part on the evaluation
of
data obtained through geophysical testing and geological analysis, as well
as
test drilling activity. The results of such studies and tests are
subjective, and no assurances can be given that exploration and development
activities based on positive analysis will produce oil or natural gas in
commercial quantities or costs. As developmental and exploratory
activities are performed, further data required for evaluation of our oil
and
natural gas interests will become available. The exploration and
development activities that will be undertaken by us are subject to greater
risks than those associated with the acquisition and ownership of producing
properties. The drilling of development wells, although generally
consisting of drilling to reservoirs believed to be productive, may result
in
dry holes or a failure to produce oil and natural gas in commercial quantities.
Moreover, any drilling of exploratory wells is subject to significant risk
of dry holes.
Sales
of any production of oil or natural gas from our present or future reserves
are
subject to numerous factors beyond our control which could make it difficult
to
market and sell any oil and natural gas at price and cost levels that are
acceptable or profitable to us.
The
marketability of any oil or natural gas that may be discovered by us will
be
affected by numerous factors beyond our control, including market fluctuations,
the supply and demand for natural gas, the proximity and capacity of natural
gas
pipelines, oil transportation, and processing equipment, as well as by
government regulations, including regulations relating to the prices, taxes,
royalties, land tenure, allowable production, the import and export of natural
gas and environmental protection. These factors cannot be predicted.
Given the development stage of our operations, we are in the initial stage
of negotiating contracts for the delivery and sale of oil or natural gas
production from our properties. There is no guarantee that any such
contracts will be obtained or, if obtained, will be on terms which are
economically viable to us.
If
we are unable to successfully compete with the large number of oil and natural
gas producers in our industry, we may not be able to achieve profitable
operations.
Oil
and
natural gas exploration is intensely competitive in all its phases and involves
a high degree of risk. We compete with numerous other participants in
the search for and the acquisition of oil and natural gas properties and
in the
marketing of oil and natural gas. Our competitors include oil and natural
gas companies that have substantially greater financial resources, staff
and
facilities than us. Our ability to increase reserves in the future will
depend not only on our ability to explore and develop our existing properties,
but also on our ability to select and acquire suitable producing properties
or
prospects for exploratory drilling. Competitive factors in the
distribution and marketing of oil and natural gas include price and methods
and
reliability of delivery. Competition may also be presented by alternate
fuel sources.
We
are subject to various regulatory requirements, including environmental
regulations, and may incur substantial costs to comply and remain in compliance
with those requirements.
Our
operations in the United States are subject to regulation at the federal,
state
and local levels, including regulation relating to matters such as the
exploration for and the development, production, marketing, pricing,
transmission and storage of oil and natural gas, as well as environmental
and
safety matters. Failure to comply with applicable regulations could result
in fines or penalties being owed to third parties or governmental entities,
the
payment of which could have a material adverse effect on our financial condition
or results of operations. Our operations are subject to significant laws
and regulations, which may adversely affect our ability to conduct business
or
increase our costs. Extensive federal, state and local laws and
regulations relating to health and environmental quality in the United States
affect nearly all of our operations. These laws and regulations set
various standards regulating various aspects of health and environmental
quality, provide for penalties and other liabilities for the violation of
these
standards, and in some circumstances, establish obligations to remediate
current
and former facilities and off-site locations.
Environmental
legislation provides for, among other things, restrictions and prohibitions
on
spills, releases or emissions of various substances produced in association
with
oil and natural gas operations. The legislation also requires that wells
and
facility sites be operated, maintained, abandoned and reclaimed to the
satisfaction of the applicable regulatory authorities. Compliance with such
legislation can require significant expenditures and a breach may result
in the
imposition of fines and penalties, some of which may be material. Environmental
legislation is evolving in a manner expected to result in stricter standards
and
enforcement, larger fines and liability and potentially increased capital
expenditures and operating costs. The discharge of oil, natural gas or other
pollutants into the air, soil or water may give rise to liabilities to
governments and third parties and may require us to incur costs to remedy
such
discharge. No assurance can be given that environmental laws will not result
in
a curtailment of production or a material increase in the costs of production,
development or exploration activities or otherwise adversely affect our
financial condition, results of operations or prospects. We could incur
significant liability for damages, clean-up costs and/or penalties in the
event
of discharges into the environment, environmental damage caused by us or
previous owners of our property or non-compliance with environmental laws
or
regulations. In addition to actions brought by governmental agencies, we
could
face actions brought by private parties or citizens groups. Any of
the foregoing could have a material adverse effect on our financial
results.
Moreover,
we cannot predict what legislation or regulations will be enacted in the
future
or how existing or future laws or regulations will be administered, enforced
or
made more stringent. Compliance with more stringent laws or regulations,
or more
vigorous enforcement policies of the regulatory agencies, could require us
to
make material expenditures for the installation and operation of systems
and
equipment for remedial measures, all of which could have a material adverse
effect on our financial condition or results of operations.
Our
ability to successfully market and sell oil and natural gas is subject to
a
number of factors that are beyond our control, and that may adversely impact
our
ability to produce and sell oil and natural gas, or to achieve profitability.
The
marketability and price of oil and natural gas that may be acquired or
discovered by us will be affected by numerous factors beyond our control.
Our ability to market our natural gas may depend upon our ability to
acquire space on pipelines that deliver natural gas to commercial markets.
We
may also be affected by deliverability uncertainties related to the proximity
of
our reserves to pipelines and processing facilities, by operational problems
with such pipelines and facilities, and by government regulation relating
to
price, taxes, royalties, land tenure, allowable production, the export of
oil
and natural gas and by many other aspects of the oil and natural gas
business.
Our
revenues, profitability and future growth and the carrying value of our oil
and
natural gas properties are substantially dependent on prevailing prices of
oil
and natural gas. Our ability to borrow and to obtain additional capital on
attractive terms is also substantially dependent upon oil and natural gas
prices. Prices for oil and natural gas are subject to large fluctuations
in
response to relatively minor changes in the supply of and demand for oil
and
natural gas, market uncertainty and a variety of additional factors beyond
our
control. These factors include economic conditions, in the United States
and
Canada, the actions of the Organization of Petroleum Exporting Countries,
governmental regulation, political stability in the Middle East and elsewhere,
the foreign supply of oil and natural gas, the price of foreign imports and
the
availability of alternative fuel sources. Any substantial and extended decline
in the price of oil and natural gas would have an adverse effect on the carrying
value of our proved reserves, borrowing capacity, revenues, profitability
and
cash flows from operations.
Volatile
oil and natural gas prices make it difficult to estimate the value of producing
properties for acquisition and often cause disruption in the market for oil
and
natural gas producing properties, as buyers and sellers have difficulty agreeing
on such value. Price volatility also makes it difficult to budget for and
project the return on acquisitions and development and exploitation
projects.
We
cannot guarantee that title to our properties does not contain a defect that
may
materially affect our interest in those properties.
It
is our
practice in acquiring significant oil and natural gas leases or interest
in oil
and natural gas leases to retain lawyers to fully examine the title to the
interest under the lease. In the case of minor acquisitions, we rely upon
the judgment of oil and natural gas lease brokers or landmen who do the field
work in examining records in the appropriate governmental office before
attempting to place under lease a specific interest. We believe that this
practice is widely followed in the oil and natural gas industry. Nevertheless,
there may be title defects which affect lands comprising a portion of our
properties which may adversely affect us.
Our
business may be harmed if we are unable to retain our interests in
leases
.
All
of
our properties are held under interests in oil and gas mineral leases, some
of
which expire within the next twelve months. If we fail to meet the specific
requirements of each lease, especially future drilling and production
requirements, the lease may be terminated or otherwise expire. We cannot
assure
you that we will be able to meet our obligations under each lease. The
termination or expiration of our working interest relating to any lease would
harm our business, financial condition and results of operations.
Our
reserve estimates are subject to numerous uncertainties and may be
inaccurate.
There
are
numerous uncertainties inherent in estimating quantities of oil or natural
gas
reserves and cash flows to be derived therefrom, including many factors beyond
our control. The reserve and associated cash flow information set forth herein
represents estimates only. In general, estimates of economically recoverable
oil
and natural gas reserves and the future net cash flows therefrom are based
upon
a number of variable factors and assumptions, such as historical production
from
the properties, production rates, ultimate reserve recovery, timing and amount
of capital expenditures, marketability of oil and natural gas, royalty rates,
the assumed effects of regulation by governmental agencies and future operating
costs, all of which may vary from actual results. All such estimates are
to some
degree speculative, and classifications of reserves are only attempts to
define
the degree of speculation involved. For those reasons, estimates of the
economically recoverable oil and natural gas reserves attributable to any
particular group of properties, classification of such reserves based on
risk of
recovery and estimates of future net revenues expected therefrom prepared
by
different engineers, or by the same engineers at different times, may vary.
Our
actual production, revenues, taxes and development and operating expenditures
with respect to our reserves will vary from estimates thereof and such
variations could be material.
Estimates
of proved reserves that may be developed and produced in the future are often
based upon volumetric calculations and upon analogy to similar types of reserves
rather than actual production history. Estimates based on these methods are
generally less reliable than those based on actual production history.
Subsequent evaluation of the same reserves based upon production history
and
production practices will result in variations in the estimated reserves
and
such variations could be material.
The
reserve quantities included herein were prepared by an independent reserve
engineer, MHA Petroleum Consultants, Inc. (“MHA”), and were prepared based on
constant price forecasts and cost estimates as of September 1,
2007. Actual future net revenue will be affected by other factors
such as actual production levels, supply and demand for oil and natural gas,
curtailments or increases in consumption by oil and natural gas purchasers,
changes in governmental regulation or taxation and the impact of inflation
on
costs. The MHA reserve quantities and other calculations are based in
part on the assumed success of activities we intend to undertake in future
periods, including obtaining the financing required to fund the capital
expenditures necessary to effect the drilling and completion of the reserves
identified in the MHA reserve evaluation. The reserves and estimated
cash flows to be derived from the production of the reserves will be reduced
if
we are not successful in undertaking the activities required in future
periods.
Although
we are covered as an additional insured under certain insurance policies
of our
lease operators, we presently do not carry our own insurance, and
because of the limitations of any future insurance coverage, we may be exposed
to significant liability should any claims arise for which we are not
insured.
Our
involvement in the exploration for and development of oil and natural gas
properties may result in our becoming subject to liability for pollution,
blowouts, property damage, personal injury or other hazards. We are covered
as
an additional insured under the insurance policies of our
lease operators, but do not presently maintain our own insurance
covering liabilities arising from our operations. Although prior to drilling
we
will obtain insurance in accordance with industry standards to address certain
of these risks, such insurance has limitations on liability that may not
be
sufficient to cover the full extent of such liabilities. In addition, such
risks
may not in all circumstances be insurable or, in certain circumstances, we
may
elect not to obtain insurance to deal with specific risks due to the high
premiums associated with such insurance or other reasons. The payment of
such
uninsured liabilities would reduce the funds available to us. The occurrence
of
a significant event that we are not fully insured against, or the insolvency
of
the insurer of such event, could have a material adverse effect on our financial
position, results of operations or prospects.
Some
of our oil and natural gas properties are held in the form of licenses and
leases. If we default on those licenses or leases, we may lose our
interest in those properties.
Our
properties are held in the form of licenses and leases and working interests
in
licenses and leases. If we or the holder of the license or lease fail to
meet
the specific requirement of a license or lease, the license or lease may
terminate or expire. There can be no assurance that any of the obligations
required to maintain each license or lease will be met, although we exercise
our
commercially reasonable efforts to do so. The termination or expiration of
our
licenses or leases or the working interests relating to a license or lease
may
have a material adverse effect on our results of operations and
business.
The
loss or unavailability of our key personnel for an extended period of time
could
adversely affect our business operations and
prospects.
Our
success depends in large measure on certain key personnel, including our
President, Chief Executive Officer and Chief Financial Officer. The loss
of the
services of such key personnel could have a material adverse effect on us.
Although we are looking into acquiring key person insurance, we do not
currently have such insurance in effect for these key individuals. In addition,
the competition for qualified personnel in the oil and natural gas industry
is
intense and there can be no assurance that we will be able to continue to
attract and retain all personnel necessary for the development and operation
of
our business.
We
depend on the services of third parties for material aspects of our operations,
including drilling operators, and accordingly if we cannot obtain certain
third
party services, we may not be able to operate.
We
may
rely on third parties to operate some of the assets in which we possess an
interest. Assuming the presence of commercial quantities of oil and natural
gas
on our properties, the success of the oil and natural gas operations, whether
considered on the basis of drilling operations or production operations,
will
depend largely on whether the operator of the property properly fulfils our
obligations. As a result, our ability to exercise influence over the
operation of these assets or their associated costs may be limited, adversely
affecting our financial performance. Our performance will therefore depend
upon a number of factors that may be outside of our full control, including
the
timing and amount of capital expenditures, the operator’s expertise and
financial resources, the approval of other participants, the selection of
technology, and risk management practices. The failure of third party
operators and their contractors to perform their services in a proper manner
could adversely affect our operations.
We
will be subject to the requirements of Section 404 of the Sarbanes-Oxley
Act. If we are unable to timely comply with Section 404 or if the
costs related to compliance are significant, our profitability, stock price
and
results of operations and financial condition could be materially adversely
affected.
Pursuant
to Section 404 of the Sarbanes-Oxley Act of 2002, beginning with our annual
report on Form 10-KSB for the fiscal year ending August 31, 2008, we will
be
required to furnish a report by management on our internal control over
financial reporting. This report will contain, among other matters, an
assessment of the effectiveness of our internal control over financial
reporting, including a statement as to whether or not our internal control
over
financial reporting is effective. This assessment must include disclosure
of any material weaknesses in our internal control over financial reporting
identified by our management. Beginning for the fiscal year ending
August 31, 2009, this report must also contain a statement that our auditors
have issued an attestation report on management’s assessment of internal
control.
We
cannot
be certain that we will be able to complete our assessment, testing and any
required remediation in a timely fashion. These reporting and assessment
obligations will place significant demands on our management, administrative,
operational, internal audit and accounting resources. We anticipate that
we will
need to upgrade our reporting systems and procedures, implement additional
financial and management controls, and hire additional accounting and finance
staff. If we are unable to accomplish these objectives in a timely and effective
fashion, our ability to comply with our financial reporting requirements
and
other rules that apply to reporting companies could be impaired. In
addition, during the evaluation and testing process, if we identify one or
more
material weaknesses in our internal control over financial reporting, we
will be
unable to assert that our system of internal control is effective. If we
are
unable to assert that our internal control over financial reporting is effective
(or if our auditors are unable to attest that management’s report is fairly
stated or they are unable to express an opinion on the effectiveness of our
internal controls), we could lose investor confidence in the accuracy and
completeness of our financial reports, which could have a material adverse
effect on our stock price.
Any
failure to maintain effective internal controls could have a material adverse
effect on our business, operating results and stock price. In addition, expenses
related to services rendered by our accountants, legal counsel and consultants
will increase in order to ensure compliance with these laws and regulations.
Failure to comply with Section 404 may make it more difficult for us to obtain
certain types of insurance, including director and officer liability insurance.
We may be forced to accept reduced policy limits and coverage and/or to
incur substantially higher costs to obtain the same or similar coverage.
The impact of these events could also make it more difficult for us to
attract and retain qualified persons to serve on our board of directors,
on
committees of our board of directors, or as executive officers.
Risks
Related to our Common Stock
Shares
of our common stock may continue to be subject to price volatility and
illiquidity because our shares may continue to be thinly traded and may never
become eligible for trading on a national securities
exchange
.
Although
a trading market for our common stock exists, the trading volume has
historically been insignificant, and an active trading market for our common
stock may never develop. There currently is limited analyst coverage of our
business. We do not have very many shares of common stock outstanding and
the
amount of shares in our public “float” will continue to be limited due to the
fact that significant portions of our outstanding shares are held by our
officers and directors and their affiliates. As a result of the thin trading
market for our common stock, and the lack of analyst coverage, the market
price
for our shares may continue to fluctuate significantly, and will likely be
more
volatile than the stock market as a whole. There may be a limited demand
for
shares of our common stock due to the reluctance or inability of certain
investors to buy stocks quoted for trading on the Over-The-Counter Bulletin
Board (“OTCBB”), limited analyst coverage of our common stock, and a negative
perception by investors of stocks traded on the OTCBB. As a result,
even if prices appear favorable, there may not be sufficient demand in order
to
complete a shareholder’s sell order. Without an active public trading market or
broader public ownership, shares of our common stock are likely to be less
liquid than the stock of most public companies, and any of our shareholders
who
attempt to sell their shares in any significant volumes may not be able to
do so
at all, or without depressing the publicly quoted bid prices for their
shares.
In
addition, while we may at some point be able to meet the requirements necessary
for our common stock to be listed on a national securities exchange, we cannot
assure you that we will ever achieve a listing of our common stock on a national
securities exchange. Initial listing on a national securities exchange is
subject to a variety of requirements, including minimum trading price and
minimum public “float” requirements, and could also be affected by the general
skepticism of such markets concerning companies that are the result of mergers
with inactive publicly-held companies. There are also continuing eligibility
requirements for companies listed on public trading markets. If we are unable
to
satisfy the initial or continuing eligibility requirements of any such market,
then our stock may not be listed or could be delisted. This could result
in a
lower trading price for our common stock and may limit your ability to sell
your
shares, any of which could result in you losing some or all of your
investments.
Our
common stock is subject to the “penny stock” rules of the Securities and
Exchange Commission and the trading market in our securities is limited,
which
makes transactions in our stock cumbersome and may reduce the value of an
investment in our stock
.
The
Securities and Exchange Commission (the “SEC”) has adopted Rule 3a51-1 which
establishes the definition of a “penny stock,” for the purposes relevant to us,
as any equity security that (i) has a market price of less than $5.00 per
share
or with an exercise price of less than $5.00 per share, or (ii) is not
registered on a national securities exchange or listed on an automated quotation
system sponsored by a national securities exchange. For any transaction
involving a penny stock, unless exempt, Rule 15g-9 of the Securities and
Exchange Act of 1934, as amended, requires:
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that
a broker or dealer approve a person’s account for transactions in penny
stocks; and
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•
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the
broker or dealer receives from the investor a written agreement
to the
transaction, setting forth the identity and quantity of the penny
stock to
be purchased.
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In
order
to approve a person’s account for transactions in penny stocks, the broker or
dealer must:
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obtain
financial information and investment experience objectives of the
person;
and
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•
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make
a reasonable determination that the transactions in penny stocks
are
suitable for that person and the person has sufficient knowledge
and
experience in financial matters to be capable of evaluating the
risks of
transactions in penny stocks.
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The
broker or dealer must also deliver, prior to any transaction in a penny stock,
a
disclosure schedule prescribed by the SEC relating to the penny stock market,
which, in highlight form:
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sets
forth the basis on which the broker or dealer made the suitability
determination; and
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attests
that the broker or dealer received a signed, written agreement
from the
investor prior to the transaction.
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Disclosure
also has to be made about the risks of investing in penny stocks in both
public
offerings and in secondary trading, and about the commissions payable to
both
the broker-dealer and the registered representative. Current
quotations for the securities and the rights and remedies and to be available
to
an investor in cases of fraud in penny stock transactions. Finally, monthly
statements have to be sent disclosing recent price information for the penny
stock held in the account and information on the limited market in penny
stocks. Generally, brokers may be less willing to execute
transactions in securities subject to the “penny stock” rules. This
may make it more difficult for investors to dispose of our common stock and
cause a decline in the market value of our stock.
Substantial
sales of our common stock by the selling stockholders or us could cause our
stock price to decline and issuances by us may dilute your ownership interest
in
our company.
The
14,573,718 shares covered by this prospectus represents approximately 18.3%
of
our outstanding common stock on a fully diluted basis, assuming exercise
of all
outstanding warrants and vested stock options, and the conversion of all
convertible debt into shares of our common stock. In addition, our
executive officers and directors own approximately 44.4% of our outstanding
common stock on a fully diluted basis. We are unable to predict the
amount or timing of sales by the selling stockholders of our common
stock. Any sales of substantial amounts of our common stock in the
public market by the selling stockholders or us, or the perception that these
sales might occur, could lower the market price of our common
stock. As described in more detail elsewhere herein, we plan to raise
capital through debt or equity financing in order to implement strategies
in
furtherance of our business plan. If we issue additional equity
securities to raise this additional capital, your ownership interest in us
may
be diluted and the value of your investment may be reduced.
The
market valuation of our business may fluctuate due to factors beyond our
control
and the value of your investment may fluctuate
correspondingly.
The
market valuation of energy companies, such as us, frequently fluctuate due
to
factors unrelated to the past or present operating performance of such
companies. Our market valuation may fluctuate significantly in
response to a number of factors, many of which are beyond our control,
including:
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changes
in securities analysts’ estimates of our financial performance, although
there are currently no analysts covering our
stock;
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fluctuations
in stock market prices and volumes, particularly among securities
of
energy companies;
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changes
in market valuations of similar
companies;
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announcements
by us or our competitors of significant contracts, new technologies,
acquisitions, commercial relationships, joint ventures or capital
commitments;
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variations
in our quarterly operating results;
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fluctuations
in oil and natural gas prices; and
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additions
or departures of key personnel.
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As
a
result, the value of your investment in us may fluctuate.
State
securities laws may limit secondary trading, which may restrict the states
in
which and conditions under which you can sell the shares offered by this
prospectus
.
Secondary
trading in common stock sold in this offering will not be possible in any
state
until the common stock is qualified for sale under the applicable securities
laws of the state or there is confirmation that an exemption, such as listing
in
certain recognized securities manuals, is available for secondary trading
in the
state. If we fail to register or qualify, or to obtain or verify an
exemption for the secondary trading of, the common stock in any particular
state, the common stock could not be offered or sold to, or purchased by,
a
resident of that state. In the event that a significant number of states
refuse
to permit secondary trading in our common stock, the liquidity for the common
stock could be significantly impacted thus causing you to realize a loss
on your
investment.
Investors
should not look to dividends as a source of income
.
In
the
interest of reinvesting initial profits back into our business, we do not
intend
to pay cash dividends in the foreseeable future. Consequently, any
economic return will initially be derived, if at all, from appreciation in
the
fair market value of our stock, and not as a result of dividend
payments.
FORWARD
LOOKING
STA
TEMENTS
We
caution readers that certain important factors (including without limitation
those set forth below) may affect our actual results and could cause such
results to differ materially from any forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended (the
“Securities Act”), and Section 21E of the Securities and Exchange Act of 1934,
as amended (the “Exchange Act”), made herein. We intend such
forward-looking statements to be covered by the safe-harbor provisions for
forward-looking statements contained in the Private Securities Litigation
Reform
Act of 1995, and are including this statement for purposes of complying with
those safe-harbor provisions. You should not rely on forward-looking
statements in this prospectus. Forward-looking statements are based
on current management expectations that involve risks and uncertainties that
may
result in such expectations not being realized. Without limiting the
generality of the foregoing, words such as “may,” “expect,” “believe,” “plan,”
“anticipate,” “intend,” “could,” “estimate” or “continue” are intended to
identify forward-looking statements. These statements are based on
our beliefs as well as assumptions we have made using information currently
available to it. Some, but not all, of the factors that may cause
these differences include those discussed in “Risk Factors.”
In
particular, this prospectus contains forward-looking statements pertaining
to
the following:
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oil
and natural gas production levels;
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capital
expenditure programs;
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the
estimated quantity of oil and natural gas
reserves;
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projections
of market prices and costs;
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supply
and demand for oil and natural gas;
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expectations
regarding the ability to raise capital and to continually add to
reserves
through acquisitions, exploration and
development;
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treatment
under governmental regulatory
regimes;
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oil
and gas reserve life.
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The
actual results could differ materially from those anticipated in these
forward-looking statements as a result of the risk factors set forth below
and
elsewhere in this prospectus:
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our
ability to continue as a going
concern;
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our
limited history of operations;
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our
need for additional funding;
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volatility
in market prices for oil and natural
gas;
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liabilities
inherent in oil and natural gas
operations;
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uncertainties
associated with estimating oil and natural gas
reserves;
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competition
for, among other things, capital, acquisitions of reserves, undeveloped
lands and skilled personnel;
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incorrect
assessments of the value of
acquisitions;
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geological,
technical, drilling and processing
problems;
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fluctuations
in foreign exchange or interest rates and stock market volatility;
and
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the
other factors discussed under “Risk
Factors.”
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These
factors should not be considered exhaustive.
These
forward-looking statements are made as of the date of this prospectus and
we
assume no obligation to update such forward-looking statements or to update
the
reasons why actual results could differ materially from those anticipated
in
such forward-looking statements.
BU
SINE
SS
Corporate
History
We
were
incorporated in the State of Nevada on February 21, 2006 as Georgia Exploration,
Inc., a Vancouver, Canada based mineral resource exploration company with
interests in 14 non-oil and gas mineral claims in British
Columbia. On January 3, 2007, we consummated a reverse merger with
Wharton Resources Corp. (“Wharton” or “Wharton Corp.”). The merger
resulted in a change in control of us with Wharton’s former stockholders holding
approximately 71.4% of the then issued and outstanding shares of our common
stock. On March 8, 2007, we changed our name to Gulf Western
Petroleum Corporation.
