UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A
(Mark One)
QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934.
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2006
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934.
FOR THE TRANSITION PERIOD FROM TO
------------ ------------
COMMISSION FILE NUMBER 000-32747
GULF COAST OIL & GAS, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
DELAWARE 98-0128688
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
5847 SAN FELIPE, SUITE 1700
HOUSTON, TEXAS 77057
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(713) 821-1731
(ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PAST FIVE YEARS
Check whether the issuer has filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of May 31, 2006, 119,536,793
shares of common stock.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
SEC2334(9-05) PERSONS WHO ARE TO RESPOND TO THE COLLECTION OF INFORMATION
CONTAINED IN THIS FORM ARE NOT REQUIRED TO RESPOND UNLESS THE
FORM DISPLAYS A CURRENT VALID OMB CONTROL NUMBER.
EXPLANATORY NOTE
The purpose of this Quarterly Report on Form 10-QSB/A is to amend the Form
10-QSB to clearly designate which of the financial statements included herein
are "unaudited" and to correct the disclosure of the retained deficit as of
March 31, 2006, as contained in the Management Discussion and Analysis of
Financial Condition and Results of Operation, to make such number agree with the
retained deficit as set forth in the balance sheet as of March 31, 2006, and to
make certain corrections to the financial statements contained herein resulting
from changes to the financial statements contained in the Company Form 10-KSB/A
for the period ending December 31, 2005.
The Company's management has reviewed and approved, and takes full
responsibility for, the revisions made to the Form 10-QSB/A as set forth in this
Report.
-2-
GULF COAST OIL & GAS, INC. AND SUBSIDIARY
FORM 10-QSB/A
FOR THE QUARTER ENDED MARCH 31, 2006
INDEX
PAGE
PART 1--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BALANCE SHEETS--MARCH 31, 2006 AND DECEMBER 31, 2005 4
STATEMENTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 2006
AND 2005, AND PERIOD FROM AUGUST 4, 2003 (INCEPTION)
TO MARCH 31, 2006 5
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)--
THREE MONTHS ENDED MARCH 31, 2006 6
STATEMENT OF CASH FLOWS--THREE MONTHS ENDED MARCH 31, 2006 AND 2005,
AND PERIOD FROM AUGUST 4, 2003(INCEPTION) TO MARCH 31, 2006 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--MARCH 31, 2006 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS 12
ITEM 3. CONTROLS AND PROCEDURES 13
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 14
ITEM 2. UNREGISTERED SALES OF SECURITIES AND USE OF PROCEEDS 14
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 14
ITEM 5. OTHER INFORMATION 15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 15
-3-
PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GULF COAST OIL & GAS, INC. AND SUBSIDIARY
(Formerly OTISH MOUNTAIN DIAMOND COMPANY AND SUBSIDIARY)
(An Exploration Stage Company)
BALANCE SHEETS
MARCH 31, 2006 AND DECEMBER 31, 2005
31-MAR-06
(UNAUDITED) 31-DEC-05
----------- ----------
ASSETS
Current Assets
Cash & Cash Equivalents 792,997 34,424
Accounts receivable 4,517 5,248
Deferred financing 76,644 0
---------- ----------
874,158 39,672
Fixed Assets
Office equipment 3,550 3,550
Less: accumulated depreciation (2,834) (2,560)
---------- ----------
716 990
Other Assets
Deferred financing 293,805 0
Website costs less accumulated amortization 700 1,000
Deposit on interest in unproved oil and gas leases 100,000 100,000
---------- ----------
394,505 101,000
---------- ----------
Total Assets 1,269,380 141,662
========== ==========
Current Liabilities
Accounts payable 66,813 70,672
Accrued expenses 35,631 35,631
Due to shareholder 23,136 23,136
---------- ----------
125,581 129,439
Promissory Notes 1,000,000 0
Derivative Liability arising from warrants 980,832 0
Stockholders' Equity
Series A preferred stock, 100,000,000
shares authorized, 0 shares
outstanding, par value $.001 per share
Common stock, 1,000,000,000 shares authorized,
119,536,793 shares outstanding at Dec 31, 2005 and
March 31, 2006 par value $.001 per shares 119,537 119,537
Additional contributed capital 6,138,494 6,138,494
Deficit accumulated during exploration stage (6,412,356) (6,295,710)
Accumulated other comprehensive deficit (732,609) 0
Stock subscription advances 49,902 49,902
---------- ----------
(837,032) 12,223
---------- ----------
Total Liabilities and Stockholders' Equity 1,269,380 141,662
========== ==========
See accompanying notes and accountants report.