General
Overview
We
are
engaged in the acquisition, exploration and development of oil and natural
gas
reserves in the United States. Upon completion of our reverse merger,
Wharton’s oil and gas interests and reserves became our primary assets and our
core business became the exploration and development of domestic oil and
natural
gas reserves in the United States.
We
currently hold oil and gas lease interests in Texas, Kansas and
Kentucky. We are actively engaged in the drilling of Frio formation
wells in Dewitt and Lavaca County, Texas. We also hold proved
undeveloped reserves in Wharton County, Texas, and we are engaged in a natural
gas supply and gas gathering system development project in Southeast
Kansas. We hold oil and gas lease interests in Kentucky that are
exploratory in nature. We hope to establish commercial levels of production
from
our Texas Shamrock and Brushy Creek Project wells in Dewitt and Lavaca County,
Texas during 2008. We are actively pursuing financing options to
initiate the drilling of our proved undeveloped natural gas and oil reserves
in
our Oakcrest Prospect located in Wharton County, Texas.
Principal
Properties
Oakcrest
Prospect (Wilcox Formation), Wharton County, Texas
Our
Oakcrest Prospect is located in south central Texas, approximately 75 miles
southwest of Houston, Texas. We hold oil and gas lease
interests in approximately 866 acres with a working interest of
95.75%. The main target of hydrocarbon production is the Wilcox
formation, with secondary targets for the Oakcrest Prospect being the Frio
and
Yegua formations that will be traversed while in route to the Wilcox formation
during drilling. The lease acreage is adjacent to and lies immediately to
the
north-east of the existing Southwest Bonus Field. The prospect is
located in the central Gulf Coast Plain on the east side of the San Marcos
Arch
in Wharton County, Texas. All Wilcox fields in the Gulf Coast
Plain are fault-bounded and produce from simple, normal fault-bounded
anticlines. The Wilcox formation is Eocene-age and is found at a
depth of approximately 11,000 to 12,500 feet. A combination of
aeromagnetic surveys and well control had originally defined the structure
of
the Oakcrest Prospect. Through 2-D seismic data reprocessing and
reinterpretation, two large normal faults that were previously identified
were
confirmed together with two smaller possible faults.
Initial
production in the Southwest Bonus Field commenced in August 1998 with the
Obenhaus Gas Unit which to date has yielded total production of approximately
4,206 MMcf. We do not hold interests in the Southwest Bonus Field,
however in connection with the reserve evaluation of the Oakcrest Prospect,
we
acquired data for sixty one (61) Wilcox formation producing wells, located
in
the Southwest Bonus Field, that we evaluated to ascertain their estimated
ultimate recoveries. Production data through June 2007 was obtained
and evaluated to develop decline curve analysis for each well in order to
forecast remaining and ultimate reserves for wells that are currently
producing. For wells that were no longer producing, the cumulative
natural gas and oil production were used to develop ultimate
recoveries. Median recovery from the Southwest Bonus Field
offset producing wells is approximately 2,436 MMcf and 73,100 barrels of
oil per
well.
Production
forecasts for the Oakcrest Prospect locations was derived based on the
historical behavior of the Wilcox formation offset wells in the Southwest
Bonus
Field. Based on the production behavior of the offset wells, the
initial gas production rate for the Oakcrest wells was plotted to be 15,000
Mcf
per day with an initial decline rate of 90% per year, and a hyperbolic exponent
of 0.8.
We
engaged MHA Petroleum Consultants, Inc. (“MHA”) to make a technical evaluation
our Oakcrest Prospect natural gas and oil reserves, and to formulate estimates
of the proved reserves and income attributable to our interests in the
prospect. In MHA’s evaluation of the Oakcrest Prospect, 17
potential well locations were identified. Two well locations contain
reserves categorized as proved reserves. A summary of the results of
MHA’s technical evaluation of oil and natural gas reserves categorized as proved
as of September 1, 2007, together with the net undiscounted cash flows,
discounted future cash flows at a 10.0% discount rate (“PV10”) on a before and
after tax basis are as follows:
Summary
of Oil and Natural Gas Reserves
(Dated
as of September 1, 2007)
(Prepared
with Constant Prices)
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Oil
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Natural
Gas
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Gross
(MBBL)
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Net
(MBBL)
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Gross
(MMCF)
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Net
(MMCF)
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Total
Proved Reserves
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146.2
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106.7
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4,872
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3,308
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Cash
Flows and PV 10 Proved Reserves
Before
(“BFIT”) and After (“AFIT”) Income Taxes
(Discounted
at 10%)
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Future
net revenue
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$
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28,610
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$
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28,610
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Future
operating costs
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3,256
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3,256
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Future
income
taxes
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-
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2,604
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Operating
cash flow
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$
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25,354
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$
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22,750
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Capital
investment
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8,693
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8,693
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Undiscounted
future net cash flow
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$
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16,661
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$
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14,057
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Discounted
PV10 cash flow
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$
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13,066
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$
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11,168
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The
economics and cash flows presented
in the above table are based on our 95.75% working interest and 73.0% net
revenue interest in the Oakcrest Prospect. The constant
prices used in calculating the information provided in the above table were
West
Texas Intermediate (“WTI”) of $73.19 per barrel (with a wellhead netback of
$68.19 to us) and Henry Hub natural gas price of $7.00 per million cubic
feet
(with a wellhead netback of $6.45 per Mcf to us).
Estimated
capital expenditures to drill and complete a well is approximately $4.4 million
based on current rig rates, casing prices, sub-surface and surface equipment,
and other ancillary services and materials required to drill and complete
a
Wilcox formation well.
Our
plan of operation for the Oakcrest
Prospect is to construct the required drilling location, to spud the initial
Wilcox formation well in January 2008. A second well also targeting reserves
identified as proved undeveloped is scheduled to spud immediately following
the
completion of the initial well. Upon the drilling of the first and
second Wilcox wells, we will make further technical evaluations to ascertain
whether reserves originally categorized as probable have shifted to proved
reserves with further data assembled through the drilling of these Wilcox
wells. If successful, we plan to drill
a third Wilcox
formation well during 2008 leveraging off the information acquired from the
first two wells.
Texas
Shamrock and Brushy Creek Projects (Frio Formation), Dewitt and Lavaca Counties,
Texas
Our
Texas
Frio formation wells that comprise our Shamrock and Brushy Creek Projects
are
our first wells to commence commercial production with the first well, the
Pope
No. 1 (Brushy Creek V), going on line in November
2007. In our Frio initiative, we are participating in the
drilling of a minimum of twelve Frio-age natural gas wells located in Dewitt
and
Lavaca Counties, Texas. All twelve wells have been identified
through newly acquired 3-D seismic data. Frio-age sediments lie below
the Anahuac Shale, a detachment zone within the Post Isabel Fold
Belt. The Shamrock Project in Dewitt County consists of five Frio
wells drilled in 2007, and our participation in the Brushy Creek Project
consists of non-operated interests in seven Frio wells located in Lavaca
County,
Texas.
Shamrock
Project
The
Shamrock Project is a five well drilling program located in Dewitt County,
Texas
that is targeting Frio-age natural gas reserves that have been identified
through 3-D seismic. Frio-age wells have proven to be prolific natural gas
producers throughout the Texas Gulf Coast region. Typical Frio wells
produce at approximately 200 to 250 Mcf per day with estimated total recoverable
reserves of approximately 500 MMcf. The target formation is the
Jameson sand with total well depth at approximately 3200
feet. The five wells drilled and completed in the Shamrock
Project are the Polinard-Lee No. 1, the Miller-Thomas No. 1, the Bushmill
No. 1,
the Red Breast No. 1 and the Michael Collins No. 1. All five
wells had flow rates during test of 310 – 325 Mcf per day. We
hold an average 65.0% working interest and 45.5% net revenue interest in
the
wells.
Our
plan
of operation for the Shamrock Project is to finish the interconnection of
the
wells and to effect commercial production creating operating cash flows to
us.
Brushy
Creek Project
The
Brushy Creek Project is a 3-D seismic controlled project situated in the
prolific Oligocene Frio oil and natural gas trend located in the lower Texas
Gulf Coast. The Brushy Creek Project was initiated in 2005, and to
date has been successful in ten out of ten wells. The first ten wells
resulted in six Frio discoveries, three Miocenen discoveries and one Yegua
completion. These ten new wells entail drilling that targets several
high quality amplitude anomalies similar to those that have proven to be
productive in the previous drilling. We currently hold
interests in seven Brushy Creek Project wells, and are evaluating the
participation in three additional Frio wells scheduled for
drilling. Our average working and net revenue interests in the
existing seven drilled wells is 34.4% and 24.9%, respectively.
The
seven
wells drilled and completed during 2007 that we hold interests in are the
Goodrich-Toyah No. 1, Nichol’s No. 1, Pope No. 1, Goodrich-Deleplain No. 1,
Goodrich-Poindexter No. 1, O’Neal Smith No. 1 and the Williams No.
6. These wells are in various stages of testing and
interconnection.
Our
plan
of operation is to complete testing and interconnection of the seven existing
Brushy Creek Frio wells, and to evaluate our further participation in the
Brushy
Creek Project.
Mound
Branch Reserve and Infrastructure Development Project, Elk County,
Kansas
On
January 30, 2007 we purchased Orbit Energy, LLC’s (“Orbit”) working and net
revenue interests in approximately 8,800 gross acres located in Elk County,
Kansas together with its interests in certain drilled wells and associated
equipment (the “Mound Branch Project”). Orbit is owned by CodeAmerica
Investments, LLC for which Wm. Milton Cox, our Chairman and CEO, is the Managing
Member, and Paragon Capital, LLC for which Bassam Nastat, our President and
a
Director, serves as Manager.
The
purchase price totaled $6.8 million, and consideration paid to Orbit was
comprised of: a) $760,947 of funds that we advanced to Orbit for testing
and
evaluation of the existing well bores, reservoir formations and associated
lease
acreage; b) a thirty-six month $2.0 million 10% convertible note with principal
due at maturity; and c) 4,039,053 shares of our common stock with a fair
value
of $1.00 per common share at the time of issuance, subject to a true up upon
receipt of an independent report assessing the fair value of the assets acquired
at no less than the purchase price of $6.8 million. Should the
valuation be less than the $6.8 million purchase price then the number of
shares
released to Orbit on January 30, 2008, the one-year anniversary of the purchase
from Orbit, will be ratably reduced for the lower valuation and shares will
be
returned to treasury.
The
Mound
Branch Project is a natural gas reserve and gathering system development
project
of existing and after acquired oil and gas lease acreage, and existing wellbores
previously drilled by Orbit and its working interest partners. The
Mound Branch Project consists of a three year drilling program to drill fifty
wells per year and for the construction of a 15-mile low pressure gathering
system. The required gathering system would have design capacity of
8,000 Mcf per day, and is necessary for the delivery of existing and expected
prospective well head production into the interstate natural gas pipeline
grid
in Kansas. Orbit serves as the operator of the Mound Branch
Project.
The
Mound
Branch natural gas reserves cover Cherokee Group clastic rocks over
Mississippian limestones. Depth to the Mississippian basement in the Cherokee
Group ranges from 0 feet at outcrops in the extreme southeastern corner of
Kansas to more than 2,500 feet (762 m) in Elk and Chautauqua Counties as
the
Mississippian and Cherokee Group rocks gradually dip to the west and
southwest. The majority of wells are expected to produce from the
Mulky and Summit coals at approximately 1,600 feet depth, with upside potential
in the Mississippi Limestone, and Arbuckle sections at approximately 2,200
–
2,600 feet. Recent testing of the first Mississippi Limestone
well showed absolute open flow at 1,400 Mcf per day. The 72-hour flow tests
indicate that the wells will be produced at approximately 350 to 400 Mcf
per
day.
Test
results for the coal wells tested indicate that the wells, completed in the
Cherokee coal group, will be produced at a rate of approximately 38-40 Mcf
per
day. There are eight existing wells drilled that are expected to
achieve commercial levels of production if a gathering system can be
constructed. Since our acquisition of Orbit’s interests in the Mound Branch
Project we have been funding 100% of the costs incurred by Orbit for the
testing
and evaluation of the of the existing well bores, reservoir formations and
associated lease acreage, including amounts attributable to other working
interest owners in the existing wells. The amounts paid on the
behalf of other working interest owners total $198,106 through August 31,
2007,
and we expect that the amounts will be charged back to the other working
interest owners in the wells ratable to their working interests.
Orbit
has
advised us that the testing and evaluation procedures for the Mound Branch
Project were substantially completed during October 2007. Orbit has recently
advised that they recommend performing a test on one well to further evaluate
the Mulberry coal formation that has not been previously tested, but has
been
determined to be productive for other producers in the area.
Our
plan
of operation for Mound Branch is to complete the evaluation of the Mulberry
coal
formation, and to continue progress on the development of the natural gas
supply
and gathering system project.
Other
Prospects
Baxter
Bledsoe Prospect, Clay County, Kentucky
On
February 1, 2006, we purchased the Baxter Bledsoe Prospect oil and gas lease
acreage from CodeAmerica for $330,000 cash. The prospect has approximately
2,200
acres located in Clay County, Kentucky. The Baxter Bledsoe Prospect is
characterized as exploratory acreage, and our plan of operation provides
for the
drilling of an initial exploratory well targeting the Black River Group
formation during 2008.
Bell
Prospect, Bell County, Kentucky
On
October 1, 2006, we acquired from CodeAmerica oil and gas lease interests
located in Bell County, Kentucky. We paid $314,475 to CodeAmerica for
the Bell Prospect which is comprised of approximately 3,400 acres that are
categorized as exploratory. Our plan of operation for the Bell Prospect is
to
assemble and evaluate data with respect to the prospect once the initial
exploratory well on the Baxter Bledsoe prospect is completed and the data
acquired during the drilling process is assembled and
evaluated.
Market
and Competition
Our
long-term success depends on our ability to identify, acquire and develop
oil
and natural gas reserves in quantities and at prices that are physically
and
commercially competitive. The U.S. natural gas, oil and associated
product markets are highly competitive and experience extreme volatility
in
commodity prices, much of which are driven by factors outside our
control. Our experience is that crude oil, condensate and associated
product prices are driven primarily by global geopolitics, while natural
gas
prices in the U.S. are primarily determined by the interaction of consumer
and
industrial demand and available natural gas supply.
A
large
portion of the natural gas, crude oil and associated products production
in the
U.S. has historically been in the states of Texas, Louisiana, Oklahoma, and
in
the offshore areas associated with the Gulf of Mexico. The natural
gas and crude oil production in these areas are interconnected to consuming
markets through a vast network of existing developed infrastructure to move
production through pipelines or via trucks to markets.
Notwithstanding
increased drilling activity in the U.S., domestic natural gas and crude oil
production has not materially increased while consumer demand continues to
grow. The maturation of U.S. supply basins has resulted in declining
well recoveries and higher production decline rates. Although
generally more costly than conventional supply sources, supply from
non-conventional sources of natural gas, such as liquefied natural gas and
coalbed methane, is becoming more prevalent and is attracting significant
capital investment to explore and develop these potential non-conventional
supply opportunities. The development of non-conventional supply
sources will in many instances also require capital investment to develop
the
infrastructure necessary to effect delivery of production into markets.
We
compete with independent oil and natural gas companies for commercial prospect
acquisitions/participation; equipment, drilling rigs and labor required to
evaluate and develop prospects; capital resources to fund capital investments;
and in the sale of production into the oil and natural gas markets in the
U.S. The volatile nature of the U.S. energy markets makes it
difficult to estimate future prices of oil and natural gas, and competition
for
drilling rigs makes it very difficult to forecast the development costs of
our
prospects and the timeframe under which they can be developed. Many
of our competitors have substantially greater financial resources than we
have,
which may allow them to define, evaluate, acquire and develop a greater number
of prospects than we can.
Regulation
In
the
United States, domestic development, production and sale of oil and natural
gas
are extensively regulated at both the federal and state levels. These
regulations include requiring permits for drilling wells; maintaining prevention
plans; submitting notification and receiving permits in relation to the
presence, use and release of certain materials incidental to oil and natural
gas
operations; and regulating the location of wells, the method of drilling
and
casing wells, the use, transportation, storage and disposal of fluids and
materials used in connection with drilling and production activities, surface
plugging and abandoning of wells and the transporting of
production. Legislation affecting the oil and natural gas industry is
under constant review for amendment or expansion, frequently increasing the
regulatory burden. Also, numerous departments and agencies, both
federal and state, have issued rules and regulations binding on the oil and
natural gas industry and its individual members, compliance with which is
often
difficult and costly and some of which carry substantial penalties for failure
to comply. Inasmuch as new legislation affecting the oil and natural
gas industry is commonplace, and existing laws and regulations are frequently
amended or reinterpreted, we are unable to predict the future cost or impact
of
complying with these laws and regulations.
State
statutes and regulations require permits for drilling operations, drilling
bonds
and reports concerning wells. Texas and other states in which we intend to
conduct operations also have statutes and regulations governing conservation
matters, including the unitization or pooling of oil and natural gas properties
and establishment of maximum rates of production from oil and natural gas
wells.
Our
operations are also subject to extensive and developing federal, state and
local
laws and regulations relating to environmental, health and safety matters;
petroleum; chemical products and materials; and waste
management. Permits, registrations or other authorizations are
required for the operation of certain of our facilities and for our oil and
natural gas exploration and future production activities. These permits,
registrations or authorizations are subject to revocation, modification and
renewal. Governmental authorities have the power to enforce
compliance with these regulatory requirements, the provisions of required
permits, registrations or other authorizations, and lease conditions, and
violators are subject to civil and criminal penalties, including fines,
injunctions or both. Failure to obtain or maintain a required permit
may also result in the imposition of civil and criminal penalties. Third
parties
may have the right to sue to enforce compliance.
Our
operations are also subject to various conservation matters, including the
number of wells which may be drilled in a unit and the unitization or pooling
of
oil and natural gas properties. In this regard, some states allow the forced
pooling or integration of tracts to facilitate exploration while other states
rely on voluntary pooling of lands and leases, which may make it more difficult
to develop oil and natural gas properties. In addition, state conservation
laws
establish maximum rates of production oil and natural gas wells, generally
limit
the venting or flaring of natural gas, and impose certain requirements regarding
the ratable purchase of production. The effect of these regulations is to
limit
the amounts of oil and natural gas that we can produce from our wells and
to
limit the number of wells or the locations at which we can drill.
Our
operations, as is the case in the petroleum industry generally, are
significantly affected by federal tax laws. Federal, as well as state, tax
laws
have many provisions applicable to corporations which could affect our future
tax liability.
Environmental
Matters
Our
exploration, development, and future production of oil and natural gas are
subject to various federal, state and local environmental laws and regulations
discussed below. Such laws and regulations can increase the costs of planning,
designing, installing and operating oil and natural gas wells. We
consider the cost of environmental protection a necessary and manageable
part of
our business. We have been able to plan for and comply with new environmental
initiatives without materially altering our operating strategies.
Our
activities are subject to a variety of environmental laws and regulations,
including but not limited to, the Oil Pollution Act of 1990 (“OPA”), the Clean
Water Act (“CWA”), the Comprehensive Environmental Response, Compensation and
Liability Act (“CERCLA”), the Resource Conservation and Recovery Act (“RCRA”),
the Clean Air Act, and the Safe Drinking Water Act, as well as state regulations
promulgated under comparable state statutes. We are also subject to regulations
governing the handling, transportation, storage, and disposal of naturally
occurring radioactive materials that are found in our oil and natural gas
operations. Civil and criminal fines and penalties may be imposed for
non-compliance with these environmental laws and regulations. Additionally,
these laws and regulations require the acquisition of permits or other
governmental authorizations before undertaking certain activities, limit
or
prohibit other activities because of protected areas or species, and impose
substantial liabilities for cleanup of pollution.
Under
the
OPA, a release of oil into water or other areas designated by the statute
could
result in us being held responsible for the costs of remediating such a release,
certain OPA specified damages, and natural resource damages. The extent of
that
liability could be extensive, as set out in the statute, depending on the
nature
of the release. A release of oil in harmful quantities or other materials
into
water or other specified areas could also result in us being held responsible
under the CWA for the costs of remediation, and civil and criminal fines
and
penalties.
CERCLA
and comparable state statutes, also known as “Superfund” laws, can impose joint
and several and retroactive liability, without regard to fault or the legality
of the original conduct, on certain classes of persons for the release of
a
“hazardous substance” into the environment. In practice, cleanup costs are
usually allocated among various responsible parties. Potentially liable parties
include site owners or operators, past owners or operators under certain
conditions, and entities that arrange for the disposal or treatment of, or
transport hazardous substances found at the site. Although CERCLA, as amended,
currently exempts petroleum, including but not limited to, crude oil, natural
gas and natural gas liquids from the definition of hazardous substance, our
operations may involve the use or handling of other materials that may be
classified as hazardous substances under CERCLA. Furthermore, there can be
no
assurance that the exemption will be preserved in future amendments of the
act,
if any.
RCRA
and
comparable state and local requirements impose standards for the management,
including treatment, storage, and disposal of both hazardous and non-hazardous
solid wastes. We generate hazardous and non-hazardous solid waste in connection
with our routine operations. From time to time, proposals have been made
that
would reclassify certain oil and natural gas wastes, including wastes generated
during drilling, production and pipeline operations, as “hazardous wastes” under
RCRA which would make such solid wastes subject to much more stringent handling,
transportation, storage, disposal, and clean-up requirements. This development
could have a significant impact on our operating costs. While state laws
vary on
this issue, state initiatives to further regulate oil and natural gas wastes
could have a similar impact.
Research
and Development
Our
business plan is focused on the exploration and development of our oil and
natural gas interests. We do not anticipate that we will expend any significant
funds on research and development over the twelve months ending August 31,
2008.
Purchase
of Significant Equipment
We
do not
intend to purchase any significant equipment over the next twelve months.
Employees
We
currently have five full-time and part-time employees. We generally utilize
short term contractors, consultants and professional service providers, as
necessary. Our directors and officers provide services on a month to month
basis
pursuant to oral arrangements, but have not signed employment or consulting
agreements with us. We do not expect any material changes in the number of
employees over the next twelve month period. We may enter formal written
service
agreements with our directors and officers in the future. We expect to utilize
contractors and consultants as needed to meet our staffing needs, and will
continue to periodically evaluate costs and benefits of staffing our resource
requirements externally or internally. We expect that the level of success
of
our exploration and development initiatives will drive the timing and level
of
employees that we may retain in the future.
Going
Concern
Our
financial statements have been prepared assuming we will continue as a going
concern. We are in our development stage and, accordingly, have several capital
initiatives but no revenues. We have raised limited financing and have incurred
operating losses since our inception. These factors raise substantial doubt
about our ability to continue as a going concern, and our ability to achieve
and
maintain profitability and positive cash flows are dependent on our ability
to
secure sufficient financing to fund the acquisition, drilling and development
of
profitable oil and natural gas properties. We are actively pursuing financing
options which we believe would allow us to establish and sustain commercial
production. There are no assurances that we will be able to obtain additional
financing from investors or private lenders and, if available, such financing
may not be on commercial terms acceptable to us or our stockholders. The
financial statements do not include any adjustments that might result from
the
outcome of this uncertainty. We intend to raise financing sufficient to fund
our
capital expenditure and working capital requirements for the next twelve
months
principally through private placements and possibly public
offerings.
DES
CRIPT
ION
OF PROPERTY
Reserves
Our
proved natural gas and associated oil reserves have been estimated as of
August
31, 2007 and presented in following table. The reserves presented in
the table are based on reserve evaluations performed by MHA Petroleum
Consultants, Inc., an independent reserve engineer, and reported in their
report
entitled “Securities and Exchange Commission Evaluation, Oil & Natural Gas
Reserves, Oakcrest Prospect, Wharton County, Texas, Effective September 1,
2007”. The reserve quantities were prepared based on constant price
forecasts and cost estimates. There are numerous uncertainties
inherent in estimating quantities of proved reserves and estimates of reserve
quantities and values must be viewed as being subject to significant change
as
more data about the properties becomes available.
All
reserves classified as proved as of August 31, 2007 are associated with our
Oakcrest Prospect located in Wharton County, Texas.
|
|
|
Proved
Reserves
|
|
|
|
|
Developed
|
|
|
Undeveloped
|
|
|
Total
|
|
|
Natural
gas (Mcf)
|
|
|
-
|
|
|
|
3,307,601
|
|
|
|
3,307,601
|
|
|
Oil
(Bbls)
|
|
|
-
|
|
|
|
106,697
|
|
|
|
106,697
|
|
|
Total
proved reserves (Mcfe)
|
|
|
-
|
|
|
|
3,947,783
|
|
|
|
3,947,783
|
|
From
our
inception through August 31, 2007 we have not had natural gas or oil production
arising from or attributable to our oil and gas interests.
Drilling
Activity and Productive Wells
Information
with regard to our drilling activities during the year ended August 31, 2007,
and well status at August 31, 2007 are presented in the following
table:
|
|
|
At
August 31, 2007
|
|
|
|
|
Gross
|
|
|
Net
|
|
|
Drilled:
|
|
|
|
|
|
|
|
Exploratory
|
|
|
10.0
|
|
|
|
3.5
|
|
|
Development
|
|
|
-
|
|
|
|
-
|
|
|
Total
|
|
|
10.0
|
|
|
|
3.5
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Wells
|
|
|
|
|
|
|
|
|
|
Productive
|
|
|
-
|
|
|
|
-
|
|
|
Non-productive
|
|
|
-
|
|
|
|
-
|
|
|
Under
testing and evaluation
|
|
|
10.0
|
|
|
|
3.5
|
|
|
Total
|
|
|
10.0
|
|
|
|
3.5
|
|
|
|
|
|
|
|
|
|
|
|
All
wells
drilled during the year ended August 31, 2007 were drilled in Texas in
connection with the Shamrock and Brushy Creek projects. At August 31, 2007,
these wells were undergoing completion operations and testing in order to
make a
determination of the productive status of each well.
We
did
not drill any wells during the period from our inception through the year
ended
August 31, 2006.
Acreage
The
following table summarizes by state our developed and undeveloped acreage
as of
August 31, 2007. The term of the undeveloped leasehold acreage ranges from
one
to three years. Our Oakcrest Prospect lease acreage located in
Wharton County, Texas expires on September 1, 2008 unless we have commenced
and
maintain a continuous drilling schedule, initiate production or negotiate
a
renewal with the holder of the mineral rights.
|
|
|
Developed
|
|
|
Undeveloped
|
|
|
State
|
|
Gross
|
|
|
Net
|
|
|
Gross
|
|
|
Net
|
|
|
Kansas
|
|
|
-
|
|
|
|
-
|
|
|
|
8,800
|
|
|
|
6,864
|
|
|
Kentucky
|
|
|
-
|
|
|
|
-
|
|
|
|
5,600
|
|
|
|
4,032
|
|
|
Texas
|
|
|
-
|
|
|
|
-
|
|
|
|
1,687
|
|
|
|
1,099
|
|
Delivery
Commitments
We
have
no significant delivery commitments.
Office
Lease
We
share
office space in Houston, Texas with Orbit under a month-to-month
arrangement. The office space is leased by
Orbit. During the years ended August 31, 2007 and 2006, we paid
rent totaling $42,994 and $38,210, respectively.
PLAN
OF OPE
RAT
IONS
The
following plan of operations should be read in conjunction with “Business” and
our consolidated financial statements and related notes included elsewhere
in
this prospectus. In January 2007, we modified our business plan to
concentrate on the acquisition, exploration, development and production of
oil
and natural gas projects. We are a development stage company and we
have not earned any operating revenue as of the date of this filing from
our
current operations in the oil and natural gas industry. Our plan of
operation is to (i) continue to secure capital funding sufficient to drill
a
minimum of two Oakcrest Prospect wells in Texas; (ii) to continue progress
on
the development of the gas supply and gathering system for the Mound Branch
Project; and (iii) to complete the drilling and testing of our Frio formation
wells in the Shamrock and Brushy Creek Projects, interconnect the wells and
establish commercial production. We also expect to drill a test
exploration well in Kentucky on the Baxter Bledsoe Prospect.
During
the twelve month period ending August 31, 2008, we project total cash
requirements of approximately $14.4 million. Our total estimated cash
requirements are comprised of approximately $12.8 million for oil and natural
gas exploration, drilling, development and operating expenditures, and $1.6
million for general and administrative expenses, operating and public company
expenses, and working capital requirements.
In
September of 2007, we issued convertible notes in an aggregate principal
amount
of $3.7 million to Metage Funds Limited and NCIM Limited which are due in
full
on September 10, 2008 unless converted into shares of our common stock prior
to
maturity. These notes are secured by a lien on substantially all of
our assets, including our oil and gas lease interests and our equity interests
in our subsidiaries. The stated interest in the notes is 15.0% per
annum with interest for the first six months due on March 10, 2008 and monthly
thereafter until maturity.
Based
on
our plan of operation, our current available cash is not sufficient to fund
our
capital and operating requirements over this twelve month period. To execute
our
plans, we will require substantial financing and are actively working on
options
to raise equity and/or debt financing through private placements and public
offerings. However, in the event that we are unable to raise the financing
to
meet our needs, or if we are able to obtain sufficient financing from investors
or private lenders but it is on commercial terms unacceptable to us or our
stockholders, we will be required to scale back or slow our capital program.
Should we raise funds through equity and debt placements, existing equity
ownership in us could be negatively affected due to the dilution of existing
equity ownership of our shares. If we are not successful in or unable
to repay the $3.7 million principal balance on the maturity of the notes,
since
substantially all our assets are pledged as security to the lenders, we may
be
unable to continue our business and as a result may be required to scale
back or
cease operations for our business, the result of which would be that our
stockholders would lose some or all of their investment.
Over
the
next twelve months, we intend to use substantially all of our available funds
to
continue the exploration and development of our oil and natural gas prospect
opportunities, as summarized below:
|
Estimated
Funding During the Twelve Months Ending August 31,
2008
|
|
|
Exploration,
drilling, development and operating expenditures
|
|
|
|
|
Oakcrest
Prospect – Drilling and completion of two Wilcox formation
wells
|
|
$
|
8,900,000
|
|
|
Shamrock
and Brushy Creek Projects – Drilling and completion of
wells
|
|
|
1,100,000
|
|
|
Mound
Branch Project – Development of gathering system and reserve development
program
|
|
|
1,300,000
|
|
|
Baxter
Bledsoe Prospect – Drill initial exploratory well
|
|
|
300,000
|
|
|
Other
prospects
|
|
|
1,200,000
|
|
|
Operating,
general and administrative
|
|
|
900,000
|
|
|
Public
company expenses
|
|
|
240,000
|
|
|
Working
capital
|
|
|
500,000
|
|
|
|
|
$
|
14,440,000
|
|
We
do not
have any off balance sheet financial arrangements.
SELLING
STO
CKHO
LDERS
The
following table sets forth certain information concerning the selling
stockholders. Assuming that the selling stockholders offer all of
their shares of our common stock, the selling stockholders will not have
any
beneficial ownership except as otherwise provided in the table
below. The shares are being registered to permit the selling
stockholders to sell or otherwise dispose of the shares covered hereby, or
interests therein, from time to time. We will file a prospectus
supplement to name successors to any named selling stockholders who are able
to
use the prospectus to resell the shares. Such prospectus supplement
would be required to be delivered, together with this prospectus, to any
purchaser of such shares. See “Plan of Distribution.”
|
Selling
Stockholder
|
|
Number
of Shares Owned
Prior
to Offering(1)
|
|
|
Number
of
Shares
Being
Offered(1)
|
|
|
Number
of Shares
Owned
After
Offering(2)
|
|
|
Percentage
of
Shares
Owned
After
Offering(2)
|
|
|
Metage
Funds Limited (3)
|
|
|
13,166,667
|
|
|
|
13,166,667
|
|
|
|
-
|
|
|
|
-
|
|
|
NCIM
Limited (4)
|
|
|
1,407,051
|
|
|
|
1,407,051
|
|
|
|
-
|
|
|
|
-
|
|
|
(1)
|
Ownership
is determined in accordance with Rule 13d-3 under the Exchange
Act. The actual number of shares beneficially owned and offered
for sale is subject to adjustment and could be materially less
or more
than the estimated amount indicated depending upon factors which
we cannot
predict at this time. Includes 13,073,718 shares of common
stock underlying the warrant and notes held by the selling
stockholders.
|
|
(2)
|
Assumes
the sale of all of the shares offered hereby to persons who are
not
affiliates of the selling
stockholders.
|
|
(3)
|
Mr.
Tom Sharp, Investment Manager, exercises voting and investment
authority
over the shares held by this selling
stockholder.
|
|
(4)
|
Mr.
J. Mervyn Roberts, Manager, exercises voting and investment authority
over
the shares held by this selling
stockholder.
|
PLAN
OF
DIST
RIBUTION
The
selling stockholders, which as used herein includes donees, pledgees,
transferees or other successors-in-interest selling shares of common stock
or
interests in shares of common stock received after the date of this prospectus
from a selling stockholder as a gift, pledge, partnership distribution or
other
transfer, may, from time to time, sell, transfer or otherwise dispose of
any or
all of their shares of common stock or interests in shares of common stock
on
any stock exchange, market or trading facility on which the shares are traded
or
in private transactions. These dispositions may be at fixed prices,
at prevailing market prices at the time of sale, at prices related to the
prevailing market price, at varying prices determined at the time of sale,
or at
negotiated prices. The selling stockholders may sell their shares of
common stock in the public market based on the market price at the time of
sale
or at negotiated prices.
Subject
to the foregoing, the selling stockholders may use any one or more of the
following methods when disposing of shares or interests therein:
|
|
•
|
ordinary
brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
|
|
|
•
|
block
trades in which the broker-dealer will attempt to sell the shares
as
agent, but may position and resell a portion of the block as principal
to
facilitate the transaction;
|
|
|
•
|
purchases
by a broker-dealer as principal and resale by the broker-dealer
for its
account;
|
|
|
•
|
an
exchange distribution in accordance with the rules of the applicable
exchange;
|
|
|
•
|
privately
negotiated transactions;
|
|
|
•
|
short
sales effected after the date the registration statement, of which
this
prospectus is a part, is declared effective by the
SEC;
|
|
|
•
|
through
the writing or settlement of options or other hedging transactions,
whether through an options exchange or
otherwise;
|
|
|
•
|
broker-dealers
may agree with the selling stockholders to sell a specified number
of such
shares at a stipulated price per share;
and
|
|
|
•
|
a
combination of any such methods of
sale.
|
The
selling stockholders may, from time to time, pledge or grant a security interest
in some or all of the shares of common stock owned by them and, if they default
in the performance of their secured obligations, the pledgees or secured
parties
may offer and sell the shares of common stock, from time to time, under this
prospectus, or under an amendment to this prospectus under Rule 424(b)(3)
or
other applicable provision of the Securities Act amending the list of selling
stockholders to include the pledgee, transferee or other successors in interest
as selling stockholders under this prospectus. The selling
stockholders also may transfer the shares of common stock in other
circumstances, in which case the transferees, pledgees or other successors
in
interest will be the selling beneficial owners for purposes of this
prospectus. We will file a prospectus supplement to name successors
to any named selling stockholders who are able to use the prospectus to resell
the shares. Such prospectus supplement would be required to be
delivered, together with this prospectus, to any purchaser of such
shares.
In
connection with the sale of our common stock or interests therein, the selling
stockholders may enter into hedging transactions with broker-dealers or other
financial institutions, which may in turn engage in short sales of the common
stock in the course of hedging the positions they assume. The selling
stockholders may also sell shares of our common stock short and deliver these
securities to close out their short positions, or loan or pledge the common
stock to broker-dealers that in turn may sell these securities. The
selling stockholders may also enter into option or other transactions with
broker-dealers or other financial institutions or the creation of one or
more
derivative securities which require the delivery to such broker-dealer or
other
financial institution of shares offered by this prospectus, which shares
such
broker-dealer or other financial institution may resell pursuant to this
prospectus (as supplemented or amended to reflect such
transaction).
The
aggregate proceeds to the selling stockholders from the sale of the common
stock
offered by them will be the purchase price of the common stock less discounts
or
commissions, if any. Each of the selling stockholders reserves the
right to accept and, together with their agents from time to time, to reject,
in
whole or in part, any proposed purchase of common stock to be made directly
or
through agents. We will not receive any of the proceeds from this
offering.
Certain
of the selling stockholders also may resell all or a portion of the shares
in
open market transactions in reliance upon Rule 144 under the Securities Act,
provided that they meet the criteria and conform to the requirements of that
rule.
The
other
selling stockholders and any underwriters, broker-dealers or agents that
participate in the sale of the common stock or interests therein may be
“underwriters” within the meaning of Section 2(11) of the Securities
Act. Any discounts, commissions, concessions or profit they earn on
any resale of the shares may be underwriting discounts and commissions under
the
Securities Act. Selling stockholders who are “underwriters” within
the meaning of Section 2(11) of the Securities Act will be subject to the
prospectus delivery requirements of the Securities Act.
To
the
extent required, the shares of our common stock to be sold, the names of
the
selling stockholders, the respective purchase prices and public offering
prices,
the names of any agents, dealer or underwriter, any applicable commissions
or
discounts with respect to a particular offer will be set forth in an
accompanying prospectus supplement or, if appropriate, a post-effective
amendment to the registration statement that includes this
prospectus.
In
order
to comply with the securities laws of some states, if applicable, the common
stock may be sold in these jurisdictions only through registered or licensed
brokers or dealers. In addition, in some states the common stock may
not be sold unless it has been registered or qualified for sale or an exemption
from registration or qualification requirements is available and is complied
with.
We
intend
to advise the selling stockholders that the anti-manipulation rules of
Regulation M under the Exchange Act may apply to sales of shares in the market
and to the activities of the selling stockholders and their
affiliates. In addition, to the extent applicable we will make copies
of this prospectus (as it may be supplemented or amended from time to time)
available to the selling stockholders for the purpose of satisfying the
prospectus delivery requirements of the Securities Act. The selling
stockholders may indemnify any broker-dealer that participates in transactions
involving the sale of the shares against certain liabilities, including
liabilities arising under the Securities Act.
The
selling stockholders will not engage in any short sale of the securities
offered
by it pursuant to this prospectus until the registration statement of which
this
prospectus is a part has been declared effective by the SEC.
We
have
agreed to indemnify the selling stockholders against liabilities, including
liabilities under the Securities Act and state securities laws, relating
to the
registration of the shares offered by this prospectus.
We
have
agreed with the selling stockholders to keep the registration statement of
which
this prospectus constitutes a part effective until the earlier of (1) such
time
as all of the shares covered by this prospectus have been disposed of pursuant
to and in accordance with the registration statement or (2) the date on which
the shares may be sold pursuant to Rule 144(k) of the Securities
Act.
DIRECTORS
AND EXECUTIVE
OFFI
CERS
The
following table sets forth information concerning our directors, executive
officers and key employees as of November 30, 2007:
|
Name
|
Age
|
Position
|
|
|
|
|
|
Wm.
Milton Cox
|
60
|
Chairman
of the Board and Chief Executive Officer
|
|
Bassam
“Sam” Nastat
|
39
|
President
and Director
|
|
Donald
L. Sytsma
|
50
|
Chief
Financial Officer, Corporate Secretary, Treasurer and
Director
|
|
T.
Arden McCracken
|
63
|
Director
|
|
J.
Tim Altum
|
52
|
Director
|
Wm.
Milton Cox
. Mr. Cox has served as our Chairman and CEO since
December of 2006 and as a director since January of 2007. Since 1982,
Mr. Cox has been the President and CEO of CodeAmerica Investments LLC
(“CodeAmerica”), which has various interests in mining and oil & natural gas
production. Mr. Cox has 25 years of experience in resource investment management
as well as international business experience in oil, natural gas and
mining. From October of 2003 to February of 2006, Mr. Cox served as
Chairman of Altus Explorations, Inc., an oil and natural gas company quoted
on
the OTCBB (“Altus”), and was its President and Chief Executive Officer from
October of 2003 through June of 2005. Mr. Cox has a Bachelor of
Business Administration in Marketing from Memphis State University and Masters
in Business Administration in Finance from the University of
Mississippi.
Bassam
“Sam” Nastat
. Mr. Nastat has served as our President since
December of 2006 and as a director since January of 2007. Since May
1994, Mr. Nastat has been the Vice President of Project Development and Finance
for CodeAmerica, developing financing strategies to take advantage of
exploration opportunities in Texas, Wyoming and Alaska. From November
of 2003 to February of 2006 Mr. Nastat was a director of Altus and served
as
President of Altus from June of 2005 to February of 2006. Mr.
Nastat attended McMaster University, Hamilton, Ontario and the University
of
Tulsa, earning a certificate in Basic Petroleum Geology.
Donald
L. Sytsma.
Mr. Sytsma has served as our Chief Financial Officer,
Corporate Secretary and Treasurer since December of 2006 and as a director
since
January of 2007. Since April of 2003, Mr. Sytsma has been an officer
and a director of DLS Energy Associates, LLC, an independent consulting company
and has worked in various capacities with them since 1995. From November
of 2003
to June of 2005 Mr. Sytsma was Chief Financial Officer of Altus. From
November 2003 through February 2006 Mr. Sytsma was a director of
Altus. Mr. Sytsma is a former Executive Committee member of the North
American Energy Standards Board, and has chaired multiple industry subcommittees
developing standards for the U.S. energy markets. Mr. Sytsma holds a Bachelor
of
Science in Accounting from Indiana University.
T.
Arden McCracken
. Mr. McCracken has served as a director since
March 12, 2007. From 1996 to the present, he has work as a senior
engineering advisor to Pennzoil Exploration and Devon Energy. He is
responsible for evaluations and recommendations on all international ventures
and for assisting in the preparation of the year end reserve
report. Mr. McCracken holds a Ph.D., M.S. and B.S. in Chemical
Engineering from Clemson University.
J.
Tim Altum
. Mr. Altum has served as a director since March 22,
2007. From 1998 to the present, he has worked as a geological adviser
to PennzEnergy, Devon Energy Corp / BP with respect to their Eugene Island
330
Field, which is PennzEnergy’s largest single asset. His responsibilities include
integration of geology, petrophysics, geophysics and engineering data into
3-D
reservoir models. Mr. Altum has a Bachelor of Science in
Geology/Physics from Hardin Simmons University and Master of Science in Geology
from Baylor University.
There
are
no family relationships among our directors and executive
officers. No director, executive officer or promoter has been a
director or executive officer of any business which has filed a bankruptcy
petition or had a bankruptcy petition filed against it during the past five
years. No director, executive officer or promoter has been convicted of a
criminal offense or is the subject of a pending criminal proceeding during
the
past five years. No director, executive officer or promoter has been the
subject
of any order, judgment or decree of any court permanently or temporarily
enjoining, barring, suspending or otherwise limiting his involvement in any
type
of business, securities or banking activities during the past five years.
No
director, executive officer or promoter has been found by a court to have
violated a federal or state securities or commodities law during the past
five
years.
None
of
our directors or executive officers or their respective immediate family
members
or affiliates is indebted to us.
CORPORATE
GO
VERNA
NCE
Our
Board
of Directors (the “Board”) has five members. We are not currently
listed on a national securities exchange or in an inter-dealer quotation
system
that has requirements that a majority of the Board be independent.
The
Board
does not have an executive committee or any committee performing a similar
function. The Board is in the process of forming an audit committee,
of which a majority of the members will be comprised of independent
directors. The Board has adopted a Code of Business Conduct and
Ethics Compliance Program and an Insider Trading Policy providing guidelines
with respect to transactions in Company securities and is applicable to all
directors, officers, employees and consultants who receive or have accesses
to
material non-public Company information. All participants in
our 2007 Stock Option Plan are required to acknowledge receipt of the Code
of
Business Conduct and Ethics Compliance Program and the Insider Trading Policy
to
participate in the 2007 Stock Option Plan, and they are required upon request
by
us to periodically confirm their adherence and compliance to these policies
as a
condition of their continued participation in the 2007 Stock Option
Plan.
SECURITY
OWNERSHIP OF CERTAIN
BENEFIC
IAL OWNERS AND
MANAGEMENT
The
following table sets forth information with respect to the beneficial ownership
of our common stock as of November 30, 2007, by:
|
|
•
|
each
person who is known by us to beneficially own 5% or more of the
outstanding class of our capital
stock;
|
|
|
•
|
each
member of the Board;
|
|
|
•
|
each
of our executive officers; and
|
|
|
•
|
all
of our directors and executive officers as a
group.
|
Beneficial
ownership is determined in accordance with the rules of the SEC. To
our knowledge, each of the holders of capital stock listed below has sole
voting
and investment power as to the capital stock owned unless otherwise
noted.
|
Name
and Address of Beneficial Owner
|
|
Numbers
of Shares of Common
Stock
Beneficially Owned
|
|
|
%
of Common Stock
Outstanding
(1)
|
|
|
Wm.
Milton Cox
|
|
|
17,269,527
|
(2)
|
|
|
30.5
|
%
|
|
Metage
Funds Limited
|
|
|
13,166,667
|
(3)
|
|
|
23.3
|
%
|
|
Bassam
“Sam” Nastat
|
|
|
10,019,526
|
(4)
|
|
|
17.7
|
%
|
|
Donald
L. Sytsma
|
|
|
7,751,000
|
(5)
|
|
|
13.7
|
%
|
|
T.
Arden McCracken
|
|
|
140,000
|
(6)
|
|
|
*
|
|
|
J.
Tim Altum
|
|
|
140,000
|
(7)
|
|
|
*
|
|
|
Executive
Officers and Directors as a group (5 persons)
|
|
|
35,320,053
|
|
|
60.6
|
%
|
__________________________
|
(1)
|
Based
on 56,603,107 shares outstanding as of November 30,
2007.
|
|
(2)
|
Includes
250,000 shares of common stock issuable upon the exercise of options
which
are currently exercisable or exercisable within 60 days
hereof. Wm. Milton Cox is the managing member of CodeAmerica
Investments, LLC, the holder of record of 17,019,527 of these shares,
and
he is the beneficial owner of these shares. Wm. Milton Cox is
our Chairman and Chief Executive Officer. CodeAmerica
Investments LLC’s address is 6300 Germantown Rd., Suite 100, Olive Branch,
MS 38654.
|
|
(3)
|
Includes
11,666,667 shares are issuable upon conversion of outstanding convertible
notes and exercise of outstanding warrants. Metage Capital Limited,
Mr.
Tom Sharp, Investment Manager exercises voting and investment authority
over these shares. Metage’s address is 8 Pollen Street, London,
England W1S 1NG.
|
|
(4)
|
Includes
500,000 shares of common stock issuable upon the exercise of options
which
are currently exercisable or exercisable within 60 days
hereof.
|
|
(5)
|
Includes
250,000 shares of common stock issuable upon the exercise of options
which
are currently exercisable or exercisable within 60 days
hereof. Donald L. Sytsma is the managing member of Harbour
EnCap, LLC, the holder of record of 7,500,000 of these shares,
and he is the beneficial owner of these shares. Donald L.
Sytsma is a director and our Corporate Secretary, Treasurer, and
Chief
Financial Officer. Harbour EnCap LLC’s address is 514 W.
Jefferson Street, Culver, IN 4651.
|
|
(6)
|
Includes
140,000 shares of common stock issuable upon the exercise of options
which
are currently exercisable or exercisable within 60 days
hereof.
|
|
(7)
|
Includes
140,000 shares of common stock issuable upon the exercise of options
which
are currently exercisable or exercisable within 60 days
hereof.
|
EXECUTIVE
COM
PENSATI
ON
Summary
Compensation Table
. The following table provides information
concerning compensation paid or accrued during the fiscal years ended August
31,
2007 and March 31, 2006 to our principal executive officer and each of our
other
two most highly paid executive officers whose salary and bonus exceeded
$100,000, collectively referred to as the Named Executive Officers, determined
at the end of the last fiscal year:
|
Name
and Principal
Position
|
|
Fiscal
Year
|
|
Salary
|
|
|
Bonus
|
|
|
Option
Awards (1)
|
|
|
All
Other
Compensation
|
|
|
Total
|
|
|
Wm.
Milton Cox, Chairman and Chief Executive Officer
|
|
2007
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
238,721
|
|
|
$
|
140,000
|
(2)
|
|
$
|
378,821
|
|
|
|
|
2006
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Bassam
“Sam” Nastat, President
|
|
2007
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
477,441
|
|
|
$
|
140,000
|
(3)
|
|
$
|
617,441
|
|
|
|
|
2006
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Donald
L. Sytsma, Chief Financial Officer, Corporate Secretary and
Treasurer
|
|
2007
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
238,721
|
|
|
$
|
120,000
|
(4)
|
|
$
|
358,721
|
|
|
|
|
2006
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
(1)
Estimated
fair value of
options on the date of grant computed with the Black-Scholes option-pricing
model. Amount identified is the non-cash fair value amortization of options
granted that became vested by the recipient during the period then
ending. No options have been exercised by the
recipients.
(2)
Fees for services
remitted to CodeAmerica Investments, LLC, for which Mr. Cox serves as the
Managing Member.
(3)
Fees for services
remitted to Paragon Capital, LLC, for which Mr. Nastat serves as the
Manager.
(4)
Fees for services
remitted to DLS Energy Associates, LLC and H&H Energy Consultants, an
affiliate of DLS Energy Associates, LLC, for which Mr. Sytsma is the Managing
Member.
Employment
Agreements
We
have
not entered into employment agreements with any of our executive
officers.