-4-
GULF COAST OIL & GAS, INC. AND SUBSIDIARY
(Formerly OTISH MOUNTAIN DIAMOND COMPANY AND SUBSIDIARY)
(An Exploration Stage Company)
STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2006, THREE MONTHS
ENDED MARCH 31, 2005 AND FOR THE PERIOD
BEGINNING AUGUST 4, 2003 (INCEPTION)
THROUGH MARCH 31, 2006 (UNAUDITED)
Three Months Three Months
Ended Ended
March 31, March 31, Since
2006 2005 Inception
------------ ------------ ------------
Interest revenue 3,987 0 3,987
Cost of sales
Exploration costs 0 0 159,625
------------ ------------ ------------
Gross Profit 3,987 0 (155,638)
Expenses
Administration 120,633 33,969 6,113,812
------------ ------------ ------------
(116,646) (33,969) (6,269,450)
------------ ------------ ------------
Other income and expenses
Loss on sale of fixed assets 0 0 (684)
Gain on settlement of debt 0 67,693
Foreign exchange (loss) gain 0 (16,689)
------------ ------------ ------------
0 0 50,320
------------ ------------ ------------
Loss from continuing operations (116,646) (33,969) (6,219,130)
------------ ------------ ------------
Discontinued operations
Mineral rights abandoned 0 0 (193,226)
------------ ------------ ------------
Net Loss (116,646) (33,969) (6,412,356)
============ ============
Other Comprehensive Loss
Increase in fair value of
derivatives (732,609)
Net Comprehensive Loss (849,255)
============
Loss Per Share (Basic and Diluted)
Net Loss (0.00) (0.00)
Other Comprehensive Loss (0.00) (0.01)
Net Comprehensive Loss (0.00) (0.01)
Average Shares Outstanding 119,536,793 38,041,861
See accompanying notes to financial statements.
-5-
GULF COAST OIL & GAS, INC. AND SUBSIDIARY
(Formerly OTISH MOUNTAIN DIAMOND COMPANY AND SUBSIDIARY)
(An Exploration Stage Company)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) (UNAUDITED)
ACCUMULATED
SERIES A ADDITIONAL OTHER STOCK
PREFERRED STOCK COMMON STOCK CONTRIBUTED RETAINED COMPREHENSIVE SUBSCRIPTION
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT DEFICIT ADVANCES TOTAL
------ ------ ------ ------ ------- ------- ------- -------- -----
Balance at
December 31, 2005 -- $ -- 119,536,793 $ 119,537 $ 6,138,494 $ (6,295,710) $ -- $ 49,902 $ 12,223
Net loss for
the period -- -- -- -- -- (116,646) (732,609) -- (849,255)
------- ------- ----------- --------- ----------- ------------ ---------- --------- ----------
Balance at
March 31, 2006 -- $ -- 119,536,793 $ 119,537 $ 6,138,494 $ (6,412,356) $ (732,609) $ 49,902 $ (837,032)
======= ======= =========== ========= =========== ============ ========== ========= ==========
See accompanying notes to financial statements.