Potential
Payments Upon Termination or Change of Control
There
are
no payments due to any of our executive officers in connection with a
termination or on a change of control.
|
OUTSTANDING
EQUITY AWARDS AT FISCAL YEAR-END
August
31, 2007
|
|
|
|
|
|
|
|
Option
Awards
|
|
Stock
Awards
|
|
|
Name
|
|
Number
of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
|
|
|
Number
of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
|
|
|
Equity
Incentive
Plan
Awards
Number
of
Securities
Underlying
Unexercised
Unearned
Options
(#)
|
|
|
Option
Exercise
Price
($)
|
|
Option
Expiration
Date
|
|
Number
of
Shares
or
Units
of
Stock
That
Have
Not
Vested
(#)
|
|
|
Market
Value
of
Shares
or
Units
of
Stock
That
Have
Not
Vested
($)
|
|
|
Equity
Incentive
Plan
Awards:
Number
of
Unearned
Shares,
Units
or
Other
Rights
That
Have
Not
Vested
(#)
|
|
|
Equity
Incentive
Plan
Awards
Market
or
Payout
Value
of
Unearned
Shares,
Units
or
Other
Rights
That
Have
Not
Vested
($)
|
|
|
(a)
|
|
(b)
|
|
|
(c)
|
|
|
(d)
|
|
|
(e)
|
|
(f)
|
|
(g)
|
|
|
(h)
|
|
|
(i)
|
|
|
(j)
|
|
|
Wm.
Milton Cox (1)
|
|
|
250,000
|
|
|
|
250,000
|
|
|
|
-
|
|
|
$
|
0.79
|
|
5/10/2017
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Bassam
“Sam” Nastat (2)
|
|
|
500,000
|
|
|
|
500,000
|
|
|
|
-
|
|
|
$
|
0.79
|
|
5/10/2017
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Donald
L. Sytsma (1)
|
|
|
250,000
|
|
|
|
250,000
|
|
|
|
-
|
|
|
$
|
0.79
|
|
5/10/2017
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
____________________
|
|
(1)
|
Mr.
Cox and Mr. Sytsma received options to purchase 500,000 shares
of common
stock on May 10, 2007 with an exercise price of $0.79 per
share. The options vest quarterly over the twelve months
following the date of issuance and expire on May 10,
2017.
|
|
|
(2)
|
Mr.
Nastat received options to purchase 1,000,000 shares of common
stock on
May 10, 2007 with an exercise price of $0.79 per share, which vests
over
twelve months and expires on May 10,
2017.
|
Director
Compensation
Our
directors are not compensated in cash for their services but are reimbursed
for
out-of-pocket expenses incurred in furtherance of our business. The
following table sets forth information with respect to compensation paid
to
directors during the fiscal year ended August 31, 2007.
|
|
|
|
Name
|
|
Fees
Earned
or
Paid in
Cash
|
|
|
Stock
Awards
|
|
|
Option
Awards
|
|
|
Non-Equity
Incentive
Compensation
|
|
|
Nonqualified
Deferred
Compensation
Earnings
|
|
|
All
Other
Compensation
|
|
|
Total
|
|
|
(a)
|
|
(b)
|
|
|
(c)
|
|
|
(d)
|
|
|
(e)
|
|
|
(f)
|
|
|
(g)
|
|
|
(h)
|
|
|
T.
Arden McCracken
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
143,296
|
(1)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
143,296
|
|
|
J.
Tim Altum
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
143,296
|
(2)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
143,296
|
|
____________________
|
|
(1)
|
Mr.
McCracken received options to purchase 250,000 shares of common
stock on
May 10, 2007 with an exercise price of $0.79 per share. The
options vest quarterly over the twelve months following the date
of
issuance and expire on May 10, 2017. He also received options
to purchase 100,000 shares of common stock on June 14, 2007 with
an
exercise price of $0.50 per common shares, which vest over 20 months
and
expires on June 14, 2017. The estimated fair value of the options
granted
was computed with the Black-Sholes option-pricing model. The
amount identified in the table is the non-cash fair value amortization
of
options granted that became vested by the recipient during the
fiscal year
ended August 31, 2007.
|
|
|
(2)
|
Mr.
Altum received options to purchase 250,000 shares of common stock
on May
10, 2007 with an exercise price of $0.79 per share. The options
vest
quarterly over the twelve months following the date of issuance
and expire
on May 10, 2017. He also received options to purchase 100,000
shares of common stock on June 14, 2007 with an exercise price
of $0.50
per common shares, which vest over 20 months and expires on June
14, 2017.
The estimated fair value of the options granted was computed with
the
Black-Sholes option-pricing model. The amount identified in the
table is the non-cash fair value amortization of options granted
that
became vested by the recipient during the fiscal year ended August
31,
2007.
|
Other
Information
From
February 21, 2006 to January 3, 2007, we paid a total of $20,527 in consulting
fees. Of the total, Bijay Singh, our former director, received
$10,000. Sokhie Puar, one of our former directors and our former
President, Corporate Secretary and Treasurer, received $10,527.
INTEREST
OF MANAGEMENT AND OTHERS IN
CERTAIN
TRANSACTIONS
During
our development stage oil and natural gas exploration and development
activities, we have had the following transactions with our executive officers
and directors, or with their affiliates in which they have direct or indirect
material interests:
Oakcrest
Prospect, Wharton County, Texas
In
connection with the merger of us and Wharton Corp., we acquired oil and gas
lease interests located in Wharton County, Texas. The Oakcrest oil
and gas lease interests were originally acquired by CodeAmerica. When
Wharton Corp. acquired the Oakcrest oil and gas lease interests from CodeAmerica
on October 16, 2006, Wm. Milton Cox was also the Chairman and CEO of Wharton
Corp. CodeAmerica received 5,000,000 shares of our common stock for
its Oakcrest oil and gas lease interests in the merger.
The
acquisition of the Oakcrest oil and gas lease interests from CodeAmerica
has
been recorded on our records at its historical cost basis in the interests
which
totaled approximately $460,500. When the Oakcrest lease interests
were acquired by Wharton Corp., our shares of common stock were not publicly
traded. The fair value of the shares issued to CodeAmerica for the
lease interests was equal to its historical cost basis in the lease
interests.
Mound
Branch Project, Elk County, Kansas
On
January 30, 2007, we purchased Orbit’s working and net revenue interests in
approximately 8,800 gross acres located in Elk County, Kansas together with
its
interests in drilled wells and associated equipment. The purchase
price totaled $6.8 million, and consideration paid to Orbit was comprised
of
(a) $760,947, representing funds advanced by us to Orbit for testing and
evaluation of the existing well bores, reservoir formations and associated
lease
acreage, (b) a thirty-six month $2.0 million 10% convertible note with principal
due at maturity, and (c) 4,039,053 shares of our common stock with a fair
value
of $1.00 per share at the time of issuance.
The
note
issued to Orbit bears interest at 10.0% per annum due quarterly in
arrears. Pursuant to the terms of the note, after the initial
twelve months, (a) Orbit has the ability to convert the outstanding principal
and interest balance into shares of common stock at a conversion price of
$1.00
per share and (b) we may prepay all or a portion of the note without
penalty. On July 3, 2007 the note was amended to provide that
interest payable for the first two quarters was deferred by Orbit until October
30, 2007. At August 31, 2007, the outstanding principal under
the note was $2.0 million and accrued interest totaled $116,712.
The
shares of common stock issued to Orbit as part of the purchase price were
placed
in escrow to be released upon Orbit’s delivery to the escrow agent of an
independent report assessing the fair value of the purchased assets at no
less
than the purchase price of $6.8 million. Should the valuation be less
than the $6.8 million purchase price, then the number of shares to be released
from escrow will be ratably reduced for the lower valuation. The
shares remaining in escrow at the end of the twelve month period ending January
30, 2008 are to be cancelled and returned to treasury. To date, no
shares have been released from escrow.
The
acquisition from Orbit was treated as a transaction between entities under
common control and recorded in our records at Orbit’s historical cost in
acquired assets of $3,227,568. The difference between the $6.8
million purchase price and Orbit’s historical cost in the assets was recorded by
us as a deemed dividend which totaled $3,572,432.
Orbit
is
100% owned by CodeAmerica and Paragon, which as noted elsewhere in this
prospectus, are controlled by Wm. Milton Cox and Bassam Nastat, each of whom
is
one of our officers and directors. Immediately prior to the
acquisition, Messrs. Cox and Nastat held a combined 22.5 million shares of
common stock, or 49.6% of our then issued and outstanding common
stock. The 4,039,053 shares issued to Orbit increased their
direct and indirect holdings in us to 52.5% of the then issued and outstanding
common stock. Should the independent fair market appraisal of the
assets acquired be less than the purchase price, the shares of common stock
released to Orbit will be ratably reduced for the lower valuation, and the
direct and indirect combined holdings of Messrs. Nastat and Cox in us will
be
reduced.
Orbit
serves as operator of the Mound Branch Project. In conjunction
with the terms of the Mound Branch Project purchase and sale agreement, we
have
been funding 100% of the costs incurred by Orbit for the testing and evaluation
of the existing well bores, reservoir formations and associated lease
acreage. The share of costs not attributable to our working interest
ownership in the property is recorded as a receivable from joint interest
partners in the amount of $198,006. We expect to collect this amount
from our partners in the Mound Branch Project.
In
addition to the $760,747 paid by us and applied as consideration against
the
purchase price from Orbit, Orbit has billed us $636,684 associated with the
testing and evaluation of the Mound Branch Project since the
acquisition. A balance of $248,171 is recorded as payable to a
related party as of August 31, 2007. In the aggregate, through August
31, 2007, we have incurred costs totaling $1,397,631 on the testing and
evaluation of the Mound Branch Project, of which $1,149,460 has been paid
to
Orbit. The testing and evaluation procedures for the Mound
Branch Project were completed in early October 2007.
Baxter
Bledsoe Prospect, Clay County, Kentucky
On
February 1, 2006, we purchased the Baxter Bledsoe Prospect oil and gas lease
acreage from CodeAmerica for a cash purchase price of $330,000. The prospect
has
approximately 2,200 acres located in Clay County, Kentucky. This acquisition
from CodeAmerica was treated as a transaction between entities under common
control and recorded at CodeAmerica’s historical cost basis of approximately
$170,000. The difference between the $330,000 purchase price and
CodeAmerica’s historical cost in the assets was recorded by us as a deemed
dividend which totaled $160,000,
Bell
Prospect, Bell County, Kentucky
On
October 1, 2006, we purchased CodeAmerica’s oil and gas lease interests located
in Bell County, Kentucky. The cash purchase price was $314,475, which included
$59,475 for land, legal and title services expended by CodeAmerica on the
prospect. This acquisition from CodeAmerica was treated as a
transaction between entities under common control and recorded at CodeAmerica’s
historical cost basis of approximately $229,475. The difference
between the $314,475 purchase price and CodeAmerica’s historical cost in the
assets was recorded by us as a deemed dividend which totaled
$85,000.
Advances
from Stockholder
During
the months of April and May 2007, CodeAmerica made cash advances to us totaling
$120,000 for general working capital requirements. The advances were
due on demand, did not bear interest and were outstanding as of August 31,
2007. The advances were fully repaid during November
2007.
Office
Rent
We
share
office space in Houston, Texas with Orbit under a month-to-month
arrangement. The office space is leased by
Orbit. During the years ended August 31, 2007 and 2006, we paid
rent totaling $42,994 and $38,210, respectively.
MARKET
FOR C
OMMO
N EQUITY AND RELATED STOCKHOLDER
MATTERS
Our
common stock has been quoted on the Over The Counter Bulletin Board (“OTCBB”)
since July 10, 2006. On March 8, 2007, we changed our symbol on the
OTCBB from “GXPL.OB” to “GWPC.OB” and our common stock is currently trading on
the OTCBB under that symbol.
The
following table sets forth the range of the high and low closing prices,
as
reported by the OTCBB, for our common stock for the periods
indicated.
|
|
|
Sales
Price
|
|
|
|
|
High
|
|
|
Low
|
|
|
|
|
|
|
|
|
|
|
Quarter
ended November 30, 2006
|
|
$
|
1.30
|
|
|
$
|
0.93
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter
ended February 28, 2007
|
|
$
|
1.10
|
|
|
$
|
0.84
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter
ended May 31, 2007
|
|
$
|
0.93
|
|
|
$
|
0.55
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter
ended August 31, 2007
|
|
$
|
0.60
|
|
|
$
|
0.22
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter
ended November 30, 2007
|
|
$
|
0.61
|
|
|
$
|
0.29
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter
ending February 29, 2008 (as of December 4, 2007)
|
|
$
|
0.39
|
|
|
$
|
0.38
|
|
Our
authorized capital stock consists of 1,200,000,000 shares of common
stock. As of November 30, 2007, 56,603,107 shares of common stock
were issued and outstanding. As of such date, there were
approximately 36 holders of record of our common stock.
We
have
not paid dividends on our common stock and do not anticipate paying cash
dividends in the immediate future as we contemplate that our cash flows will
be
used for continued growth of our operations. The payment of future
dividends, if any, will be determined by the Board in light of conditions
then
existing, including our earnings, financial condition, capital requirements,
and
restrictions in financing agreements, business conditions and other
factors. However, the Nevada Revised Statutes, however, do prohibit
us from declaring dividends where, after giving effect to the distribution
of
the dividend we would not be able to pay our debts as they become due in
the
usual course of business; or our total assets would be less than the sum
of our
total liabilities, plus the amount that would be needed to satisfy the rights
of
shareholders who have preferential rights superior to those receiving the
distribution.
DESCRIPTION
OF CO
MMO
N STOCK
General
Our
authorized capital stock consists of 1,200,000,000 shares of common stock,
$0.001 par value per share, of which 56,603,107 shares of our common stock
are
issued and outstanding as of November 30, 2007. All of our
outstanding shares of common stock are duly authorized, validly issued and
outstanding and fully paid and non-assessable.
Common
Stock
Holders
of our common stock are entitled to one vote for each share on all matters
submitted to a stockholder vote. Holders of common stock do not have
cumulative voting rights. Therefore, holders of a majority of the
shares of common stock voting for the election of directors can elect all
of the
directors. Holders of a majority of shares of common stock issued and
outstanding, represented in person or by proxy, are necessary to constitute
a
quorum at any meeting of our stockholders. A vote by the holders of a
majority of our outstanding shares is required to effectuate certain fundamental
corporate changes such as liquidation, merger or an amendment to our Articles
of
Incorporation.
Holders
of common stock are entitled to share in all dividends that the Board, in
its
discretion, declares from legally available funds. In the event of a
liquidation, dissolution or winding up, each outstanding share entitles its
holder to participate pro-rata in all assets that remain after payment of
liabilities and after providing for each class of stock, if any, having
preference over the common stock. Holders of our common stock have no preemptive
rights, no conversion rights and there are no redemption provisions applicable
to our common stock.
Holders
of our common stock may only transfer, sell or otherwise dispose of our common
stock held pursuant to an effective registration statement under the Securities
Act, pursuant to an available exemption from the registration requirements
of
the Securities Act or Rule 144 promulgated under the Securities
Act. In connection with any transfer, sale or disposition of any of
our common stock other than pursuant to an effective registration statement
or
Rule 144, we may require you to provide us a written opinion of counsel
providing that such transfer, sale or disposition does not require registration
under the Securities Act.
Dividend
Policy
We
have
never declared or paid any cash dividends on our common stock. We currently
intend to retain future earnings, if any, to finance the expansion of our
business. As a result, we do not anticipate paying any cash dividends in
the
foreseeable future.
Restrictions
on Takeover
Articles
of Incorporation and Bylaws
The
provisions of the Nevada corporate laws apply to any acquisition of a
controlling interest in a certain type of Nevada corporation known as an
“Issuing Corporation,” unless the articles of incorporation or bylaws of the
corporation in effect the tenth day following the acquisition of a controlling
interest by an acquiring person provide that the provisions of those sections
do
not apply to the corporation, or to an acquisition of a controlling interest
specifically by types of existing or future stockholders, whether or not
identified.
An
“Issuing Corporation” is a corporation organized in the state of Nevada and
which has 200 or more stockholders of record, with at least 100 of whom have
addresses in the state of Nevada appearing on the stock ledger of the
corporation and does business directly in the state of Nevada. As we
currently have less than 200 stockholders the statute does not currently
apply
to us. To the extent such provisions may apply to us in the future, the Nevada
corporate law provisions do not restrict the directors of an “Issuing
Corporation” from taking action to protect the interests of the corporation and
its stockholders, including, but not limited to, adopting or signing plans,
arrangements or instruments that deny rights, privileges, power or authority
to
a holders of a specified number of shares or percentage of share ownership
or
voting power.
Transfer
Agent
The
transfer agent for our common stock is Nevada Agency and Trust
Company.
RELATIONSHIPS
WITH ISSUER OF EXPERTS NAMED IN REG
ISTRA
TION
STATEMENT
None.
LEGAL
PROC
EEDI
NGS
We
know
of no material, active or pending legal proceedings against us, nor are we
involved as a plaintiff in any material proceeding or pending litigation.
There
are no proceedings in which any of our directors, officers or affiliates,
or any
registered or beneficial shareholder, is an adverse party or has a material
interest adverse to our interest.
CHANGES
IN AND DISA
GRE
EMENTS WITH ACCOUNTANTS
On
January 18, 2007, our independent auditor, Dale Matheson Carr-Hilton Labonte
LLP
(“DMCL”) was dismissed. DMCL conducted the audit of our March 31, 2006 balance
sheet, and the statements of operations, stockholders’ equity and cash flows for
the period from February 21, 2006 (date of inception) through March 31, 2006.
In
DMCL’s report dated April 25, 2006, there were no adverse opinions or
disclaimers of the opinion, or qualification or modification as to uncertainty,
audit scope, or accounting principles, with the exception of a statement
regarding the uncertainty of our ability to continue as a going
concern.
During
the period from our inception through March 31, 2006 and the subsequent interim
period through the dismissal date, there were no disagreements with DMCL
on any
matter of accounting principles or practices, financial statement disclosure,
or
auditing scope or procedures, which if not resolved to DMCL’s satisfaction would
have caused DMCL to make reference to the subject matter of the disagreements
in
connection with DMCL’s report.
On
January 18, 2007, our Board approved the engagement of Malone & Bailey, PC
(“M&B”) of Houston, Texas as our principal accountant. Neither we nor anyone
on our behalf consulted with M&B regarding either the application of
accounting principles to a specified transaction, either completed or proposed,
or the type of audit opinion that might be rendered on our financial statements,
nor has M&B provided us with a written report or oral advice that was an
important factor considered by us in reaching a decision as to any accounting,
auditing, or factual reporting issue, or any matter that was the subject
of a
disagreement or reportable events with M&B.
On
October 5, 2007, the Board dismissed M&B as the Company’s independent
registered public accounting firm. M&B’s reports on our financial
statements for the two fiscal years ended August 31, 2006 and 2005, did not
contain an adverse opinion or disclaimer of opinion and were not qualified
or
modified as to uncertainty, audit scope or accounting principles, except
for
concerns about our ability to continue as a going concern. During our
two most recent fiscal years ended August 31, 2006 and 2005, and through
October
5, 2007, there were no disagreements between us and M&B on any manner of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure, which disagreements, if not resolved to the satisfaction
of
M&B, would have caused it to make reference to the subject matter of the
disagreements in connection with its report on our financial statements for
such
years. There were no reportable events that occurred within the two
most recent fiscal years ended August 31, 2006 and 2005, or within the interim
period through October 5, 2007.
On
October 5, 2007, the Board approved the engagement of GBH CPAs, PC (“GBH”) as
our new independent registered public accounting firm. Neither we nor
anyone on our behalf consulted with GBH regarding either the application
of
accounting principles to a specified transaction, either completed or proposed,
or the type of audit opinion that might be rendered on our financial statements,
nor has GBH provided us with a written report or oral advice that was an
important factor considered by us in reaching a decision as to any accounting,
auditing, or factual reporting issue, or any matter that was the subject
of a
disagreement or reportable events with GBH.
DISCLOSURE
OF COMMISSION
POSITION
ON
INDEMNIFICATION
OF SECURITIES ACT LIABILITIES
Our
bylaws provide that each of our officers and directors shall be indemnified
by
us against all costs and expenses actually and necessarily incurred by him
or
her in connection with the defense of any action, suit or proceeding in which
he
or she may be involved or to which he or she may be made a party by reason
of
his or her being or having been such director or officer, except in relation
to
matters as to which he or she has been finally adjudged in such action, suit
or
proceeding to be liable for negligence or misconduct in the performance of
duty.
The
indemnification provisions of our bylaws diminish the potential rights of
action, which might otherwise be available to stockholders by affording
indemnification against most damages and settlement amounts paid by a director
in connection with any stockholder derivative action. However, there are
no
provisions limiting the right of a stockholder to enjoin a director from
taking
actions in breach of his fiduciary duty, or to cause us to rescind actions
already taken, although as a practical matter courts may be unwilling to
grant
such equitable remedies in circumstances in which such actions have already
been
taken. As we do not presently have directors’ liability insurance, we may be
forced to bear a portion or all of the cost of the director’s claims for
indemnification under such provisions. If we are forced to bear the costs
for
indemnification, the value of our stock may be adversely affected.
Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to our directors, officers and controlling persons pursuant to
the
foregoing provisions, or otherwise, we have been advised that in the opinion
of
the SEC, such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable.
LEGAL
MATTERS
Certain
legal matters in connection with the common stock offered hereby will be
passed
on for us by Porter & Hedges, L.L.P., 1000 Main Street, Suite 3600, Houston,
Texas 77002. Any underwriters will be advised about other issues
relating to any offering by their own legal counsel.
E
XPE
RTS
Our
consolidated financial statements as of August 31, 2007 and 2006, and the
related consolidated statements of operations, stockholders’ equity, and cash
flows for each of the two years in the period ended August 31, 2007, and
the
period from inception (January 20, 2005) to August 31, 2007, appearing in
this
prospectus have been audited by GBH CPAs, PC, independent registered
public accountants, as set forth on their report thereon appearing elsewhere
in
this prospectus, and are included in reliance upon the report of such firm,
given upon their authority as experts in accounting and auditing.
The
reference to the report of MHA Petroleum Consultants, Inc. with respect to
estimates of proved reserves of oil and natural gas located in Wharton County,
Texas is made upon the authority of the firm as experts with respect to such
matters.
INDEX
TO FIN
ANCI
AL STATEMENTS
|
Report
of Independent Registered Public Accounting Firm
|
|
F-1
|
|
|
|
|
|
Consolidated
Balance Sheets as of August 31, 2007 and 2006
|
|
F-2
|
|
|
|
|
|
Consolidated
Statements of Operations for the years ended August 31, 2007 and
2006 and
the period from Inception (January 20, 2005) to August 31,
2007
|
|
F-3
|
|
|
|
|
|
Consolidated
Statement of Stockholders’ Equity (Deficit) for the period from Inception
(January 20, 2005) to August 31, 2007
|
|
F-4
|
|
|
|
|
|
Consolidated
Statements of Cash Flows for years ended August 31, 2007 and 2006
and the
period from Inception (January 20, 2005) to August 31,
2007
|
|
F-5
|
|
|
|
|
|
Notes
to the Consolidated Financial Statements
|
|
F-6
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the
Board of Directors
Gulf
Western Petroleum Corporation
Houston,
Texas
We
have
audited the accompanying consolidated balance sheets of Gulf Western Petroleum
Corporation (a development stage company) as of August 31, 2007 and 2006,
and
the related consolidated statements of operations, stockholders’ equity, and
cash flows for each of the two years in the period ended August 31, 2007,
and
the period from inception (January 20, 2005) to August 31,
2007. These consolidated financial statements are the
responsibility of Gulf Western’s management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.
We
conducted 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 also includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements, 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.
In
our
opinion, the consolidated financial statements referred to above present
fairly,
in all material respects, the financial position of Gulf Western Petroleum
Corporation as of August 31, 2007 and 2006, and the results of operations
and
cash flows for the years then ended, and the period from inception (January
20,
2005) to August 31, 2007, in conformity with accounting principles generally
accepted in the United States of America.