-6-
GULF COAST OIL & GAS, INC. AND SUBSIDIARY
(Formerly OTISH MOUNTAIN DIAMOND COMPANY AND SUBSIDIARY)
(An Exploration Stage Company)
STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2006, THREE MONTHS
ENDED MARCH 31, 2005 AND FOR THE PERIOD
BEGINNING AUGUST 4, 2003 (INCEPTION)
THROUGH MARCH 31, 2006 (UNAUDITED)
Three Months Three Months
Ended Ended
March 31, March 31, Since
2006 2005 Inception
---------- ---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss for the period (116,646) (33,969) (6,412,356)
Adjustments to reconcile net earnings to net
cash provided
(used) by operating activities:
Depreciation 0 357 13,617
Amortization 13,346 125 18,065
Services paid by stock 0 0 5,444,221
Mineral rights abandoned 0 0 195,226
Changes in current assets and liabilities
Increase (Decrease) in accounts 731 0 (4,517)
receivable - other
(Decrease) Increase in accounts payable (3,858) (2,758) 66,813
(Decrease) Increase in accrued expenses 0 24,147 58,767
(Decrease) Increase in deferred financing (135,000) 0 (135,000)
---------- ---------- ----------
NET CASH (USED) BY OPERATING ACTIVITIES (241,427) (12,098) (755,164)
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of mineral rights 0 (91,534)
Purchase of interest in unproved oil and gas 0 0 (100,000)
leases
Purchase of website costs 0 (1,500) (27,519)
Purchase of fixed assets 0 0 (20,280)
---------- ---------- ----------
NET CASH (USED) BY INVESTING ACTIVITIES 0 (1,500) (239,333)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Sale of common stock/ convertible debentures 1,000,000 0 1,737,400
Stock subscription advances 0 99,965 49,902
---------- ---------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,000,000 99,965 1,787,302
---------- ---------- ----------
NET INCREASE IN CASH 758,573 86,367 792,805
CASH FROM OTISH DIAMOND MERGER 0 0 192
CASH AT BEGINNING OF PERIOD 34,424 1,912 0
---------- ---------- ----------
CASH AT END OF PERIOD 792,997 88,279 792,997
========== ========== ==========
See accompanying notes and accountants report.
-7-
GULF COAST OIL & GAS, INC. AND SUBSIDIARY
(Formerly OTISH MOUNTAIN DIAMOND COMPANY AND SUBSIDIARY)
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
HISTORY
Otish Mountain Diamond Company (formerly First Cypress, Inc.), a Nevada
corporation, was organized on September 14, 1999. From inception to September
30, 2003, the Company had not generated any revenues and was considered a
development stage enterprise, as defined in Financial Accounting Standards Board
No. 7. The Company was in the process of developing an internet computer
software program known as EngineMax. Essentially, software development was
suspended in November 2002 due to cash flow constraints. In October 2002, the
Company acquired certain items constituting the "Money Club Financial" business
concept and business plan. Due to the Company's inability to raise the necessary
equity capital to further the Money Club Financial business concept, no monies
were spent furthering the business concept from the date of acquisition to
September 30, 2003. The Company discontinued its involvement in these operations
in the third quarter of 2003.
On November 30, 2003, the Company successfully acquired 100% of Otish Mountain
Diamond Corp. ("Otish Corp."). The business activities of Otish Corp. became the
business activities of the Company. In connection with the merger the
capitalization of the Company was amended to reflect a 220:1 reverse stock split
and to increase the authorized capital to 600,000,000 shares, consisting of
500,000,000 common shares with a par value of $0.001, and 100,000,000 preferred
shares with a par value of $0.001. Also, 1,000,000 shares of a Serial A
Preferred were issued for services rendered. Finally, the then president of the
Company entered into two agreements with the Company; one, assumed all the known
liabilities of the company, and the second, agreed to convert debt owed the
president of $236,000 into 236,000 shares of Company common stock.