The
accompanying consolidated financial statements have been prepared assuming
that
Gulf Western Petroleum Corporation will continue as a going concern. As
discussed in Note 3 to the consolidated financial statements, Gulf Western
Petroleum Corporation was formed on January 20, 2005 and has not generated
any
revenues since inception, which raises substantial doubt about its ability
to
continue as a going concern. Management’s plans in regard to these matters are
described in Note 3. The consolidated financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
GBH
CPAs,
PC
www.gbhcpas.com
Houston,
Texas
November
28, 2007
GULF
WESTERN PETROLEUM CORPORATION
(A
DEVELOPMENT STAGE COMPANY)
CONSOLIDATED
BALANCE SHEETS
As
of August 31, 2007 and 2006
|
ASSETS
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
|
Cash
|
|
$
|
1,925
|
|
|
$
|
312,581
|
|
|
Accounts
receivable – joint interest partners
|
|
|
198,106
|
|
|
|
-
|
|
|
Accounts
receivable – related party
|
|
|
11,488
|
|
|
|
-
|
|
|
Total
current assets
|
|
|
211,519
|
|
|
|
312,581
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
financing costs, net of amortization
|
|
|
56,123
|
|
|
|
-
|
|
|
Office
equipment, net of depreciation of $6,507 and $1,350,
respectively
|
|
|
13,185
|
|
|
|
6,022
|
|
|
Oil
and gas properties, full cost method:
|
|
|
|
|
|
|
|
|
|
Properties
subject to amortization
|
|
|
1,090,988
|
|
|
|
773,016
|
|
|
Properties
not subject to amortization
|
|
|
6,824,775
|
|
|
|
136,987
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
8,196,590
|
|
|
$
|
1,228,606
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
1,065,092
|
|
|
$
|
712,312
|
|
|
Accounts
payable – related parties
|
|
|
380,148
|
|
|
|
3,296
|
|
|
Stock
payable
|
|
|
100,000
|
|
|
|
-
|
|
|
Advances
from stockholder
|
|
|
417,254
|
|
|
|
242,745
|
|
|
Due
to parent
|
|
|
-
|
|
|
|
460,231
|
|
|
Accrued
interest
|
|
|
15,041
|
|
|
|
4,765
|
|
|
Accrued
interest – related party
|
|
|
116,712
|
|
|
|
-
|
|
|
Notes
payable
|
|
|
|
|
|
|
312,500
|
|
|
Convertible
note payable, net of unamortized debt discount of $11,290 and $-0-,
respectively
|
|
|
238,710
|
|
|
|
-
|
|
|
Total
current liabilities
|
|
|
2,332,957
|
|
|
|
1,735,849
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible
note – related party
|
|
|
2,000,000
|
|
|
|
-
|
|
|
Convertible
notes payable, net of unamortized debt discount of $17,536 and
$-0-,
respectively
|
|
|
482,464
|
|
|
|
76,883
|
|
|
Asset
retirement obligation
|
|
|
50,949
|
|
|
|
-
|
|
|
Total
liabilities
|
|
|
4,866,370
|
|
|
|
1,812,732
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’
EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
|
Common
shares, $0.001 par value, 1.2 billion shares authorized, 53,489,662
and
25,000,000 shares issued and outstanding, respectively
|
|
|
53,490
|
|
|
|
25,000
|
|
|
Additional
paid-in capital
|
|
|
7,093,980
|
|
|
|
(24,000
|
)
|
|
Deficit
accumulated during the development stage
|
|
|
(3,817,250
|
)
|
|
|
(585,126
|
)
|
|
Total
stockholders’ equity (deficit)
|
|
|
3,330,220
|
|
|
|
(584,126
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders’ equity (deficit)
|
|
$
|
8,196,590
|
|
|
$
|
1,228,606
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
GULF
WESTERN PETROLEUM CORPORATION
(A
DEVELOPMENT STAGE COMPANY)
CONSOLIDATED
STATEMENTS OF OPERATIONS
For
the Years Ended August 31, 2007 and 2006
and
the Period from Inception (January 20, 2005) through August 31,
2007
|
|
|
Year
Ended
August
31, 2007
|
|
|
Year
Ended
August
31, 2006
|
|
|
Inception
through
August
31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative
|
|
|
2,680,342
|
|
|
|
60,958
|
|
|
|
2,741,449
|
|
|
Depreciation
|
|
|
5,157
|
|
|
|
1,350
|
|
|
|
6,507
|
|
|
Total
operating expenses
|
|
|
2,685,499
|
|
|
|
62,308
|
|
|
|
2,747,956
|
|
|
Operating
loss
|
|
|
(2,685,499
|
)
|
|
|
(62,308
|
)
|
|
|
(2,747,956
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
(income) expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing
costs
|
|
|
(118,017
|
)
|
|
|
278,517
|
|
|
|
389,095
|
|
|
Interest
expense
|
|
|
663,306
|
|
|
|
4,765
|
|
|
|
668,071
|
|
|
Currency
exchange loss
|
|
|
1,336
|
|
|
|
10,792
|
|
|
|
12,128
|
|
|
Total
other expense
|
|
|
546,625
|
|
|
|
294,074
|
|
|
|
1,069,294
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
(3,232,124
|
)
|
|
|
(356,382
|
)
|
|
|
(3,817,250
|
)
|
|
Deemed
dividend
|
|
|
(3,817,432
|
)
|
|
|
-
|
|
|
|
(3,817,432
|
)
|
|
Net
loss available to common shareholders
|
|
$
|
(7,049,556
|
)
|
|
$
|
(356,382
|
)
|
|
$
|
(7,634,682
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
$
|
(0.18
|
)
|
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
|
42,052,238
|
|
|
|
25,000,000
|
|
|
|
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
GULF
WESTERN PETROLEUM CORPORATION
(A
DEVELOPMENT STAGE COMPANY)
CONSOLIDATED
STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)
For
the Period from Inception (January 20, 2005) through August 31,
2007
|
|
|
Common
Shares
|
|
|
Par
Amount
|
|
|
Additional
Paid-In-Capital
|
|
|
Accumulated
Deficit
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common shares at inception
|
|
|
25,000,000
|
|
|
$
|
25,000
|
|
|
$
|
(24,000
|
)
|
|
$
|
-
|
|
|
$
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss, inception through August 31, 2005
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
(228,744
|
)
|
|
|
(228,744
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
August 31, 2005
|
|
|
25,000,000
|
|
|
$
|
25,000
|
|
|
|
(24,000
|
)
|
|
$
|
(228,744
|
)
|
|
$
|
(227,744
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(356,382
|
)
|
|
|
(356,382
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
August 31, 2006
|
|
|
25,000,000
|
|
|
$
|
25,000
|
|
|
$
|
(24,000
|
)
|
|
$
|
(585,126
|
)
|
|
$
|
(584,126
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common shares to related party for oil and gas
properties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-October
16, 2006 ($0.09 per share)
|
|
|
5,000,000
|
|
|
|
5,000
|
|
|
|
455,496
|
|
|
|
-
|
|
|
|
460,496
|
|
|
-January
30, 2007 ($1.00 per share)
|
|
|
4,039,053
|
|
|
|
4,039
|
|
|
|
4,035,014
|
|
|
|
-
|
|
|
|
4,039,053
|
|
|
Common
shares issued for reverse merger
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-January 3, 2007
($0.001 per share)
|
|
|
27,645,000
|
|
|
|
27,645
|
|
|
|
(27,645
|
)
|
|
|
-
|
|
|
|
-
|
|
|
Cancellation
of shares on reverse merger
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-January 3, 2007
($0.001 per share)
|
|
|
(15,645,000
|
)
|
|
|
(15,645
|
)
|
|
|
15,645
|
|
|
|
-
|
|
|
|
-
|
|
|
Issuance
of common shares for debenture
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-January 3, 2007
($0.73 per share)
|
|
|
108,109
|
|
|
|
108
|
|
|
|
78,369
|
|
|
|
-
|
|
|
|
78,477
|
|
|
Beneficial
conversion feature of debentures
|
|
|
-
|
|
|
|
-
|
|
|
|
75,390
|
|
|
|
-
|
|
|
|
75,390
|
|
|
Issuance
of units for cash in private placement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-January
22, 2007 ($1.00 per unit)
|
|
|
3,205,000
|
|
|
|
3,205
|
|
|
|
3,201,795
|
|
|
|
-
|
|
|
|
3,205,000
|
|
|
-May
10, 2007 ($1.00 per unit)
|
|
|
525,000
|
|
|
|
525
|
|
|
|
524,475
|
|
|
|
-
|
|
|
|
525,000
|
|
|
-August
16, 2007 ($0.40 per unit)
|
|
|
1,712,500
|
|
|
|
1,713
|
|
|
|
683,287
|
|
|
|
-
|
|
|
|
685,000
|
|
|
-August
31, 2007 ($0.40 per unit)
|
|
|
1,000,000
|
|
|
|
1,000
|
|
|
|
399,000
|
|
|
|
-
|
|
|
|
400,000
|
|
|
Issuance
of warrants for services in private placement
|
|
|
-
|
|
|
|
-
|
|
|
|
13,138
|
|
|
|
-
|
|
|
|
13,138
|
|
|
Deemed
dividends on purchase of oil and gas properties from related
parties
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,817,432
|
)
|
|
|
-
|
|
|
|
(3,817,432
|
)
|
|
Issuance
of common shares for services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-May
10, 2007 ($0.72 per share)
|
|
|
500,000
|
|
|
|
500
|
|
|
|
359,500
|
|
|
|
-
|
|
|
|
360,000
|
|
|
-August
1, 2007 ($0.31 per share)
|
|
|
100,000
|
|
|
|
100
|
|
|
|
30,400
|
|
|
|
-
|
|
|
|
30,500
|
|
|
Issuance
of common shares under terms of and extension of notes
payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-May
10, 2007 ($1.00 per share)
|
|
|
200,000
|
|
|
|
200
|
|
|
|
199,800
|
|
|
|
-
|
|
|
|
200,000
|
|
|
-August
31, 2007 ($1.00 per share)
|
|
|
100,000
|
|
|
|
100
|
|
|
|
99,900
|
|
|
|
-
|
|
|
|
100,000
|
|
|
Amortization
of stock options
|
|
|
-
|
|
|
|
-
|
|
|
|
738,599
|
|
|
|
-
|
|
|
|
738,599
|
|
|
Fair
value of warrants issued in
conjunction
with loans
|
|
|
-
|
|
|
|
-
|
|
|
|
53,249
|
|
|
|
-
|
|
|
|
53,249
|
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,232,124
|
)
|
|
|
(3,232,124
|
)
|
|
Balance,
August 31, 2007
|
|
|
53,489,662
|
|
|
$
|
53,490
|
|
|
$
|
7,093,980
|
|
|
$
|
(3,817,250
|
)
|
|
$
|
3,330,220
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
GULF
WESTERN PETROLEUM CORPORATION
(A
DEVELOPMENT STAGE COMPANY)
CONSOLIDATED
STATEMENTS OF CASH FLOWS
For
the Years Ended August 31, 2007 and 2006
and
the Period from Inception (January 20, 2005) through August 31,
2007
|
|
|
Year
Ended
August
31, 2007
|
|
|
Year
E
nded
August
31, 2006
|
|
|
Inception
through
August
31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(3,232,124
|
)
|
|
$
|
(356,382
|
)
|
|
$
|
(3,817,250
|
)
|
|
Adjustments
to reconcile net loss to cash provided (used) by operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
5,157
|
|
|
|
1,350
|
|
|
|
6,507
|
|
|
Foreign
currency exchange loss
|
|
|
1,336
|
|
|
|
10,792
|
|
|
|
12,128
|
|
|
Amortization
of debt discount
|
|
|
99,813
|
|
|
|
-
|
|
|
|
99,813
|
|
|
Amortization
of deferred financing costs
|
|
|
7,015
|
|
|
|
-
|
|
|
|
7,015
|
|
|
Bonus
shares on notes payable
|
|
|
400,000
|
|
|
|
-
|
|
|
|
400,000
|
|
|
Issuance
of shares for services
|
|
|
390,500
|
|
|
|
-
|
|
|
|
390,500
|
|
|
Amortization
of stock option expense
|
|
|
738,599
|
|
|
|
-
|
|
|
|
738,599
|
|
|
Net
change in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable – joint interest partners
|
|
|
(198,106
|
)
|
|
|
-
|
|
|
|
(198,106
|
)
|
|
Accounts
receivable – related parties
|
|
|
(11,488
|
)
|
|
|
-
|
|
|
|
(11,488
|
)
|
|
Accounts
payable
|
|
|
352,780
|
|
|
|
508,576
|
|
|
|
1,059,136
|
|
|
Accounts
payable - related parties
|
|
|
376,852
|
|
|
|
3,296
|
|
|
|
380,148
|
|
|
Accrued
interest
|
|
|
10,276
|
|
|
|
4,765
|
|
|
|
15,041
|
|
|
Accrued
interest – related parties
|
|
|
116,712
|
|
|
|
-
|
|
|
|
116,712
|
|
|
CASH
FLOWS PROVIDED (USED) BY OPERATING ACTIVITIES
|
|
|
(942,678
|
)
|
|
|
172,397
|
|
|
|
(801,245
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
of property and equipment
|
|
|
(12,320
|
)
|
|
|
(7,372
|
)
|
|
|
(19,692
|
)
|
|
Investment
in oil and gas properties
|
|
|
(4,732,925
|
)
|
|
|
(329,085
|
)
|
|
|
(5,181,697
|
)
|
|
CASH
FLOWS USED IN INVESTING ACTIVITIES
|
|
|
(4,745,245
|
)
|
|
|
(336,457
|
)
|
|
|
(5,201,389
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advances
from stockholder
|
|
|
174,509
|
|
|
|
92,094
|
|
|
|
417,254
|
|
|
Proceeds
from private placement unit sales
|
|
|
4,815,000
|
|
|
|
-
|
|
|
|
4,815,000
|
|
|
Proceeds
from convertible notes payable
|
|
|
700,000
|
|
|
|
72,047
|
|
|
|
772,047
|
|
|
Proceeds
from notes payable
|
|
|
540,776
|
|
|
|
312,500
|
|
|
|
853,276
|
|
|
Repayment
of notes payable
|
|
|
(853,018
|
)
|
|
|
-
|
|
|
|
(853,018
|
)
|
|
CASH
FLOWS PROVIDED BY FINANCING ACTIVITIES
|
|
|
5,377,267
|
|
|
|
476,641
|
|
|
|
6,004,559
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INCREASE(DECREASE) IN CASH
|
|
|
(310,656
|
)
|
|
|
312,581
|
|
|
|
1,925
|
|
|
Cash,
beginning of period
|
|
|
312,581
|
|
|
|
-
|
|
|
|
-
|
|
|
Cash,
end of period
|
|
$
|
1,925
|
|
|
$
|
312,581
|
|
|
$
|
1,925
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
22,929
|
|
|
$
|
-
|
|
|
$
|
22,929
|
|
|
Income
taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Schedule of Non-cash Investing and Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of founders shares
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,000
|
|
|
Assignment
and rescission of oil and gas properties from
parent
|
|
|
(460,231
|
)
|
|
|
460,231
|
|
|
|
-
|
|
|
Convertible
note to related party for acquisition of oil and gas
interests
|
|
|
2,000,000
|
|
|
|
-
|
|
|
|
2,000,000
|
|
|
Common
shares issued to acquire oil and gas properties
|
|
|
4,499,549
|
|
|
|
-
|
|
|
|
4,499,549
|
|
|
Issuance
of common shares for convertible debentures
|
|
|
78,477
|
|
|
|
-
|
|
|
|
78,477
|
|
|
Asset
retirement obligation incurred
|
|
|
50,949
|
|
|
|
-
|
|
|
|
50,949
|
|
|
Fair
value of warrants issued with debt
|
|
|
66,387
|
|
|
|
-
|
|
|
|
66,387
|
|
|
Discount
on debt for beneficial conversion feature of debentures
|
|
|
75,390
|
|
|
|
-
|
|
|
|
75,390
|
|
|
Deemed
dividends on purchase of oil and gas properties from related
parties
|
|
$
|
3,817,432
|
|
|
$
|
-
|
|
|
$
|
3,817,432
|
|
The
accompanying notes are an integral part of these consolidated financial
statements
GULF
WESTERN PETROLEUM CORPORATION
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1 – ORGANIZATION AND BUSINESS OPERATIONS
Gulf
Western Petroleum Corporation (“Gulf Western”) was incorporated on February 21,
2006 in the State of Nevada. Gulf Western (formerly Georgia
Exploration, Inc.) is engaged in the acquisition, exploration and development
of
oil and natural gas reserves in the United States. Gulf Western holds
oil and gas lease interests in Texas, Kansas and Kentucky. Gulf
Western is actively engaged in the drilling of Frio formation wells in Dewitt
and Lavaca County, Texas; it holds proved undeveloped reserves in Wharton
County, Texas; and it is engaged in a supply and infrastructure development
program in Southeast Kansas. Gulf Western’s oil and gas lease interests in
Kentucky are exploration in nature.
On
January 3, 2007, Gulf Western and Wharton Resources Corp. (“Wharton” or “Wharton
Corp.”) consummated a merger that was effected through a reverse merger with the
oil and gas lease interests and reserves held by Wharton becoming the primary
core assets of Gulf Western. Concurrent with the merger,
Wharton’s executive management and directors assumed control and responsibility
for Gulf Western’s activities and its strategic direction. The
merger effected a change in control of Gulf Western and immediately following
the merger, Wharton’s former stockholders held approximately 71.4% of Gulf
Western’s issued and outstanding common shares. On March 8,
2007, Georgia Exploration, Inc.’s name was changed to Gulf Western Petroleum
Corporation, and the stock symbol was changed to OTCBB: GWPC.
For
SEC
reporting purposes, the merger between Gulf Western and Wharton was treated
as a
reverse merger with Wharton being the “accounting acquirer” and, accordingly, it
assumed Gulf Western’s reporting obligations with the SEC. In
accordance with SEC requirements, the historical financial statements and
related disclosures presented herein for the period prior to the date of
merger
(i.e., January 3, 2007) are those of Wharton since its
inception on January 20, 2005. In conjunction with the merger,
each outstanding share of Wharton was converted into 25,000 common shares
in
Gulf Western with a total of 30,000,000 common shares issued to the former
Wharton stockholders. Further, 15,645,000 shares of Gulf Western’s
outstanding common stock were cancelled concurrent with the closing of the
merger. Immediately following the merger, a total of 42,000,000
shares of common stock were issued and outstanding.
Since
its
inception, Gulf Western has funded its oil and gas activities through a
combination of equity and debt securities, and the contribution of funds
and
services by its principal shareholders and Gulf Western’s
management. Gulf Western has raised initial financing from
external sources through a series of private equity placements with units
consisting of common shares and warrants; the issuance of convertible securities
in the form of secured notes; and through various bridge and short term
notes.
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of presentation
Gulf
Western’s consolidated balance sheets and related consolidated statements of
operations, stockholders’ equity (deficit) and cash flows for the periods from
inception through August 31, 2007 are presented in U.S. dollars and have
been
prepared in accordance with accounting principles generally accepted in the
United States of America (“GAAP”) and the rules of the Securities and Exchange
Commission.
The
accompanying consolidated financial statements are prepared in accordance
with
Statement of Financial Accounting Standards (“SFAS”) No. 7, Accounting and
Reporting by Development Stage Enterprises.
Use
of estimates
The
preparation of financial statements in conformity with generally accepted
accounting principles in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities
and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting periods. Actual results could materially differ from those
estimates.
Management
believes that it is reasonably possible the following material estimates
affecting the financial statements could significantly change in the coming
year: (1) estimates of proved oil and gas reserves, and (2) forecast
forward price curves for natural gas and crude oil. The oil and
gas industry in the United States has historically experienced substantial
commodity price volatility, and such volatility is expected to continue in
the
future. Commodity prices affect the level of reserves that are
considered commercially recoverable; significantly influence Gulf Western’s
current and future expected cash flows; and impact the PV10 derivation of
proved
reserves presented in Gulf Western’s supplemental oil and gas reserve
disclosures made herein.
Reclassification
Certain
amounts in prior periods have been reclassified to conform to current period
presentation.
Principles
of consolidation
The
consolidated balance sheets include the accounts of Gulf Western Petroleum
Corporation and its 100% owned subsidiary Wharton Resources Corp., a Delaware
corporation; its 100% member interest in Wharton Resources LLC, a Delaware
limited liability company; and its direct and indirect interests in Gulf
Western
Petroleum, LP, a Texas limited partnership (“Gulf Western
LP”). Gulf Western LP is Gulf Western’s primary operating
entity and Wharton Resources LLC holds a 1.0% general partner interest in
Gulf
Western LP while the remaining 99.0% is held by Gulf Western through limited
partner interests.
Cash
and cash equivalents
Cash
and
cash equivalents include cash in banks and certificates of deposit which
mature
within three months of the date of purchase. Gulf Western may, in the
normal course of operations, maintain cash balances in excess of federally
insured limits.
Accounts
receivable
Gulf
Western routinely assesses the recoverability of all material trade, joint
interest and other receivables. Gulf Western accrues a reserve on a receivable
when, based on the judgment of management, it is probable that a receivable
will
not be collected and the amount of any reserve may be reasonably
estimated. Actual write-offs may exceed the recorded
allowance. No allowance for doubtful accounts was considered
necessary at August 31, 2007 and 2006.
Oil
and gas properties
Gulf
Western follows the full cost method of accounting for its oil and natural
gas
properties, whereby all costs incurred in connection with the acquisition,
exploration for and development of petroleum and natural gas reserves are
capitalized. Such costs include lease acquisition, geological and
geophysical activities, rentals on non-producing leases, drilling, completing
and equipping of oil and gas wells and administrative costs directly
attributable to those activities and asset retirement costs. Gulf
Western did not capitalize any administrative costs or interest
costs. Disposition of oil and gas properties are accounted for
as a reduction of capitalized costs, with no gain or loss recognized unless
such
adjustment would significantly alter the relationship between capital costs
and
proved reserves of oil and gas, in which case the gain or loss is recognized
to
income.
Depletion
and depreciation of proved oil and gas properties is calculated on the
units-of-production method based upon estimates of proved
reserves. Such calculations include the estimated future costs to
developed proved reserves. Oil and gas reserves are converted to a
common unit of measure based on the energy content of 6,000 cubic feet of
gas to
one barrel of oil. Costs of undeveloped properties are not included in the
costs
subject to depletion. These costs are assessed periodically for
impairment.
Ceiling
test
In
applying the full cost method, Gulf Western performs an impairment test (ceiling
test) at each reporting date, whereby the carrying value of property and
equipment is compared to the “estimated present value,” of its proved reserves
discounted at a 10-percent interest rate of future net revenues, based on
current economic and operating conditions, plus the cost of properties not
being
amortized, plus the lower of cost or fair market value of unproved properties
included in costs being amortized, less the income tax effects related to
book
and tax basis differences of the properties. As of August 31, 2007
and 2006, no impairment of oil and gas properties was recorded.
Oil
and gas properties, not subject to amortization
Gulf
Western holds oil and gas interests in Texas, Kansas and Kentucky pursuant
to
lease agreements. Gulf Western is currently drilling Frio formation
wells in Dewitt and Lavaca County, Texas. Upon completion of drilling
and initial well production from the Frio formation wells, Gulf Western will
commence amortization (on a unit-of-production basis) of the acquisition,
geological and geophysical, drilling and development costs incurred and included
in oil and gas properties.
The
amortization of the oil and gas properties not classified as proved begins
when
the oil and gas properties become proved, or their values become
impaired. Gulf Western assesses the realizability of its
properties not characterized as proved on at least an annual basis or when
there
is or has been an indication that an impairment in value may have
occurred. The impairment of properties not classified as proved is
assessed based on management’s intention with regard to future exploration and
development of individually significant properties, and Gulf Western’s ability
to secure capital funding to finance such exploration and
development. If the result of an assessment indicates that a
property is impaired, the amount of the impairment is added to the capitalized
costs in its full cost pool and they are amortized over production from proved
reserves.
Furniture
and office equipment
Furniture
and office equipment is stated at cost. Depreciation is computed on a
straight-line basis over the estimated useful lives of three to five
years.
Debt
Gulf
Western accounts for debt at fair value and recognizes interest expense for
accrued interest payable under the terms of the debt. Principal and interest
payments due within one year are classified as current, whereas principal
and
interest payments for periods beyond one year are classified as long term.
Beneficial conversion features of debt are valued and the related amounts
recorded as discounts on the debt. Discounts are amortized to
interest expense using the effective interest method over the term of the
debt. Any unamortized discount upon settlement or conversion of debt
is recognized immediately as interest expense.
Asset
retirement obligations
In
accordance with SFAS No. 143, “Accounting for Asset Retirement Obligations” Gulf
Western records the fair value of a liability for asset retirement obligations
(“ARO”) in the period in which an obligation is incurred and a corresponding
increase in the carrying amount of the related long-lived asset. The present
value of the estimated asset retirement cost is capitalized as part of the
carrying amount of the long-lived asset and is depreciated over the useful
life
of the asset. The settlement date fair value is discounted at Gulf
Western’s credit adjusted risk-free rate in determining the abandonment
liability. The abandonment liability is accreted with the passage of
time to its expected settlement fair value. At August 31, 2007 Gulf Western
has
recorded an estimated asset retirement obligation of $50,949. No
liabilities were settled during the period and no accretion expense has been
recognized.
Foreign
exchange
Balance
sheet items are translated into U.S. dollars at exchange rates prevailing
at the
balance sheet date for monetary items and at exchange rates in effect at
the
transaction date for non-monetary items. Operating statement items are
translated at average rates prevailing during the period. Gains and losses
on
translation of current monetary assets and liabilities are included in
income.
Future
income taxes
Income
taxes are accounted for using the asset/liability method of income tax
allocation. Future income taxes are recognized for the future income tax
consequences attributable to differences between the carrying values of assets
and liabilities and their respective income tax bases. Future income tax
assets
and liabilities are measured using income tax rates expected to apply to
taxable
income in the years in which temporary differences are expected to be recovered
or settled. The effect on future income tax assets and liabilities of a change
in income tax rates is included in earnings in the period that such change
in
income tax rates is enacted. Future income tax assets are recorded in the
financial statements if realization is considered more likely than
not.