The Company's income statement at the date of merger was as follows:
Revenues $ -0-
Expenses:
Exploration costs 36,293
Administrative 136,284
Net Loss $172,577
Otish Mountain Diamond Corp. was incorporated in the state of Nevada on August
4, 2003. The Company was formerly engaged in the mining and exploration business
and had mineral rights in the Otish Mountain and Superior Craton regions of
Canada.
On November 30, 2003, the Company declared a 1 for 220 reverse stock split. On
July 13, 2005, the Company declared a 3 for 1 forward stock split. All shares
amount referenced in these footnotes represent the share equivalents after
taking into account, to the extent applicable, the effect of the reverse stock
split and the forward stock split. All share amounts in the financial statements
have also been adjusted retroactively for the reverse and forward stock split.
In August and November 2003, the Company issued 40,909 shares of its common
stock and paid $77,745 for mineral rights in the Otish Mountain and Superior
Craton regions of Quebec, Canada.
In the first quarter of 2004 the Company issued 60,900,150 shares of common
stock for services valued at $5,180,053. Valuation was based on the approximate
trading value of the Company's shares on the date issued.
During the third quarter of 2004 the Company issued 7,902,000 shares of common
stock to liquidate $263,400 of advances.
-8-
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
On January 13, 2005, the Company changed its name to Gulf Coast Oil & Gas, Inc.
On April 15, 2005, the Company settled an accounts payable debt of $232,120 for
696,360 shares of common stock.
On May 2, 2005, the Company received $100,000 for 1,650,000 shares of common
stock.
On May 26, 2005, the Company settled a current period debt of $5,000 for 300,000
of common stock.
On June 17, 2005, the Company received $100,000 for 1,200,000 shares of common
stock.
On July 17, 2005, the Company received $50,000 for 625,000 shares of common
stock.
On August 15, 2005, the Company issued 300,000 shares of common stock for
consulting services valued at $24,000.
On September 26, 2005, the Company received $50,000 for 625,000 shares of common
stock.
FINANCIAL STATEMENT PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America and rules and regulations of the Securities and
Exchange Commission (the "SEC") applicable to interim periods. In the opinion of
management, all adjustments (consisting only of normal recurring accruals)
considered necessary for a fair presentation have been included. These financial
statements should be read in conjunction with the Company's audited financial
statements included in the Company's Annual Report on Form 10-KSB filed with the
Securities and Exchange Commission for the year ended December 31, 2005.
Operating results for three months ended March 31, 2006 are not necessarily
indicative of the results that may be expected for the year ending December 31,
2006 or any interim period. The accompanying unaudited condensed consolidated
financial statements have not been reviewed by an independent public accountant.
AN EXPLORATION STAGE COMPANY
The Company is an Exploration Stage Company since it is engaged in the search
for mineral deposits, which are not in the development or productions stage. As
an exploration stage company the Company will present, Since Inception, results
on its statements of operations, stockholders' equity and cash flows.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all
short-term debt securities purchased with a maturity of three months or less to
be cash equivalents. There was no cash paid during the periods for interest or
taxes.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost. Maintenance, repairs and renewals
are expensed as incurred. Depreciation of property and equipment is provided for
over their estimated useful lives, which range from three to five years, using
the straight-lined method.
WEBSITE DEVELOPMENT COSTS
The Company has expended $1,500 in Website Development Costs through March 1,
2005, for internal use software. These costs are being amortized over a three
year estimated life.
-9-
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
MINERAL RIGHTS
The Company uses the "full costs method" of accounting for its mineral reserves.
Under this method of accounting, properties are divided into cost centers. The
Company presently has two cost centers. All acquisition, exploration, and
development costs for properties within each cost center are capitalized when
incurred. The Company intends to deplete these costs equally over the estimated
units to be recovered from the properties. These costs were written off at
December 31, 2004 as part of the cost of mineral rights abandoned.