Revenue
and cost recognition
Gulf
Western uses the sales method of accounting for natural gas and oil revenues.
Under this method, revenues are recognized based on the actual volumes of
gas
and oil sold to purchasers. The volume sold may differ from the volumes to
which
Gulf Western is entitled based on our interest in the properties. In this
case a
production imbalance receivable or liability will be recorded. Costs
associated with production are expensed in the period incurred.
Stock-based
compensation
The
Financial Accounting Standards Board issued SFAS No. 123(R), “Share-Based
Payment” which establishes standards for the accounting for transactions in
which an entity exchanges its equity instruments for goods or
services. Gulf Western utilizes SFAS No. 123R and related
Interpretations for fair value determination and recognition for share based
compensation granted to directors, officers, and
employees. Under SFAS 123R, compensation cost for all share
based payments granted are based on the grant date fair value estimated in
accordance with the provisions of SFAS no. 123R.
Compensation
cost is recognized on a straight line basis over the requisite service period
for the entire award in accordance with the provisions of SFAS
123R. If at any date the portion of the grant-date fair value of the
award that is vested is greater than that amount recognized on a straight
line
basis, the amount of the vested grant date fair value is
recognized. Gulf Western also accounts for transactions in which we
issue equity instruments to acquire goods or services from non-employees
in
accordance with the provisions of SFAS No. 123R (as amended). These
transactions are accounted for based on the fair value of the consideration
received or the fair value of the equity instruments issued, whichever is
more
reliably measurable.
Earnings
per share
Basic
net
earnings (loss) per common share are computed by dividing net earnings (loss)
available to common shareholders by the weighted-average number of common
shares
outstanding during the period. Diluted net earnings (loss) per common share
is
determined using the weighted-average number of common shares outstanding
during
the period, adjusted for the dilutive effect of common stock equivalents.
In
periods when losses are reported, the weighted-average number of common shares
outstanding excludes common stock equivalents, because their inclusion would
be
anti-dilutive.
The
dilutive effect of outstanding stock options and warrants is reflected in
diluted earnings per share by application of the treasury stock method. The
dilutive effect of outstanding convertible securities is reflected in diluted
earnings per share by application of the if-converted method. For the
years ended August 31, 2007 and 2006, fully diluted earnings per share exclude
common stock equivalents, because their inclusion would be
anti-dilutive.
Fair
value of financial instruments
The
carrying value of cash and cash equivalents, accounts payable and accrued
expenses and other liabilities approximates fair value due to the short term
maturity of these instruments. The carrying value of the notes payable,
convertible notes and convertible debentures approximate their fair value
as
August 31, 2007 and August 31, 2006.
New
Accounting Pronouncements
In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS
157”), which clarifies the definition of fair value, establishes guidelines for
measuring fair value, and expands disclosures regarding fair value
measurements. SFAS 157 does not require any new fair value
measurements and eliminates inconsistencies in guidance found in various
prior
accounting pronouncements. SFAS 157 will be effective for Gulf
Western on September 1, 2008. Gulf Western is currently evaluating the impact
of
adopting SFAS 157 on its financial position, cash flows, and results of
operations
NOTE
3 – GOING CONCERN
Gulf
Western is in its development stage and, accordingly, has limited operations
and
no revenues. Gulf Western has raised limited financing and has
incurred operating losses since its inception in January 2005. These
factors raise substantial doubt about Gulf Western’s ability to continue as a
going concern. Gulf Western’s ability to achieve and maintain
profitability and positive cash flow is dependent on its ability to secure
sufficient financing to fund the acquisition, drilling and development of
profitable oil and gas properties. Management is seeking financing
that it believes would allow Gulf Western to establish and sustain commercial
production. There are no assurances that Gulf Western will be
able to obtain additional financing from investors or private lenders and,
if
available, such financing may not be on commercial terms acceptable to Gulf
Western or its stockholders. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
NOTE
4 - RELATED PARTY TRANSACTIONS
During
Gulf Western’s formation and development to date, it has had transactions with
the current directors, executive officers and shareholders holding interests
in
excess of 10.0%. These transactions are as follows:
Oakcrest
Prospect, Wharton County, Texas
In
connection with the reverse merger of Gulf Western and Wharton Corp., Gulf
Western acquired oil and gas lease interests located in Wharton County,
Texas. The Oakcrest oil and gas lease interests were originally
acquired by CodeAmerica Investments LLC (“CodeAmerica”), a company controlled by
Wm. Milton Cox, the current Chairman and CEO of Gulf
Western. When Wharton Corp. acquired the Oakcrest oil and gas
lease interests from CodeAmerica on October 16, 2006, Wm. Milton Cox was
the
Chairman and CEO of Wharton Corp. CodeAmerica received 5,000,000
shares of common stock in Gulf Western for its Oakcrest oil and gas lease
interests.
Consistent
with SEC requirements for entities under common control, the acquisition
of the
Oakcrest oil and gas lease interests from CodeAmerica has been recorded on
Gulf
Western’s records at its historical cost basis in the interests which totaled
approximately $460,500. When the Oakcrest lease interests were
acquired by Wharton Corp., Wharton Corp. shares of common stock were not
publicly traded. The fair value of the shares issued to CodeAmerica
for the lease interests was equal to its historical cost basis in the lease
interests.
Mound
Branch Project, Elk County, Kansas
On
January 30, 2007, Gulf Western purchased Orbit Energy, LLC’s (“Orbit”) working
and net revenue interests in approximately 8,800 gross acres located in Elk
County, Kansas together with its interests in drilled wells and associated
equipment (the “Mound Branch Project”). Gulf Western’s purchase
price totaled $6.8 million, and consideration paid to Orbit was comprised
of: a)
$760,947 of funds advanced by Gulf Western to Orbit for testing and evaluation
of the existing well bores, reservoir formations and associated lease acreage;
b) a thirty-six month $2.0 million 10% convertible note with principal due
at
maturity; and c) 4,039,053 common shares of Gulf Western with a fair value
of
$1.00 per common share at the time of issuance.
The
Gulf
Western shares issued to Orbit for the purchase were placed in escrow (“Orbit
Escrow Shares”) to be released upon Orbit’s delivery to the escrow agent of an
independent report assessing the fair value of the purchased assets at no
less
than the purchase price of $6.8 million. Should the valuation be less
than the $6.8 million purchase price, then the number of shares to be released
from escrow will be ratably reduced for the lower valuation. Gulf
Western shares remaining in escrow at the end of the twelve month period
ending
January 30, 2008 are to be cancelled and returned to Gulf Western’s
treasury. To date no shares have been released from
escrow.
In
accordance with SEC requirements and for financial reporting purposes, the
acquisition of the Mound Branch Project from Orbit was treated as a transaction
between entities under common control and recorded on Gulf Western’s records at
Orbit’s historical cost in acquired assets of
$3,227,568. The difference between the $6.8 million
purchase price and Orbit’s historical cost in the assets was recorded by Gulf
Western as a deemed dividend which totaled $3,572,432.
Orbit
is
100% owned by CodeAmerica, and Paragon Capital, LLC (“Paragon”), a company in
which Bassam Nastat, Gulf Western’s President and a Director, is a
Manager. Immediately prior to the acquisition of Mound Branch from
Orbit, Wm. Milton Cox and Bassam Nastat held a combined 22.5 million common
shares, or 49.6% of the then issued and outstanding common shares of Gulf
Western. The 4,039,053 common shares issued to Orbit increased
their direct and indirect holdings in Gulf Western to 52.5% of the then issued
and outstanding common shares. Should the independent fair market
appraisal of the assets acquired be less than the purchase price, the shares
of
common stock released to Orbit will be ratably reduced for the lower valuation,
and Wm. Milton Cox and Bassam Nastat’s direct and indirect combined holdings in
Gulf Western will be reduced.
Orbit
serves as operator of the Mound Branch Project. In conjunction
with the terms of the Mound Branch Project purchase and sale agreement, Gulf
Western has been funding 100% of the costs incurred by Orbit for the testing
and
evaluation of the existing well bores, reservoir formations and associated
lease
acreage. The share of costs not attributable to Gulf Western’s
working interest ownership in the property is recorded as a receivable from
joint interest partners in the amount of $198,006. Gulf Western
expects to collect this amount from its partners in the Mound Branch
Project.
In
addition to the $760,747 paid by Gulf Western and applied as consideration
against the purchase price from Orbit, Orbit has billed $636,684 to Gulf
Western
associated with the testing and evaluation of the Mound Branch Project since
Gulf Western’s acquisition. A balance of $248,171 is recorded as
payable to related party as at August 31, 2007. In the aggregate
through August 31, 2007 Gulf Western has incurred costs totaling $1,397,631
on
the testing and evaluation of the Mound Branch Project of which $1,149,460
has
been paid to Orbit. The testing and evaluation procedures for
the Mound Branch Project were completed in early October 2007. Gulf
Western is continuing with its Mound Branch Project reserve and infrastructure
development program, and is actively pursuing financing that would provide
for
the initiation of the next phase of the project.
Baxter
Bledsoe Prospect, Clay County, Kentucky
On
February 1, 2006, Gulf Western purchased the Baxter Bledsoe Prospect oil
and gas
lease acreage from CodeAmerica for a cash purchase price of $330,000. The
prospect has approximately 2,200 acres located in Clay County, Kentucky.
This
acquisition from CodeAmerica was treated as a transaction between entities
under
common control and recorded at the seller’s historical cost basis of
approximately $170,000. The difference between the $330,000 purchase
price and CodeAmerica’s historical cost in the assets was recorded by Gulf
Western as a deemed dividend which totaled $160,000.
Bell
Prospect, Bell County, Kentucky
On
October 1, 2006, Gulf Western purchased CodeAmerica’s oil and gas lease
interests located in Bell County, Kentucky. The Bell Prospect is comprised
of
approximately 3,400 acres. The cash purchase price was $314,475, which included
$59,475 for land, legal and title services expended by CodeAmerica on the
prospect. This acquisition from CodeAmerica was treated as a
transaction between entities under common control and recorded at the seller’s
historical cost basis of approximately $229,475. The difference
between the $314,475 purchase price and CodeAmerica’s historical cost in the
assets was recorded by Gulf Western as a deemed dividend which totaled
$85,000.
Advances
from Stockholder
During
the months of April and May 2007, CodeAmerica made cash advances to Gulf
Western
totaling $120,000 for general working capital
requirements. The advances were due on demand, did not
bear interest and were outstanding at August 31, 2007. The
advances were fully repaid in November 2007.
Office
Rent
Gulf
Western shares office space in Houston, Texas with Orbit under a month-to-month
lease. The office space was leased by Orbit and during the years
ended August 31, 2007 and 2006 Gulf Western paid rent totaling $42,994 and
$38,210, respectively.
NOTE
5 – OIL AND GAS PROPERTIES
All
of
the Gulf Western’s oil and gas properties are located in the United
States. No amortization of expense was recorded in 2007 or 2006 as no
production or sales occurred.
Costs
excluded from amortization at August 31, 2007 are as follows:
|
Fiscal
Year
Incurred
|
|
Acquisition
Costs
|
|
|
Exploration
Costs
|
|
|
Total
|
|
|
2006
|
|
$
|
12,000
|
|
|
$
|
-
|
|
|
$
|
12,000
|
|
|
2007
|
|
|
1,981,288
|
|
|
|
4,831,487
|
|
|
|
6,812,775
|
|
|
Total
|
|
$
|
1,993,288
|
|
|
$
|
4,831,487
|
|
|
$
|
6,824,775
|
|
Gulf
Western holds oil and gas lease interests in Texas, Kentucky and
Kansas. The leases are classified as “Properties not subject to
amortization” in Gulf Western’s financial statements. Gulf Western
expects that these costs will be included in oil and gas properties subject
to
amortization upon evaluation of proved reserves in fiscal 2008.
NOTE
6 – INCOME TAXES
Deferred
income taxes are recorded at the expected tax rate of 35%. SFAS No.
109 “Accounting for Income Taxes” requires that deferred tax assets be reduced
by a valuation allowance if it is more or likely than not that some portion
or
all of the deferred tax asset will not be realized.
Reconciliation
between actual tax expense (benefit) and income taxes computed by apply the
combined U.S. federal income tax rate and state income tax rate to income
from
continuing operations before income taxes and deemed dividends is as
follows:
|
|
|
August
31, 2007
|
|
|
August
31, 2006
|
|
|
Computed
at U.S. and State statutory rates
|
|
$
|
(1,131,200
|
)
|
|
$
|
(121,000
|
)
|
|
Permanent
differences
|
|
|
885,200
|
|
|
|
-
|
|
|
Changes
in valuation allowance
|
|
|
246,000
|
|
|
|
121,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August
31, 2007
|
|
|
August
31, 2006
|
|
|
Deferred
tax asset attributable to:
|
|
|
|
|
|
|
|
|
|
Net
operating loss
|
|
$
|
445,000
|
|
|
$
|
199,000
|
|
|
Less:
valuation allowance
|
|
|
(445,000
|
)
|
|
|
(199,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
-
|
|
|
$
|
-
|
|
The
components giving rise to the deferred tax assets described above have been
included in the accompanying consolidated balance sheet as noncurrent
assets. As of August 31, 2007 and 2006, the deferred tax assets are net of
a full valuation allowance of $445,000 and $199,000, respectively based on
the
amount that management believes will ultimately be realized. Realization
of deferred tax assets is dependent upon sufficient future taxable income
during
the period that deductible temporary differences and carryforwards are expected
to be available to reduce taxable income. At August 31, 2007, Gulf Western
had
loss carryforwards of approximately $1.3 million for tax purposes which will
begin to expire in 2025. The valuation allowance increased by approximately
$246,000 and $121,000 for the years ended August, 31, 2007 and 2006,
respectively. Section 382 of the Internal Revenue Code will limit the amounts
historical net operating losses available for tax purposes prior to the reverse
merger.
The
income tax provision differs from the amount of income determined by applying
the U.S. federal income tax rate to pretax income for the years ended August
31,
2007 and 2006 primarily due to the valuation allowance. The above
estimates are based upon management’s decisions concerning certain elections
which could change the relationship between net income and taxable
income. Management decisions are made annually and could cause
the estimates to vary significantly.
NOTE
7 – NOTES PAYABLE AND CONVERTIBLE UNSECURED DEBENTURES
Convertible
Secured Note
On
July
3, 2007, Gulf Western borrowed $500,000 under an eighteen-month convertible
secured note from a private investor with a maturity date of January 3,
2009. Principal repayments were due beginning October
2007 at $33,333 per month. The loan bore interest at a rate of
12.0% per annum, payable quarterly, and could be repaid in portion or in
full at
any time at 105% of the then outstanding principal and accrued
interest. The note provided the lender the right to convert any or
all of the outstanding balance to Gulf Western shares of common stock at
a
conversion rate of $0.45 per common share during the loan
term. Attached to the note were three-year warrants for 125,000
common shares of Gulf Western at $0.30 per common share.
Gulf
Western evaluated the terms of the convertible note and attached warrants
in
accordance with EITF 98-5 and EITF 00-27 and concluded that there was no
beneficial conversion feature. The relative fair value of the
warrants under the Black-Scholes option pricing model was $21,196, which
was
recorded as debt discount on the convertible note and amortized using the
effective interest method over the eighteen-month term of the
note. The parameters used in the Black-Scholes valuation model were:
a risk-free interest rate of 4.90%; the current stock price on the date of
issuance of $0.27 per common share; the exercise price of the warrants of
$0.30
per share of common stock; an expected term of three years; volatility of
107.61%; and a dividend yield of 0.0%. For the year ending
August 31, 2007, $3,660 was charged to interest expense associated with the
amortization of the debt discount, and $17,536 debt discount was unamortized
at
August 31, 2007.
This
note
was refinanced subsequent to year end in connection with the $3.7 million
Senior
Secured Convertible Notes. As a result, the current portion of
the Convertible Secured Note was excluded from current liabilities as of
August
31, 2007.
In
connection with the July 3, 2007 convertible secured note, Gulf Western issued
warrants to purchase 100,000 shares of common stock to a placement agent,
and
paid the placement agent a fee totaling $50,000. The warrants
have an exercise price of $0.40 per share and a term of two
years. The placement agent warrants were valued using the
Black-Scholes option pricing model. The assumptions used in the
Black-Scholes valuation model were: a risk-free interest rate of 4.89%; the
current stock price at date of issuance of $0.27 per common share; the exercise
price of the warrants of $0.40 per share of common stock; an expected term
of
two years; volatility of 107.6%; and dividend yield of
0.0%. The estimated fair value of the warrants was
$13,138. The fair value of the warrants and the $50,000 fee was
recorded as deferred financing cost and is being amortized using the effective
interest method over the life of the debt.
Short-Term
Convertible Note
On
June
28, 2007, Gulf Western borrowed $250,000 under a short term convertible note
payable with a private investor. The note bore interest at
12.0% per annum; was convertible at $0.45 per share of common stock; and
provided for a payment on maturity or upon the occurrence of certain events;
but
no later than September 28, 2007. This note and accrued
interest was repaid on September 14, 2007. In connection with
this loan Gulf Western issued to the lender warrants to purchase 200,000
common
shares of Gulf Western at an exercise price of $0.32 per share with a three
year
term.
Gulf
Western evaluated the terms of the convertible note and attached warrants
in
accordance with EITF 98-5 and EITF 00-27 and concluded that there was no
beneficial conversion feature. The relative fair value of the
warrants attached to the loan that was derived through use of the Black-Scholes
option pricing model was $32,053, which was recorded as a discount on the
note
and amortized over the life of the note. The parameters used in
the Black-Scholes valuation model were: a risk-free interest rate of 4.98%;
the
current stock price on the date of issuance of $0.28 per common share; the
exercise price of the warrants of $0.32 per share; an expected term of three
years; volatility of 108.79%; and a dividend yield of
0.0%. At August 31, 2007, $20,763 of the loan discount
was charged to interest expense. Upon repayment of the loan on
September 14, 2007 the remaining unamortized loan discount totaling $11,290
was
charged to interest expense.
Orbit
Energy, LLC Mound Branch Convertible Note
As
consideration to Orbit Energy, LLC for Gulf Western’s purchase of its interests
in the Mound Branch Project, Gulf Western issued a thirty-six month $2.0
million
unsecured convertible note dated January 30, 2007 with principal due at
maturity, bearing interest at 10.0% per annum due quarterly in
arrears. Pursuant to the terms of the convertible note, after
the initial twelve months: a) Orbit has the ability to convert the outstanding
principal and interest balance into common shares at a conversion price of
$1.00
per common share, and b) Gulf Western may prepay all or a portion of the
convertible loan without penalty. Under the terms of the convertible
note, the maturity of the note is accelerated upon a change in control of
Gulf
Western. On July 3, 2007 the note was amended to provide that
interest payable for the first two quarters to be due on October 30,
2007. As of October 30, 2007, no interest has been paid and no new
arrangements have been made for an extension. There are no penalty
provisions in the note for non-payment. At August 31, 2007 the
outstanding principal under the note is $2.0 million and accrued interest
totals
$116,712.
Gulf
Western evaluated the terms of the convertible note in accordance with EITF
98-5
and EITF 00-27 and concluded that the note contained no beneficial conversion
features.
Wharton
Notes Payable
Wharton
entered into three short term loan agreements dated August 21, 2006 that
provided for total borrowings of $500,000 for general working capital
purposes. The loans had a 90-day maturity; bore interest at 10.0% per
annum with principal and interest due upon maturity; and were secured by
all
existing and after acquired assets of Wharton. The loan agreements
provided for the issuance of 150,000 shares of common stock (“Bonus Shares”) to
the lenders in the event that Wharton completed a public
transaction. The loans also provided that Wharton could extend
the loans for 90-days under the same terms and conditions for an additional
150,000 Bonus Shares. Wharton elected to extend the loan
maturities. At August 31, 2006, $312,500 had been funded to Wharton
under the loan agreements with the remaining funds received during the month
of
September 2006. During the year ending August 31, 2007 the
loans were fully repaid to the lenders. During the fiscal quarter
ending February 28, 2007, the triggering event occurred and the notes were
extended to effect the issuance of the Bonus Shares, and Gulf Western recorded
a
non-cash interest charge totaling $300,000 for the fair value of the Bonus
Share
commitment to the lenders. As of August 31, 2007, 200,000 Bonus
Shares have been issued to the lenders, and 100,000 Bonus Shares remain unissued
and are recorded as stock payable.
On
October 17, 2006, Wharton entered into a short term loan agreement for $350,000
with a private lender. The loan had a 90-day maturity; bore interest
at 18.0% per annum with principal and interest due upon maturity; and was
secured by all existing and after acquired assets of Gulf
Western. The loan provided for 100,000 shares of common stock
(“Bonus Shares”) to be issued to the lender in the event that Wharton completed
a public transaction. The loan agreement provided for Gulf Western to use
its
best efforts to register the Bonus Shares issuable under the loan agreement
within a 12-month period from the date of their issuance. During the
second fiscal quarter ending February 28, 2007, the triggering event occurred
to
issue the Bonus Shares, and Gulf Western recorded a non-cash charge of $100,000
to interest expense for the fair value of the 100,000 Bonus Shares committed
to
the lender. The loan was fully repaid to the lender
during the year ending August 31, 2007, and the 100,000 Bonus Shares were
issued
to the lender on May 21, 2007.
Convertible
Unsecured Debentures
On
March
13, 2006 Wharton Resources Limited (“Wharton Limited”), a corporation organized
in New Brunswick, Canada, issued three unsecured convertible debentures
denominated in Canadian dollars with total principal balance of CAD$85,000
(US$76,883 at August 31, 2006). In the event that Wharton Limited
common shares began trading on a public market, the debentures provided that
they would be automatically converted into common shares at a conversion
rate of
85% of the initial publicly traded share price. If not
converted by the maturity date, the outstanding principal balance together
with
interest accrued since the debenture issuances would be due and payable to
the
debenture holders.
Wharton
Limited was the original sole stockholder of Wharton Corp. and as of August
30,
2006, Wharton Corp. assumed the obligations for the convertible debentures
of
Wharton Limited. Pursuant to the merger agreement
between Wharton Corp. and Gulf Western on January 3, 2007, the date the merger
was consummated, Gulf Western assumed the obligation to issue common shares
to
the three debenture holders and issued a total of 108,109 shares of common
stock
to them for the then outstanding principal and interest amounts under the
debentures. The debentures also provided that warrants to
purchase common shares would be issued to the debenture holders, and in
conjunction with the merger Gulf Western issued to the three debenture holders
warrants to purchase 85,000 shares of common stock of Gulf Western at an
exercise price of $1.25 per share, with a twelve month expiry.
The
fair
value of the warrants attached to the convertible debentures totaling $75,390
was derived through use of the Black-Scholes option pricing
model. The parameters used in the model were: a risk-free
interest rate of 4.98%; the current stock price at date of issuance of $1.00
per
share; the exercise price of the warrants of $1.25; the expected term of
one
year; expected volatility of 183%; and dividend yield of 0%. The
estimated fair value of the warrants was recorded as a debt discount with
a
corresponding increase to additional paid-in capital of
$75,390. Upon the conversion of the debentures into common
shares on January 3, 2007, the debt discount of $75,390 was charged to interest
expense.
NOTE
8 – INTEREST EXPENSE
The
following table is a detail of the components of interest expense for the
years
ended August 31, 2007 and 2006:
|
|
|
2007
|
|
|
2006
|
|
|
Interest
expense on convertible debentures
|
|
$
|
24,726
|
|
|
$
|
4,765
|
|
|
Interest
expense on note payable
|
|
|
5,342
|
|
|
|
-
|
|
|
Interest
expense on convertible note – related party
|
|
|
116,712
|
|
|
|
-
|
|
|
Interest
expense on convertible note
|
|
|
9,698
|
|
|
|
-
|
|
|
Bonus
shares on notes payable
|
|
|
400,000
|
|
|
|
-
|
|
|
Amortization
of debt discount
|
|
|
99,813
|
|
|
|
-
|
|
|
Amortization
of deferred financing cost
|
|
|
7,015
|
|
|
|
-
|
|
|
Total
interest expense
|
|
$
|
663,306
|
|
|
$
|
4,765
|
|
There
was
no interest expense for the period from inception (January 20, 2005) to August
31, 2005.
Gulf
Western incurred $389,095 of costs associated with financing activities for
the
period from inception through August 31, 2007 for transactions that were
not
consummated and, accordingly, have been charged to expense in the consolidated
statements of operations.
NOTE
9 – STOCKHOLDERS’ EQUITY
Gulf
Western has authorized 1.2 billion shares of $0.001 par value share of common
voting stock. At August 31, 2007 and 2006, Gulf Western had
issued and outstanding shares of common stock of 53,489,662 and 25,000,000,
respectively.