DEPOSIT ON INTEREST IN UNPROVED OIL AND GAS LEASES
On June 8, 2005, the Company paid $100,000 to acquire, subject to lease
availability, a 75% working interest in oil and gas leases in Louisiana. Under
the terms of the agreement the Company will pay 100% of the costs of
acquisition, exploration and development of the leases, the lease are subject to
overriding royalties, and has one year to submit the remaining portion of the
total costs. In the event the leases are unavailable, the funds advanced, less
expenses incurred will be returned to the Company.
USE OF ESTIMATES
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
FOREIGN CURRENCY TRANSLATION
Prior to September of 2005, the Company's primary functional currency was the
Canadian dollar. In September 2005 the Company consolidated all operations in
the United States of America and adopted the U.S. dollar as its primary
functional currency. For financial statement presentation, all historical
statements were translated in U.S. dollars. Monetary assets and liabilities were
translated at year-end exchange rates while non-monetary items were translated
at historical rates. Income and expense accounts were translated at the average
rates in effect during the period, except for depreciation, which was translated
at historical rates. Therefore, translation adjustments and transaction gains or
losses were recognized in the income in the period of occurrence.
NOTE 2 - MINERAL RIGHTS
Otish Mountain Diamond Corporation
On August 19, 2003 the Company purchased the mineral rights for 60,933 acres in
the Otish Mountain and Superior Craton regions of Quebec, Canada. The claims
were purchased for $42,506 and 17,045 shares of common stock. The Company is
required to spend a minimum of $135 CDN per mining claim on exploration before
the expiration date of each claim. The Company is required to spend $105 CDN per
claim maintenance/renewal fee to the appropriate governmental authority before
the expiration date of the mining claim. If the Company fails to meet its
obligations under this agreement the seller has the option to make the
expenditures and to reassume title to the mining claims. On November 4, 2003 the
Company purchased the mineral rights for 775 acres in the Otish Mountain region
of Quebec, Canada. The Claims were purchased for $1,855 and 3409 shares of
common stock. The Company is required to pay a 2% royalty of the net smelter
returns and a 2% royalty on the gross overriding royalty as defined in the
agreement. The Company shall also pay to the seller $5,000 CDN minimum annual
advance royalty beginning on November 1, 2004 and each year thereafter. The
Company is also required to keep the property in good standing for 1 year or the
seller shall be entitled to reacquire the claims.
On November 4, 2003 the Company entered into a joint venture agreement for the
mineral rights for 15,361 acres in the Otish Mountain region of Quebec, Canada.
The investment was $33,383 and 20,454 shares of common stock. The Company paid
the required claim tax/renewal fees of $12,495 CDN by the due date of November
27, 2003. The Company was required to make a minimum advanced royalty payment of
$15,000 CDN once mining stage began.. Royalties were subject to underlying
royalties of 2% of the net smelter returns and 2% of the gross overriding
royalty as defined in the agreement. The Company's total outlay for the joint
venture was not to exceed $375,000 CDN. The Company owned 45% of the joint
venture.
-10-
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
At December 31, 2004 the Company decided to abandon the above mineral rights.
The balance of the rights and the net book value of the website development
costs were expensed. The total amount written off was $195,226.
At present the Company has no proven properties.
NOTE 3 - DEPOSIT ON INTEREST IN UNPROVED OIL AND GAS LEASES
On June 8, 2005, the Company paid $100,000 to acquire, subject to lease
availability, a 75% working interest in oil and gas leases in Louisiana. Under
the terms of the agreement the Company will pay 100% of the costs of
acquisition, exploration and development of the leases, the leases are subject
to overriding royalties, and has one year to submit the remaining portion of the
total costs. In the event the leases are unavailable, the funds advanced, less
expenses incurred will be returned to the Company.