Issuance
of Common Shares and Warrants In Private Placement
Offerings
During
the year ended August 31, 2007, Gulf Western sold units in private placement
offerings. Each unit consisted of one share of common stock, one
Class A Warrant and one Class B Warrant. Each Class A Warrant is
exercisable at a price of $2.00 per common share for a period of three
years. Each Class B Warrant is exercisable at a price of $3.00 per
common share for a period of three years. The Class A and Class B
Warrants’ relative fair values on the date cash was received from the investor
was estimated through use of the Black-Scholes option pricing
model. The parameters used in the calculation of the Black-Scholes
fair values for the Warrants are provided in the following table:
|
Issue
Date
|
|
Volatility
|
|
|
Risk-Free
Interest
Rate
|
|
|
Common
Share
Price
|
|
|
Term
(years)
|
|
|
January
22, 2007
|
|
|
120
|
%
|
|
|
4.85
|
%
|
|
$
|
1.00
|
|
|
|
3
|
|
|
May
10, 2007
|
|
|
115
|
%
|
|
|
4.66%-4.79
|
%
|
|
$
|
0.68
- $0.88
|
|
|
|
3
|
|
|
August
16, 2007
|
|
|
108
|
%
|
|
|
4.57%-4.92
|
%
|
|
$
|
0.45
- $0.68
|
|
|
|
3
|
|
|
August
31, 2007
|
|
|
108
|
%
|
|
|
4.66%-4.79
|
%
|
|
$
|
0.22
- $0.80
|
|
|
|
3
|
|
Summarized
in the following table are Gulf Western’s sales of units during the year ended
August 31, 2007 and the associated estimated relative fair values of the
shares
of common stock and the Class A and Class B warrants that comprised the units
sold:
|
Date
|
|
Number
of
Units
|
|
|
Price
Per
Unit
|
|
|
Total
Proceeds
|
|
|
Common
Stock
|
|
|
Class
A
Warrant
|
|
|
Class
B
Warrant
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January
22, 2007
|
|
|
3,205,000
|
|
|
$
|
1.00
|
|
|
$
|
3,205,000
|
|
|
$
|
1,487,834
|
|
|
$
|
910,336
|
|
|
$
|
806,831
|
|
|
May
10, 2007
|
|
|
525,000
|
|
|
|
1.00
|
|
|
|
525,000
|
|
|
|
257,224
|
|
|
|
143,323
|
|
|
|
124,253
|
|
|
August
16, 2007
|
|
|
1,712,500
|
|
|
|
0.40
|
|
|
|
685,000
|
|
|
|
369,960
|
|
|
|
171,819
|
|
|
|
143,221
|
|
|
August
31, 2007
|
|
|
1,000,000
|
|
|
|
0.40
|
|
|
$
|
400,000
|
|
|
$
|
240,877
|
|
|
$
|
87,902
|
|
|
$
|
71,221
|
|
Common
Shares Issued to Acquire Oil and Gas Properties
On
January 30, 2007, Gulf Western purchased Orbit’s interest in the Mound Branch
Project for $6.8 million, which included consideration of 4,039,053 shares
of
common stock with a fair value of $1.00 per share or $4,039,053 in
total.
On
October 16, 2006, 5,000,000 shares of common stock of Gulf Western were issued
to CodeAmerica in exchange for its Oakcrest Prospect oil and gas interests
located in Wharton County, Texas.
Consummation
of Reverse Merger
On
January 3, 2007 the reverse merger between Georgia Exploration Inc. and Wharton
Corp. was consummated. As a result of the reverse merger, each
share of common stock held by the Wharton Corp. shareholders was exchanged
into
25,000 common shares in Gulf Western with a total aggregate share issuance
of
30,000,000 shares of common stock to the former Wharton Corp.
shareholders.
Concurrent
with the consummation of the reverse merger, a total of 15,645,000 outstanding
shares of Gulf Western common stock were purchased and cancelled
Immediately
following the closing of the merger transaction, Gulf Western had 42,000,000
shares of common stock issued and outstanding with former Wharton Corp.
shareholders holding 71.43% of the total issued and outstanding shares of
common
stock.
.
Unsecured
Debenture Conversion
On
January 3, 2007, the provisions of the Wharton Corp. debentures resulted
in the
automatic conversion of the debentures into common stock of Gulf
Western. The then outstanding principal and interest due to the
three debenture holders was converted into 108,109 common shares. Additionally,
Gulf Western issued 85,000 warrants for shares of common stock to the debenture
holders with an exercise price of $1.25 and a 12-month term.
Shares
Issued for Services
During
the year ended August 31, 2007, Gulf Western issued 600,000 common shares
to
consultants for their services to Gulf Western. The shares issued for
services were valued at $390,500, which was determined based on the share
price
on the date that Gulf Western became obligated to issue the shares to the
consultants.
Bonus
Shares on Notes Payable
During
the year ended August 31, 2007, Gulf Western issued 300,000 shares of common
stock at $1.00 per share for additional consideration to various lenders
under
the terms of notes payable (“Bonus Shares”). At August 31, 2007,
100,000 shares of unissued common stock is recorded as stock
payable.
NOTE
10 – WARRANTS
As
of
August 31, 2006, there were no warrants outstanding.
Warrants
outstanding and exercisable as of August 31, 2007, are summarized
below:
|
|
|
Exercise
|
|
|
Weighted
Average
Remaining
|
|
|
Number
of Warrants
|
|
|
Description
|
|
Price
|
|
|
Life
(years)
|
|
|
Outstanding
|
|
|
Exercisable
|
|
|
Series
A – Convertible unsecured debentures
|
|
$
|
1.25
|
|
|
|
0.35
|
|
|
|
85,000
|
|
|
|
85,000
|
|
|
Class
A Warrants issued in private placements
|
|
$
|
2.00
|
|
|
|
2.61
|
|
|
|
5,442,500
|
|
|
|
5,442,500
|
|
|
Class
B Warrants issued in private placements
|
|
$
|
3.00
|
|
|
|
2.61
|
|
|
|
5,442,500
|
|
|
|
5,442,500
|
|
|
Convertible
Secured Note
|
|
$
|
0.30
|
|
|
|
2.84
|
|
|
|
125,000
|
|
|
|
125,000
|
|
|
Short
Term Note
|
|
$
|
0.32
|
|
|
|
2.83
|
|
|
|
200,000
|
|
|
|
200,000
|
|
|
Placement
agent warrants
|
|
$
|
0.40
|
|
|
|
1.80
|
|
|
|
100,000
|
|
|
|
100,000
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
11,395,000
|
|
|
|
11,395,000
|
|
No
warrants were exercised, cancelled or expired during the year ended August
31,
2007. The intrinsic value of warrants outstanding as of August 31,
2007 was zero.
NOTE
11 – STOCK OPTION PLAN
On
March
9, 2007 Gulf Western adopted the 2007 Non Qualified Stock Option Plan (“2007
Option Plan”) for its directors, officers, employees and consultants, which
reserved 9,000,000 shares of common stock for issuance under the
plan. On May 10, 2007, Gulf Western granted stock options under the
plan to officers, directors and an advisor for common shares totaling 3,000,000
at an exercise price of $0.79 per share. The 3,000,000 options vest
quarterly over twelve-months with the first quarter vesting on the date of
grant. The fair value for options granted was estimated at the
date of grant using the Black-Scholes option-pricing model assuming an expected
life of 2.0 years, a risk-free rate of 4.70%, a share price volatility of
115.33%, share price of $0.79, and dividend yield of 0.0%. The
Black-Scholes option-pricing model resulted in a fair value on the date the
options were granted of $1,432,321.
On
June
14, 2007 Gulf Western granted options under the 2007 Option Plan to
non-management directors and consultants of Gulf Western for common shares
totaling 625,000 at an exercise price of $0.50 per share. The 625,000
options vest in four equal installments over twenty months with the first
vesting on August 15, 2007 and the final vesting on February 15,
2009. The fair value of the options granted was estimated to be
$149,593 under the Black-Scholes option-pricing model, assuming an expected
life
of 2.0 years, a risk-free rate of 5.1%, a share price volatility of 115.33%,
share price of $0.42, and dividend yield of 0.0%. The Black-Scholes
option-pricing model resulted in a total fair value on the date the options
were
granted of $0.24 per share option.
For
the
year ended August 31, 2007, Gulf Western recorded stock option expense
reflecting the non-cash fair value amortization of $738,599. A
summary of Gulf Western’s stock option activity for the year ended August 31,
2007 is as follows:
|
|
|
Number
of Options
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Balance,
August 31, 2006
|
|
|
-
|
|
|
$
|
-
|
|
|
Options
granted
|
|
|
3,625,000
|
|
|
|
0.74
|
|
|
Cancelled/forfeited
|
|
|
-
|
|
|
|
-
|
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
Balance,
August 31, 2007
|
|
|
3,625,000
|
|
|
$
|
0.74
|
|
|
Vested
at August 31, 2007
|
|
|
1,656,250
|
|
|
$
|
0.76
|
|
|
Unvested
at August 31, 2007
|
|
|
1,968,750
|
|
|
$
|
0.72
|
|
The
weighted average remaining life of outstanding stock options at August 31,
2007
was 9.75 years.
At
August
31, 2007, there is $843,315 of total unrecognized compensation cost related
to
fair value of the unvested share-based compensation granted under the 2007
Stock
Option Plan that will be amortized over the remaining vesting
period. The intrinsic value of the options outstanding as
of August 31, 2007 is zero.
NOTE
12 - SUBSEQUENT EVENTS
Issuance
of Common Shares and Warrants in Private Placements
On
September 20, 2007, Gulf Western completed a private placement transaction
for
1,250,000 units at a price of $0.40 for aggregate proceeds of
$500,000. Each unit consisted of one common share, one Class C
Warrant and one Class D Warrant. Each Class C Warrant may be
exercised at a price of $0.65 for a period of 3 years to acquire one additional
share of common stock of Gulf Western. Each Class D Warrant may
be exercised at a price of $2.00 for a period of three years to acquire one
additional share of common stock.
The
relative fair value of the common shares and the Class C and Class D Warrants
for the private placement transactions closed on September 20, 2007, was
as
follows:
|
|
|
September
20, 2007
Placement
|
|
|
Common
Shares (1,250,000 shares)
|
|
$
|
265,918
|
|
|
Class
C Warrants (1,250,000 shares)
|
|
|
145,384
|
|
|
Class
D Warrants (1,250,000 shares)
|
|
|
88,698
|
|
|
Total
placement
|
|
$
|
500,000
|
|
The
relative fair value of the Class C and Class B Warrants issued in connection
with the units sold were estimated using the Black-Scholes valuation
model. The parameters used in the Black-Scholes valuation model
were: a risk-free interest rate of 4.19%; the current stock price on the
date of
issuance of $0.33 per common share; the exercise price of the warrants of
$0.65
and $2.00 per share, respectively; expected terms of three years; volatility
of
108%; and a dividend yield of 0.0%.
Senior
Secured Convertible Notes Payable
On
September 10, 2007, Gulf Western entered into a Security Purchase Agreement
(“SPA”) with two lenders under which Gulf Western borrowed $3.444 million (net
of $256,000 placement fees) under Senior Secured Convertible
Notes. Pursuant to the SPA, Gulf Western issued 1,500,000
common shares to the lenders and issued 3,461,538 warrants to purchase shares
of
common stock in Gulf Western at an exercise price of $0.26 per share for
a
period of five years.
The
Senior Secured Convertible Notes each bear interest at 15% per annum, and
each
matures on September 10, 2008. Interest is payable monthly beginning
March 10, 2008, and all principal is due at maturity. The Senior
Secured Convertible Notes may be prepaid at any time after the six month
anniversary of the notes with a 2.5% prepayment penalty. The Senior
Secured Convertible Notes are convertible into common shares of Gulf Western
at
a price of $0.39 per share. At closing, Senior Secured
Convertible Notes proceeds of $2.6 million were funded and the remaining
$1.1
million note proceeds were funded in October 2007.
In
connection with the September 10, 2007 SPA, Gulf Western issued 300,000 shares
of common stock to a placement agent. The fair value of the
common stock and the $256,000 fee will be recorded as deferred financing
costs
and amortized using the effective interest method over the life of the
debt.
The
Convertible Notes are secured by a lien on substantially all of the assets
of
the Gulf Western, including all of the equity interests of the Gulf Western’s
subsidiaries and the Gulf Western’s rights in certain real property, pursuant to
the terms of a Security Agreement and Pledge Agreement entered into in
connection with the closing of transactions under the Purchase
Agreement. In addition, Gulf Western Petroleum, LP, Wharton Resources
Corp. and Wharton Resources LLC, each a wholly-owned subsidiary of the Gulf
Western, entered into a Guaranty with the Buyers, whereby each of the
subsidiaries guaranteed the payment and performance of all obligations of
the
Gulf Western under the Notes and terms of the Purchase
Agreement. Gulf Western Petroleum, LP also entered into a Mortgage,
Deed of Trust, Assignment of Production, Security Agreement, Fixture Filing
and
Financing Statement with respect to certain properties in Texas and Kansas
to
secure the obligations of the Gulf Western under the Purchase Agreement and
the
Notes.
In
conjunction with the SPA, Gulf Western entered into a registration rights
agreement (the “Registration Rights Agreement”) with the lenders of the Senior
Secured Convertible Notes, pursuant to which Gulf Western will (i) file a
registration statement with the Securities and Exchange Commission with respect
to the Common Stock issued under the SPA and the Common Stock issuable upon
exercise of the Warrants and conversion of the Senior Secured Convertible
Notes
within 60 days after September 12, 2007 and to cause such registration statement
to be declared effective under the Securities Act of 1933, as amended, and
the
rules promulgated thereunder, not later than 150 days after September 12,
2007.
If such registration statement is not filed by the 60th day after September
12,
2007, or the registration statement is not declared effective on or prior
to the
150th day after September 12, 2007, liquidated damages in the maximum amount
of
$150,000 will become payable by Gulf Western to the lenders. Gulf
Western did not file a registration statement within 60 days of September
12,
2007 and, accordingly, is subject to registration delay penalties.
Gulf
Western evaluated the terms of the Senior Secured Convertible Notes, sale
and
issuance of common stock and attached warrants in accordance with EITF 98-5
and
EITF 00-27 and concluded that the intrinsic value of the conversion feature
represented a beneficial conversion feature in the amount of $367,308. The
relative fair value of the warrants under the Black-Scholes option pricing
model
was $1,031,411. The total discount of $1,398,719 will be amortized as
interest expense using the effective interest method over the term of the
Senior
Secured Convertible Notes.
SUPPLEMENTAL
INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES
(UNAUDITED)
The
following supplemental unaudited information regarding Gulf Western’s oil and
gas activities is presented pursuant to the disclosure requirements of SFAS
No.
69. The standardized measure of discounted future net cash flows is
computed by applying constant prices of oil and gas to the estimated future
production of proved oil and gas reserves, less estimated future expenditures
(based on period-end costs) to be incurred in developing and producing the
proved reserves, less estimated future income tax expenses (based on period-end
statutory tax rates) to be incurred on pre-tax net cash flows less tax basis
of
the properties and available credits, and assuming continuation of existing
economic conditions. The estimated future net cash flows are then
discounted using a rate of 10 percent per year to reflect the estimated timing
of the future cash flows.
Capitalized
Costs Relating to Oil and Gas Producing Activities as of August 31, 2007
and
2006:
|
|
|
2007
|
|
|
2006
|
|
|
Proved
properties
|
|
|
|
|
|
|
|
Mineral
interests
|
|
$
|
966,001
|
|
|
$
|
773,016
|
|
|
Wells,
equipment and facilities
|
|
|
-
|
|
|
|
-
|
|
|
Total
proved properties
|
|
|
966,001
|
|
|
|
773,016
|
|
|
|
|
|
|
|
|
|
|
|
|
Unproved
properties
|
|
|
|
|
|
|
|
|
|
Mineral
interests
|
|
$
|
2,118,275
|
|
|
$
|
136,987
|
|
|
Uncompleted
wells, equipment and facilities
|
|
|
4,831,487
|
|
|
|
-
|
|
|
Total
unproved properties
|
|
|
6,949,762
|
|
|
|
136,987
|
|
|
|
|
|
|
|
|
|
|
|
|
Less:
accumulated depreciation, depletion and amortization
|
|
|
|
|
|
|
|
|
|
Net
capitalized costs
|
|
$
|
7,915,763
|
|
|
$
|
910,003
|
|
Costs
Incurred in Oil and Gas Producing Activities for the Years Ended August 31,
2007
and 2006:
|
|
|
2007
|
|
|
2006
|
|
|
Acquisition
of proved properties
|
|
$
|
192,985
|
|
|
$
|
773,016
|
|
|
Acquisition
of unproved properties
|
|
|
1,981,288
|
|
|
|
136,987
|
|
|
Development
costs
|
|
|
-
|
|
|
|
-
|
|
|
Exploration
costs
|
|
|
4,831,487
|
|
|
|
-
|
|
|
Total
costs incurred
|
|
$
|
7,005,760
|
|
|
$
|
910,003
|
|
Results
of Operations for Oil and Gas Producing Activities for the Years Ended August
31, 2007 and 2006:
Gulf
Western generated no revenues and incurred no expenses related to oil and
gas
producing activities for the years ended August 31, 2007 and 2006.
Proved
Reserves:
Gulf
Western’s proved oil and natural gas reserves have been estimated by independent
petroleum engineers. Proved reserves are the estimated quantities that geologic
and engineering data demonstrate with reasonable certainty to be recoverable
in
future years from known reservoirs under existing economic and operating
conditions. Proved developed reserves are the quantities expected to be
recovered through existing wells with existing equipment and operating methods.
Due to the inherent uncertainties and the limited nature of reservoir data,
such
estimates are subject to change as additional information becomes available.
The
reserves actually recovered and the timing of production of these reserves
may
be substantially different from the original estimate. Revisions result
primarily from new information obtained from development drilling and production
history; acquisitions of oil and natural gas properties; and changes in economic
factors. Proved reserves as of August 31, 2007 and 2006 are summarized in
the
table below:
Proved
Developed and Undeveloped Natural Gas and Oil Reserves at August 31, 2007
and
2006 (Mcfe):
|
|
|
2007
|
|
|
2006
|
|
|
Proved
undeveloped reserves - beginning of period
|
|
|
4,220,394
|
|
|
|
-
|
|
|
Petroleum
and natural gas lease acreage acquired
|
|
|
-
|
|
|
|
4,220,394
|
|
|
Extensions,
discoveries and improved recovery
|
|
|
-
|
|
|
|
-
|
|
|
Production
|
|
|
-
|
|
|
|
-
|
|
|
Revisions
of previous estimates
|
|
|
(272,611
|
)
|
|
|
-
|
|
|
Proved
undeveloped reserves - end of period
|
|
|
3,947,783
|
|
|
|
4,220,394
|
|
|
|
|
|
|
|
|
|
|
|
|
Proved
developed reserves - end of period
|
|
|
-
|
|
|
|
-
|
|
Standardized
Measure of Discounted Future Net Cash Flows at August 31, 2007 and
2006:
|
|
|
2007
|
|
|
2006
|
|
|
Future
cash inflows
|
|
$
|
28,609,680
|
|
|
$
|
29,959,342
|
|
|
Future
production costs
|
|
|
(3,255,451
|
)
|
|
|
(4,104,540
|
)
|
|
Future
development costs
|
|
|
(8,692,702
|
)
|
|
|
(6,730,459
|
)
|
|
Future
income taxes
|
|
|
(2,604,004
|
)
|
|
|
(3,926,340
|
)
|
|
Future
net cash flows
|
|
|
14,057,523
|
|
|
|
15,198,003
|
|
|
10%
annual discount for estimated timing of cash flows
|
|
|
(2,889,053
|
)
|
|
|
(3,778,299
|
)
|
|
Standardized
measure of discounted future net cash flows:
|
|
$
|
11,168,470
|
|
|
$
|
11,419,704
|
|
Changes
in Standardized Measure of Discounted Future Net Cash Flows for the Years
Ended
August 31, 2007 and 2006:
|
|
|
2007
|
|
|
2006
|
|
|
Beginning
of period
|
|
$
|
11,419,704
|
|
|
$
|
-
|
|
|
Petroleum
and natural gas lease acreage acquired
|
|
|
-
|
|
|
|
11,419,704
|
|
|
Revisions
of quantity estimates
|
|
|
(570,380
|
)
|
|
|
-
|
|
|
Changes
in prices and production costs
|
|
|
705,169
|
|
|
|
-
|
|
|
Changes
in estimated future development costs
|
|
|
(1,762,243
|
)
|
|
|
-
|
|
|
Net
change in income taxes
|
|
|
881,394
|
|
|
|
-
|
|
|
Timing
and other
|
|
|
494,826
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
End
of period
|
|
$
|
11,168,470
|
|
|
$
|
11,419,704
|
|
Appendix
A
GLOSSARY
OF TERMS
The
following is a description of the meanings of some of the industry terms
used
and not otherwise defined in this Form SB-2.
3-D
seismic
. Geophysical data that depict the subsurface strata in
three dimensions. 3-D seismic typically provides a more detailed and accurate
interpretation of the subsurface strata than 2-D, or two-dimensional,
seismic.
Completion
.
The process of treating a drilled well followed by the installation of permanent
equipment for the production of natural gas or oil, or in the case of a dry
hole, the reporting of abandonment to the appropriate agency.
Developed
acreage
. The number of acres that are allocated or assignable to
productive wells or wells capable of production.
Dry
hole
. A well found to be incapable of producing hydrocarbons in
sufficient quantities such that proceeds from the sale of such production
exceed
production expenses and taxes.
Exploratory
well
. A well drilled to find and produce natural gas or
oil reserves not classified as proved, to find a new reservoir in a field
previously found to be productive of natural gas or oil in another reservoir
or
to extend a known reservoir.
Field
. An
area consisting of either a single reservoir or multiple reservoirs, all
grouped
on or related to the same individual geological structural feature and/or
stratigraphic condition.
Gross
acres
. The total acres in which a working interest is
owned.
Mcf
.
Thousand cubic feet of natural gas.
MMcf
. Million
cubic feet of natural gas.
Net
acres or net wells
. The sum of the fractional working interest
owned in gross acres or gross wells, as the case may be.
Proved
reserves
. The estimated quantities of oil, natural gas and natural
gas liquids which geological and engineering data demonstrate with reasonable
certainty to be commercially recoverable in future years from known reservoirs
under existing economic and operating conditions.
Undeveloped
acreage
. Lease acreage on which wells have not been drilled or
completed to a point that would permit the production of commercial quantities
of oil and natural gas regardless of whether such acreage contains proved
reserves.
Working
interest
. The operating interest that gives the owner
the right to drill, produce and conduct operating activities on the property
and
receive a share of production and requires the owner to pay a share of the
costs
of drilling and production operations.
14,573,718
Shares
Common
Stock
,
2007
PART
II – INFORMATION NOT REQUIRED IN PROSPECTUS
|
Item
24.
|
Indemnification
of Directors and Officer
|
As
authorized by Section 78.751 of the Nevada Revised Statutes, we may indemnify
our officers and directors against expenses incurred by such persons in
connection with any threatened, pending or completed action, suit or
proceedings, whether civil, criminal, administrative or investigative, involving
such persons in their capacities as officers and directors, so long as such
persons acted in good faith and in a manner which they reasonably believed
to be
in our best interests. If the legal proceeding, however, is by or in our
right,
the director or officer may not be indemnified in respect of any claim, issue
or
matter as to which he is adjudged to be liable for negligence or misconduct
in
the performance of his duty to us unless a court determines
otherwise.
Under
Nevada law, corporations may also purchase and maintain insurance or make
other
financial arrangements on behalf of any person who is or was a director or
officer (or is serving at our request as a director or officer of another
corporation) for any liability asserted against such person and any expenses
incurred by him in his capacity as a director or officer. These financial
arrangements may include trust funds, self-insurance programs, guarantees
and
insurance policies.
Our
articles of incorporation, as amended, provide that we will indemnify our
directors to the full extent permitted by applicable corporate law now or
hereafter in force. However, such indemnity shall not apply if the director
did
not (a) act in good faith and in a manner the director reasonably believed
to be
in or not opposed to our best interests, and (b) with respect to any criminal
action or proceeding, have reasonable cause to believe the director’s conduct
was unlawful. We will advance expenses for such persons pursuant to the terms
set forth in the bylaws, or in a separate Board resolution or
contract.
Our
bylaws provide that our officers and directors shall be indemnified and held
harmless against all losses, claims, damages, liabilities, expenses (including
attorney’s fees), judgments, fines, settlements, and other amounts actually and
reasonably incurred in connection with any proceeding, arising by reason
of the
fact that such person is or was a director or officer, or he or she was serving
at our request as a director, officer, partner, trustee, employee or
agent.
Such
indemnification shall continue as to an indemnitee who has ceased to be our
director or officer and shall inure to the benefit of the indemnitee’s heirs,
executors and administrators.
The
effect of these provisions is potentially to indemnify our directors and
officers from all costs and expenses of liability incurred by them in connection
with any action, suit or proceeding in which they are involved by reason
of
their affiliation with us.
Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to our directors, officers and controlling persons pursuant to
the
foregoing provisions, or otherwise, we have been advised that in the opinion
of
the SEC such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable.
|
Item
25.
|
Other
Expenses of Issuance and
Distribution
|
The
following table sets forth the various expenses, all of which will be borne
by
us, in connection with the sale and distribution of the securities being
registered, other than the underwriting discounts and
commissions. All amounts shown are estimates except for the SEC
registration fee.
|
Securities
and Exchange Commission registration fee
|
|
$
|
175
|
|
|
Accounting
fees and expenses
|
|
$
|
*
|
|
|
Legal
fees and expenses
|
|
$
|
|
|
|
Printing
and engraving expenses
|
|
$
|
|
|
|
Miscellaneous
|
|
$
|
|
|
|
Total
|
|
$
|
*
|
|
*
To be
completed by amendment
|
Item
26.
|
Recent
Sale of Unregistered
Securities
|
On September
27, 2007, our board of directors confirmed and ratified the issuance of shares
of our common stock, and warrants exercisable for shares of our common stock
in
various transactions during the period June 28, 2007 through September 27,
2007. The first issuance related to subscriptions that we received
from two investors for an aggregate of 1,250,000 Units at a price of $0.40
per
Unit, with aggregate proceeds of $500,000. Each Unit consists of one
share of our common stock, one Class C Warrant and one Class D
Warrant. Each Class C Warrant may be exercised at a price of $0.65
for a period of 3 years to acquire one additional share of our common
stock. Each Class D Warrant may be exercised at a price of $2.00 for
a period of three years to acquire one additional share of our common
stock. The second issuance related to a note issued
effective June 28, 2007 to a private investor for an aggregate of
$250,000. The note was repaid on September 14, 2007. In
connection with the issuance of the note, we issued the investor a warrant
to
acquire 200,000 shares of our common stock at an exercise price of $0.32
per
share. The warrant is exercisable for three years. The
third issuance related to the issuance of 100,000 shares effective August
1,
2007 to an individual for services rendered for us in connection with our
Brushy
Creek prospect. The fourth issuance related to the issuance of 11,720
shares to an individual pursuant to the terms of a convertible loan agreement
between us and a privte investor. The loan was for an aggregate of
$25,000, has a term of nineteen months and accrues interest at a rate of
12.0%
per year. The fifth issuance was for 100,000 shares of our common
stock as pursuant to the terms of a loan agreement between us and a lender
whereby the lender advanced a total of $80,000 to one of our
subsidiaries. The final issuance was for 51,725 shares pursuant to
the terms of a Joint Marketing Agreement between us and RedChip Companies,
Inc.
and we have an obligation to make subsequent quarterly issuances of $15,000
worth of our common stock to RedChip. All of the shares of common
stock and warrants issued were to accredited investors pursuant to exemptions
under the Securities Act and the rules and regulations promulgated thereunder,
including pursuant to Sections 4(2) and 4(6) and Rule 506 of Regulation
D.
On
September 12, 2007, we issued 1,000,000 Units at a price of $0.40 per Unit,
with
each Unit consisting of one share of our common stock of the Issuer, one
Class A
Warrant, and one Class B Warrant, for aggregate proceeds of
$400,000. Each Class A Warrant may be exercised at a price of $2.00
for a period of 3 years to acquire one additional common share of the
Issuer. Each Class B Warrant may be exercised at a price of $3.00 for
a period of 3 years to acquire one additional common share of the Issuer.
The
securities were sold to non-US persons pursuant to Regulation S and to an
accredited investor pursuant to Rule 506 of Regulation D under the Securities
Act.
On
September 10, 2007, we entered into a Securities Purchase Agreement with
Metage
Funds Limited and NCIM Limited (together, the “Buyers”), pursuant to which,
among other things, we sold to the Buyers (1) 1,500,000 shares of our common
stock, par value $0.001 per share, (2) senior secured convertible notes in
an
original aggregate principal amount of $3,700,000, and (3) a
warrant to purchase up to an aggregate of 3,461,538 shares of the
Common Stock at an exercise price of $0.26 per share, subject to certain
adjustments to the number of shares and the exercise price described in the
warrant. In addition, we issued 300,000 shares of our common stock
and a warrant to acquire 100,000 shares of our common stock at an exercise
price
of $0.40 per share to Vicarage Capital Limited for services rendered to us
in
connection with the Securities Purchase Agreement. The warrant is
exercisable for two years. The securities were sold pursuant to the
exemption from the registration requirements of the Securities Act provided
by
Rule 506 of Regulation D.
On
August
16, 2007, we issued 1,712,500 Units at a price of $0.40 per Unit, with each
Unit
consisting of one share of our common stock, one Class A Warrant, and one
Class
B Warrant, for aggregate proceeds of $685,000. Each Class A Warrant
may be exercised at a price of $2.00 for a period of 3 years to acquire one
additional common share of the Issuer. Each Class B Warrant may be
exercised at a price of $3.00 for a period of 3 years to acquire one additional
common share of the Issuer. The securities were sold pursuant to exemptions
under the Securities Act and the rules and regulations promulgated thereunder,
including pursuant to Sections 4(2) and 4(6) and Rule 506 of Regulation
D.
On July
3, 2007, we entered into a convertible secured loan agreement with a private
lender with a principal balance of $500,000 and a maturity date of January
3,
2009. Principal payments commence in the third month with 1/15th of
the loan amount, or $33,333 per month, until repaid. The loan bears
interest at 12.0% per annum payable quarterly in arrears, and may be repaid
in
portion or all by us at any time at 105%. The lender has the right to
convert any or all of the outstanding balance into shares of our common stock
at
a conversion rate of $0.45 per common share during the loan term, and provides
for best efforts piggy back registration. In connection with the
convertible loan, we also issued a warrant to acquire for 125,000 shares
of our
common stock at $0.30 per common share. The securities were sold
pursuant to exemptions under the Securities Act and the rules and regulations
promulgated thereunder, including pursuant to Sections 4(2) and 4(6) and
Rule
506 of Regulation D.
On
May
10, 2007, we sold 525,000 units at a price of $1.00 per unit for gross cash
proceeds of $525,000. Each unit consists of a share of our common
stock, one Class A warrant, and one Class B warrant, for aggregate proceeds
of
$525,000. Each Class A warrant may be exercised at a price of $2.00
for a period of 3 years to acquire one additional share of our common
stock. Each Class B warrant may be exercised at a price of $3.00 for
a period of 3 years to acquire one additional share of our common stock.
The
securities were sold pursuant to exemptions under the Securities Act and
the
rules and regulations promulgated thereunder, including pursuant to Sections
4(2) and 4(6) and Rule 506 of Regulation D.
On
May
10, 2007, we issued 200,000 shares of our common stock as pursuant to the
terms
of loan agreements between us and two lenders whereby the lenders advanced
an
aggregate of $500,000 to one of our subsidiaries. The securities were
sold pursuant to exemptions under the Securities Act and the rules and
regulations promulgated thereunder, including pursuant to Sections 4(2) and
4(6)
and Rule 506 of Regulation D.
On
May
10, 2007 the Registrant issued 500,000 shares of common stock to a consultant
as
compensation pursuant to the terms of a financing advisor consulting agreement.
The securities were sold pursuant to exemptions under the Securities Act
and the
rules and regulations promulgated thereunder, including pursuant to Sections
4(2) and 4(6) and Rule 506 of Regulation D.
On
February 1, 2007, we issued 4,039,053 shares of our common stock and a
$2,000,000 convertible debenture to Orbit as consideration for the acquisition
of certain oil and gas interests. The shares were issued pursuant to Section
4(2) of the Securities Act.
On
January 22, 2007, we completed and closed a private placement transaction
for
$3,205,000 units at a price of $1.00 per unit for aggregate net proceeds
of
$3,205,000. Each unit consisted of one share of our common stock, one Class
A
warrant and one Class B warrant. Each Class A warrant is exercisable
for shares of our common stock at a price of $2.00 per share for a period
of
three years. Each Class B warrant is exercisable for shares of our
common stock at a price of $3.00 per share for a period of three
years.
The securities were sold pursuant to exemptions
under the Securities Act and the rules and regulations promulgated thereunder,
including pursuant to Sections 4(2) and 4(6) and Rule 506 of Regulation
D.
In
connection with the merger between us and Wharton, each outstanding share
of
Wharton held by its stockholders was converted into 25,000 shares of our
common
stock, for an aggregate issuance of 25,000,000 shares of common stock to
the
former Wharton stockholders. The securities were sold pursuant to exemptions
under the Securities Act and the rules and regulations promulgated thereunder,
including pursuant to Sections 4(2) and 4(6) and Rule 506 of Regulation
D.
On
January 3, 2007, the date of the merger, three unsecured convertible debentures
issued on March 13, 2006, with total principal of $78,477, were converted
into
our common stock. On January 3, 2007 the outstanding principal and interest
due
under the debentures was converted into 108,109 shares of our common stock,
and
we issued 85,000 warrants in total to all debenture holders. The warrants
have a
12-month term and an exercise price of $1.25 per common share. The securities
were sold pursuant to exemptions under the Securities Act and the rules and
regulations promulgated thereunder, including pursuant to Sections 4(2) and
4(6)
and Rule 506 of Regulation D.
On
October 16, 2006, we acquired oil and natural gas lease interests held in
Wharton County, Texas from CodeAmerica in exchange for 5,000,000 shares of
our
common stock. The acquisition of the oil and natural gas lease acreage was
recorded at CodeAmerica’s cost basis of approximately $460,500. The
securities were sold pursuant to exemptions under the Securities Act and
the
rules and regulations promulgated thereunder, including pursuant to Sections
4(2) and 4(6) and Rule 506 of Regulation D.
|
Item
27.
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Index
to Exhibits.
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|
2.1
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|
Agreement
and Plan of Merger among Georgia Exploration, Inc., Wharton Resources
Corp., Gex Acquisition Corp. and CodeAmerica Investments LLC, Bassam
Nastat, Harbour Encap LLC dated as of November 21, 2006 (incorporated
by
reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed
on November 29, 2006).
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3.1
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|
Articles
of Incorporation of the Company (incorporated by reference to Exhibit
3.1
to the Company’s Registration Statement (Registration No. 333-133759) on
Form SB-2 filed on May 3, 2006).
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3.2
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Certificate
of Amendment to Article of Incorporation of the Company (incorporated
by
reference to Exhibit 3.2 to the Company’s Registration Statement
(Registration No. 333-141234) on Form S-8 filed on March 12,
2007).
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3.2
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Bylaws
of the Company (incorporated by reference to Exhibit 3.2 to the
Company’s
Registration Statement on Form 8-A filed on November 9,
2006).
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|
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4.1
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Specimen
Stock Certificate (incorporated by reference to Exhibit 4.1 to
the
Company’s Registration Statement on Form 8-A filed on November 9,
2006).
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`
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4.2+
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2007
Non-Qualified Stock Option Plan (incorporated by reference to
Exhibit 4.1 to the Company’s Registration Statement (Registration No.
333-141234) on Form S-8 filed on March 12,
2007).
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5.1**
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|
Opinion
of Porter & Hedges, L.L.P., with respect to legality of the
securities, including consent.
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10.1
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Property
Acquisition Agreement between the Company and Shaheen Jivraj-Sangara
dated
as March 2, 2006 (incorporated by reference to Exhibit 10.1 to
the
Company’s Registration Statement on Form SB-2 (Registration No. 333-133759
) filed on May 3, 2006)
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10.2
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Trust
Agreement between the Company and Shaheen Jivraj-Sangara dated
as March 2,
2006 (incorporated by reference to Exhibit 10.2 to the Company’s
Registration Statement on Form SB-2 (Registration No. 333-133759)
filed on
May 3, 2006)
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10.3
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Purchase
and Sale Agreement between CodeAmerica Investments, LLC and Wharton
Resources LP dated effective October 1, 2006 (incorporated by reference
to
Exhibit 10.1 to the Company’s Quarterly Report on Form 10-QSB filed on
January 22, 2007).
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10.4
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|
Purchase
and Sale Agreement between CodeAmerica Investments, LLC and Wharton
Resources LP dated effective February 1, 2006 (incorporated by
reference
to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-QSB filed on
January 22, 2007).
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10.5
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|
Purchase
and Sale Agreement between Orbit Energy, LLC and Wharton Resources
LP
dated effective September 1, 2006 (incorporated by reference to
Exhibit
10.3 to the Company’s Quarterly Report on Form 10-QSB filed on January 22,
2007).
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10.6
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|
Assignment
of Oil and Gas Mineral Leases by and between CodeAmerica Investments,
LLC
and Wharton Resources LP for its oil and gas lease interests located
in
Wharton County, Texas dated effective April 28, 2006 (incorporated
by
reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-QSB
filed on January 22, 2007).
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10.7
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|
Purchase
and Sale Agreement between Orbit Energy, LLC and Wharton Resources
LP
dated effective January 30, 2007 (incorporated by reference to
Exhibit
10.1 to the Company’s Current Report on Form 8-K filed on February 5,
2007).
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10.8
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|
Convertible
Unsecured Promissory Note issued by the Company to Orbit Energy,
LLC dated
January 30, 2007 (incorporated by reference to Exhibit 10.2 to
the
Company’s Current Report on Form 8-K filed on February 5,
2007).
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10.9
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|
Assignment
of Working Interest in Oil and Gas Wells Mound Branch Prospect
dated
January 30, 2007 (incorporated by reference to Exhibit 10.3 to
the
Company’s Current Report on Form 8-K filed on February 5,
2007).
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10.10
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Assignment
of Oil and Gas Mineral Leases Elk County, Kansas dated January
30, 2007
(incorporated by reference to Exhibit 10.4 to the Company’s Current Report
on Form 8-K filed on February 5, 2007).
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10.11
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Convertible
Secured Note and Associated Warrant by and between NCIM Limited
and Gulf
Western Petroleum Corporation, effective July 3, 2007 (incorporated
by
reference to Exhibit 10.9 to the Company’s Quarterly Report on Form 10-QSB
filed on July 17, 2007).
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10.12
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|
Securities
Purchase Agreement dated as of September 10, 2007 between Gulf
Western
Petroleum Corporation and Metage Funds Limited and NCIM Limited
(incorporated by reference to Exhibit 10.1 to the Company’s Current Report
on Form 8-K filed on September 13, 2007).
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10.13
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|
Senior
Secured Note dated September 10, 2007 issued by Gulf Western Petroleum
Corporation to Metage Funds Limited (incorporated by reference
to Exhibit
10.2 to the Company’s Current Report on Form 8-K filed on September 13,
2007).
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10.14
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Senior
Secured Note dated September 10, 2007 issued by Gulf Western Petroleum
Corporation to NCIM Limited (incorporated by reference to Exhibit
10.3 to
the Company’s Current Report on Form 8-K filed on September 13,
2007).
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10.15
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Warrant
to Purchase Common Stock dated September 10, 2007 issued by Gulf
Western
Petroleum Corporation to Metage Funds Limited and NCIM Limited
(incorporated by reference to Exhibit 10.4 to the Company’s Current Report
on Form 8-K filed on September 13, 2007).
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10.16
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Security
Agreement dated September 10, 2007 between Gulf Western Petroleum
Corporation, Gulf Western Petroleum, LP, Wharton Resources Corp.,
Wharton
Resources LLC and Metage Funds Limited, in its capacity as collateral
agent (incorporated by reference to Exhibit 10.5 to the Company’s Current
Report on Form 8-K filed on September 13, 2007).
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10.17
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|
Pledge
Agreement dated September 10, 2007 between Gulf Western Petroleum
Corporation, Gulf Western Petroleum, LP, Wharton Resources Corp.,
Wharton
Resources LLC and Metage Funds Limited, in its capacity as collateral
agent (incorporated by reference to Exhibit 10.6 to the Company’s Current
Report on Form 8-K filed on September 13, 2007).
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10.18
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Guaranty
dated September 10, 2007 between Gulf Western Petroleum, LP and
Wharton
Resources Corp., Wharton Resources LLC, for the benefit of Metage
Funds
Limited and NCIM Limited (incorporated by reference to Exhibit
10.7 to the
Company’s Current Report on Form 8-K filed on September 13,
2007).
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10.19
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Form
of Texas Mortgage, Deed Of Trust, Assignment Of Production, Security
Agreement, Fixture Filing and Financing Statement dated September
10, 2007
by Gulf Western Petroleum, LP to Thomas J. Perich, as Trustee for
the
benefit of Metage Funds Limited, in its capacity as collateral
agent
(incorporated by reference to Exhibit 10.8 to the Company’s Current Report
on Form 8-K filed on September 13, 2007).
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10.20
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Form
of Kansas Mortgage, Deed Of Trust, Assignment Of Production, Security
Agreement, Fixture Filing and Financing Statement dated September
10, 2007
by Gulf Western Petroleum, LP to Metage Funds Limited, in its capacity
as
collateral agent (incorporated by reference to Exhibit 10.9 to
the
Company’s Current Report on Form 8-K filed on September 13,
2007).
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10.21
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|
Registration
Rights Agreement dated September 10, 2007 between Gulf Western
Petroleum
Corporation and Metage Funds Limited and NCIM Limited (incorporated
by
reference to Exhibit 10.10 to the Company’s Current Report on Form 8-K
filed on September 13, 2007).
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16.1
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|
Letter
from Dale Matheson Carr-Hilton Labonte LLP regarding change in
certifying
accountants (incorporated by reference to Exhibit 16.1 to the Company’s
Current Report on Form 8-K/A filed on January 24,
2007).
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16.2
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|
Letter
from Malone & Bailey, PC regarding change in certifying accountants
(incorporated by reference to Exhibit 16.1 to the Company’s Current Report
on Form 8-K filed on October 5, 2007)
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21.1
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|
Subsidiaries
of the Company (incorporated by reference to Exhibit 21.1 to the
Company’s
Annual Report on Form 10-KSB filed on November 29,
2007).
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23.1**
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Consent
of Porter & Hedges, L.L.P.
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Consent
of GBH CPAs, PC, Independent Registered Public Accounting
Firm.
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Consent
of MHA Petroleum Consultants, Inc.
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24.1*
|
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Power
of Attorney (included on the signature page hereto).
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**
|
To
be filed by amendment.
|
|
+
|
Management
contract or compensatory plan or
arrangement
|
(a)
The
undersigned registrant will:
(1)
File,
during any period in which it offers or sells securities, a post-effective
amendment to this registration statement to:
(i)
Include
any prospectus required by section 10(a)(3) of the Securities Act.
(ii)
Reflect
in the prospectus any facts or events arising after the effective date of
the
registration statement (or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a fundamental change in
the
information set forth in the registration statement. Notwithstanding
the foregoing, any increase or decrease in volume of securities offered (if
the
total dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed with the
SEC
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price
represent no more than 20% change in the maximum aggregate offering price
set
forth in the “Calculation of Registration Fee” table in the effective
registration statement.
(iii)
Include
any additional or changed material information on the plan of
distribution.
(2)
For
determining any liability under the Securities Act, treat each post-effective
amendment as a new registration statement of the securities offered and the
offering of such securities at that time to be the initial bona fide
offering.
(3)
File
a post-effective amendment to remove from registration any of the securities
that remain unsold at the end of the offering.
(4)
For
determining liability of the undersigned small business issuer under the
Securities Act to any purchaser in the initial distribution of the securities,
the undersigned small business issuer undertakes that in a primary offering
of
securities of the undersigned small business issuer pursuant to this
registration statement, regardless of the underwriting method used to sell
the
securities to the purchaser, if the securities are offered or sold to such
purchaser by means of any of the following communications, the undersigned
small
business issuer will be a seller to the purchaser and will be considered
to
offer or sell such securities to such purchaser:
(i)
Any
preliminary prospectus or prospectus of the undersigned small business issuer
relating to the offering required to be filed pursuant to Rule 424
(§ 230.424 of this chapter);
(ii)
Any
free writing prospectus relating to the offering prepared by or on behalf
of the
undersigned small business issuer or used or referred to by the undersigned
small business issuer;
(iii)
The
portion of any other free writing prospectus relating to the offering containing
material information about the undersigned small business issuer or its
securities provided by or on behalf of the undersigned small business issuer;
and
(iv)
Any
other communication that is an offer in the offering made by the undersigned
small business issuer to the purchaser
(b)
Insofar
as indemnification for liabilities arising under the Securities Act of 1933
may
be permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the SEC such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other
than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense
of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrant
will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of
such
issue.
(c)
That,
for the purpose of determining liability under the Securities Act of 1933
to any
purchaser:
(i)
If
the registrant is relying on Rule 430B:
(A)
Each
prospectus filed by the registrant to Rule 424(b)(3) shall be deemed to be
part
of the registration statement as of the date the filed prospectus was deemed
part of and included in the registration statement; and
(B)
Each
prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7)
as
part of a registration statement in reliance on Rule 430B relating to an
offering made pursuant to Rule 415(a)(1)(i), (vii), or (x) for the purpose
of
providing the information required by section 10(a) of the Securities Act
of
1933 shall be deemed to be part of and included in the registration statement
as
of the earlier of the date such form of prospectus is first used after
effectiveness or the date such form of prospectus is first used after
effectiveness or the date of the first contract of sale of securities in
the
offering described in the prospectus. As provided in Rule 430B, for
liability purposes of the issuer and any person that is at that date an
underwriter, such date shall be deemed to be a new effective date of the
registration statement relating to the securities in the registration statement
to which that prospectus relates, and the offering of such securities at
that
time shall be deemed to be the initial bona fide offering
thereof. Provided, however, that no statement made in a registration
statement or prospectus that is part of the registration statement or made
in a
registration statement or prospectus that is part of the registration statement
or made in a document incorporated or deemed incorporated by reference into
the
registration statement will, as to a purchaser with a time of contract of
sale
prior to such effective date, supersede or modify any statement that was
made in
the registration statement or prospectus that was part of the registration
statement or made in any such document immediately prior to such effective
date;
or
(d)
If
the registrant is subject to Rule 430C, each prospectus filed pursuant to
Rule
424(b) as part of a registration statement relating to an offering, other
than
registration statements relying on Rule 430B or other than prospectuses filed
in
reliance on Rule 430A, shall be deemed to be part of and included in the
registration statement as of the date it is first used after
effectiveness. Provided, however, that no statement made in a
registration statement or prospectus that is part of the registration statement
or made in a document incorporated or deemed incorporated by reference into
the
registration statement or prospectus that is part of the registration statement
will, as to a purchaser with a time of contract of sale prior to such first
use,
supersede or modify any statement that was made in the registration statement
or
prospectus that was part of the registration statement or made in any such
document immediately prior to such date of first use.
SIGNATURES
Pursuant
to the requirements of Section 12 of the Securities Exchange Act of 1934,
the
registrant has duly caused this registration statement of Form SB-2 to be
signed
on its behalf by the undersigned, thereunto duly authorized.
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GULF
WESTERN PETROLEUM CORPORATION
|
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Date: December
5, 2007
|
By:
|
/s/
Wm. Milton Cox
|
|
|
|
Wm.
Milton Cox, Chairman
|
|
|
|
and
Chief Executive Officer
|
POWER
OF ATTORNEY AND SIGNATURES
We
the undersigned officers and
directors of Gulf Western Petroleum Corporation, hereby, severally constitute
and appoint Wm. Milton Cox and Donald L. Sytsma, and each of them singly,
our
true and lawful attorneys with full power to them and each of them singly,
to
sign for us and in our names in the capacities indicated below, the registration
statement on Form SB-2 filed herewith and any and all pre-effective and
post-effective amendments to said registration statement and any subsequent
registration statement for the same offering which may be filed under Rule
462(b) and generally to do all such things in our names and on our behalf
in our
capacities as officers and directors to enable Gulf Western Petroleum
Corporation to comply with the provisions of the Securities Act of 1933,
as
amended, and all requirements of the Securities and Exchange Commission,
hereby
ratifying and confirming our signatures as they may be signed by our said
attorneys, or any of them, to said registration statement and any and all
amendments thereto or to any subsequent registration statement for the same
offering which may be filed under Rule 462(b).
Pursuant
to the requirements of the Securities Act of 1933, as amended, this registration
statement has been signed by the following persons in the capacities and
on the
dates indicated.
|
Signature
|
|
Capacity
In Which Signed
|
|
Date
|
|
/s/
Wm. Milton Cox
|
|
Chairman
and Chief Executive Officer and Director (Principal Executive
Officer)
|
|
December
5, 2007
|
|
Wm.
Milton Cox
|
|
|
|
/s/
Donald L. Sytsma
|
|
Chief
Financial Officer, Corporate Secretary and Treasurer and
Director (Principal Financial and Principal Accounting
Officer)
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|
December
5, 2007
|
|
Donald
L. Sytsma
|
|
|
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/s/
Bassam Nastat
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|
President
and Director
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December
5, 2007
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|
Bassam
Nastat
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|
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/s/
Jay Timothy Altum
|
|
Director
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|
December
5, 2007
|
|
Jay
Timothy Altum
|
|
|
|
/s/
T. Arden McCracken
|
|
Director
|
|
December
5, 2007
|
|
T.
Arden McCracken
|