NOTE 4 - NOTES PAYABLE
On February 1, 2006, the Company entered into a Securities Purchase Agreement
with Cornell Capital Partners, L.P., Certain Wealth, Ltd., and TAIB Bank, B.S.C.
pursuant to which the Buyers agreed to purchase secured convertible debentures
in the principal amount of $2,000,000. On February 2, 2006 the Company sold and
issued $1,000,000 in principal amount of Debentures to the Buyers. In connection
with the Securities Purchase Agreement, the Company issued Cornell Capital
five-year warrants to purchase 30,000,000 shares of our common stock at the
following exercise prices: 7,500,000 at $0.02 per share, 7,500,000 at $0.03 per
share, 5,000,000 at $0.04 per share, 5,000,000 at $0.05 per share, and 5,000,000
at $0.06 per share.
The Debentures are convertible at the option of the Buyers any time up to
maturity into shares of the Company's common stock. The Debentures have a
three-year term and accrue interest at 10% per year. All unpaid interest and
principal are due on or before February 1, 2009.
Maturities of long-term debt:
2006 $ -0-
2007 $ -0-
2008 $ -0-
2009 $ 1,000,000
NOTE 5 - DERIVATIVE LIABILITY ARRISING FROM WARRANTS
The Company accounts for debt with embedded conversion features and warrant
issues in accordance with EITF 98-5: ACCOUNTING FOR CONVERTIBLE SECURITIES WITH
BENEFICIAL CONVERSION FEATURES OR CONTINGENCY ADJUSTABLE CONVERSION and EITF No.
00-27: APPLICATION OF ISSUE NO 98-5 TO CERTAIN CONVERTIBLE INSTRUMENTS.
Conversion features determined to be beneficial to the holder are valued at fair
value and recorded to additional paid in capital. The Company determines the
fair value to be ascribed to the detachable warrants issued with the convertible
debentures utilizing the Black-Scholes method. Any discount derived from
determining the fair value to the debenture conversion features and warrants is
amortized to financing cost over the life of the debenture. The unamortized
discount, if any, upon the conversion of the debentures is expensed to financing
cost on a pro rata basis.
Debt issued with the variable conversion features are considered to be embedded
derivatives and are accountable in accordance with FASB 133; ACCOUNTING FOR
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. The fair value of the embedded
derivative is recorded to derivative liability. This liability is required to be
marked each reporting period. The resulting discount on the debt is amortized to
interest expense over the life of the related debt.
-11-
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
NOTE 6 - SERIES A PREFERRED STOCK
Each share of preferred has 15 votes compared to each share of common, which has
only one vote. In the second quarter 2004 all outstanding shares of Preferred
Stock were redeemed for $1,000.
NOTE 7 - RELATED PARTIES
The Company owes it present President $23,136 for compensation and expense
reimbursement at March 31, 2006 and December 31, 2005, respectively.
NOTE 8 - GOING CONCERN
The Company has not generated significant revenues or profits to date. This
factor among others may indicate the Company will be unable to continue as a
going concern. The Company's continuation as a going concern depends upon its
ability to generate sufficient cash flow to conduct its operations and its
ability to obtain additional sources of capital and financing. The accompanying
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
NOTE 9 - SUBSQUENT EVENTS
On April 5, 2006, the investors purchased the additional $1,000,000 of
debentures.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read together with the financial
statements and the accompanying notes thereto included elsewhere in this Report.
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements. This report contains certain forward-looking
statements and information that are based on the beliefs of management as well
as assumptions made by and information currently available to management. The
statements contained in this Report relating to matters that are not historical
facts are forward-looking statements that involve risks and uncertainties,
including, but not limited to, future demand for our products, general economic
conditions, government and environmental regulation, competition and customer
strategies, changes in our business strategy or development plans, capital
deployment, business disruptions, our ability to consummate future financings
and other risks and uncertainties, certain of which are beyond our control.
Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results may differ materially
from those described herein as anticipated, believed, estimated or expected.
Forward-looking statements are based on management's current views and
assumptions and involve known and unknown risks that could cause actual results,
performance or events to differ materially from those expressed or implied in
those statements.
GENERAL
We plan to undertake oil and gas exploration projects in the continental United
States. Our goal is to achieve profitable results as quickly as possible.
Therefore, we expect that the majority of our initial projects will have a
comparatively lower risk profile in order to increase our chances of obtaining
positive cash flow in the near term. However, we may also seek to acquire
interests in riskier projects that have the potential of developing into major
oil or gas fields, and will consider acquiring an interest (working and/or
royalty) in proven (based upon offset production and geology reports) but
undeveloped drilling locations.
-12-
LIQUIDITY AND FINANCIAL CONDITION
At March 31, 2006, cash and cash equivalents were $792,997. Total liabilities at
March 31, 2006 were $2,106,413 of which $125,581 were current liabilities. The
remainder of the liabilities relate to the issuance of the convertible
debentures to the investors and recognition of a derivative liability arising
from the warrants issued in that transaction.
At March 31, 2006, other current assets included $4,517 in receivables.
As of March 31, 2006, we had a working capital surplus of $748,577 as compared
to a working capital deficit of $89,767 at December 31, 2005. The increase in
working capital is primarily attributable to our receipt of proceeds from the
convertible debenture financing.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2006
COMPARED TO THREE MONTHS ENDED MARCH 31, 2005
REVENUES
The Company did not generate any revenues in the quarter ended March 31, 2006
(other than interest income) or the quarter ended March 31, 2005 and has not
generated any operating revenues to date.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses during the quarter ended March 31, 2006
increased to $120,633 from $33,969 in the same period in 2005. This increase was
primarily due an increase in professional fees relating to the closing of the
convertible debenture financing and filing of an SB-2 Registration Statement.
There were no other expenses incurred by the Company in either quarter.
NET LOSS TO COMMON SHAREHOLDERS
Net loss to common shareholders was $116,646 or ($0.00) per share for the
quarter ended March 31, 2006 as compared to a net loss of $ 33,969 or ($0.00)
for the quarter ended March 31, 2005. The increase in net loss was principally
due to an increase in administrative expenses as set forth above. For the
quarter ended March 31, 2006, the Net Comprehensive Loss was ($849,255) or ($.01
per share) as a result of the recognition of a derivative liability in
connection with the convertible debenture financing.
ACCUMULATED DEFICIT
Since inception, we have incurred substantial operating losses and expect to
incur substantial additional operating losses over the next several years. As of
March 31, 2006, our accumulated deficit was $7,144,965 (including accumulated
other comprehensive deficit of $ (732,609)).
ITEM 3. CONTROLS AND PROCEDURES
As of March 31, 2006, an evaluation was carried out under the supervision and
with the participation of management, including the Chief Executive Officer and
Chief Financial Officer, of the effectiveness of disclosure controls and
procedures. Based on that evaluation, the Chief Executive Officer and Chief
Financial Officer have concluded that disclosure controls and procedures are
effective to ensure that information required to be disclosed by the Company in
reports that the Company file or submit under the Securities Exchange Act of
1934 is recorded, processed, summarized and reported within the time periods
specified in SEC rules and forms. No changes in the Company's internal control
over financial reporting that have materially affected, or are reasonably likely
to materially affect, its internal control over financial reporting, including
any corrective actions with regard to significant deficiencies and material
weaknesses, occurred during the first quarter of fiscal 2006 or subsequent to
the date of the evaluation by its management thereof.
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PART II.
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. UNREGISTERED SALES OF SECURITIES AND USE OF PROCEEDS
On February 1, 2006, we entered into a Securities Purchase Agreement with
Cornell Capital Partners, L.P. ("Cornell Capital"), Certain Wealth, Ltd. and
TAIB Bank, B.S.C.(c) (the "Buyers") pursuant to which the Buyers agreed to
purchase secured convertible debentures in the principal amount of $2,000,000.
On February 2, 2006 we sold and issued $1,000,000 in principal amount of
debentures to the Buyers. On April 5, 2006, we sold and issued an additional
$1,000,000 in principal amount of debentures to the Buyers (the "Second
Closing").
Pursuant to the Securities Purchase Agreement, we are obligated to register for
resale a total of 514,403,292 shares of common stock for issuance under the
Debentures, and 30,000,000 for issuance under the Warrants. As a condition to
the receipt of the second $1,000,000, we agreed to pursue an amendment to our
Articles of Incorporation to increase the authorized shares to permit the
issuance by the Company of the number of shares it is required to register. We
filed a Definitive Proxy Statement with the Securities and Exchange Commission
on March 15, 2006 and received the consent from a majority of the common shares
on April 24, 2006. We filed the Registration Statement with the Securities and
Exchange Commission on April 7, 2006. The Company has received comments from the
SEC and is in the process of responding to those comments and filing a
pre-effective amendment to the Registration Statement. We have agreed to use our
best efforts to have the Registration Statement declared effective by June 2,
2006.
The debentures are convertible at the option of the Buyers any time up to
maturity into shares of our common stock, par value $0.001 per share, at the
price per share equal to the lesser of (a) $.02916 (the "Fixed Price") or (b) an
amount equal to eighty percent (80%) of the lowest volume weighted price of our
common stock, as quoted by Bloomberg, LP, for the five (5) trading days
immediately preceding the conversion date, which may be adjusted pursuant to the
other terms of the Debentures (the "Issuance Formula").
If the closing bid price of our common stock is less than the Fixed Price, we
can redeem a portion or all amounts outstanding under the debentures prior to
February 1, 2009 (or April 5, 2009 for the debentures issued in the Second
Closing) for a price equal to the principal amount and accrued interest thereon
being redeemed, plus a redemption premium of twenty percent (20%) of the
principal amount being redeemed.
We also entered into a Security Agreement pursuant to which we have granted the
buyers a security interest in and to substantially all our assets to secure
repayment of the debentures.
In connection with the Securities Purchase Agreement, we also issued to Cornell
Capital five-year warrants to purchase 30,000,000 shares of our common stock at
the following exercise prices: 7,500,000 at $0.02 per share, 7,500,000 at $0.03
per share, 5,000,000 at $0.04 per share, 5,000,000 at $0.05 per share, and
5,000,000 at $0.06 per share.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On March 24, 2006, the Company solicited the consent of its shareholders to an
amendment to the Company's Articles of Incorporation to increase the number of
authorized shares of common stock to 1,000,000,000. The Company's shareholders
approved the amendment by majority written consent effective April 24, 2006. The
amendment was approved by consents obtained from 82,679,574 or 69.17% of the
outstanding common shares. 1,330,207 of the outstanding common shares elected
not to consent while 56,500 or 0.05% of the outstanding common shares abstained.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following Exhibits are filed as part of this Report or incorporated
herein by reference:
31.1 Certification of Chief Executive Officer and Chief Financial Officer
pursuant to Section 302 of the Sarbanes Oxley Act of 2002.
32.1 Certification of Chief Executive Officer and Chief Financial Officer
pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 302 of the Sarbanes
Oxley Act of 2002.
(b) Reports on Form 8-K. During the quarter ending March 31, 2006, the Company
filed the following reports on Form 8-K:
On February 7, 2006, the Company filed a Report on Form 8-K reporting on the
closing of $1,000,000 of convertible debentures with certain investors as set
forth herein under "Unregistered Sales of Securities and Use of Proceeds".
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SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Date: August 10, 2006 GULF COAST OIL & GAS, INC.
BY:/S/ RAHIM RAYANI
-----------------------------------------
Rahim Rayani
Chief Executive Officer and President
(Principal Executive Officer)
BY:/S/ RAHIM RAYANI
-----------------------------------------
Rahim Rayani
Chief Financial Officer
(Principal Financial and Accounting Officer)
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