UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[x] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934.
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2007
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934.
FOR THE TRANSITION PERIOD FROM TO
------------ ------------
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 15, 2007, 182,046,888
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.
GULF COAST OIL & GAS, INC. AND SUBSIDIARY
FORM 10-QSB
FOR THE QUARTER ENDED MARCH 31, 2007
INDEX
PAGE
PART 1--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BALANCE SHEETS--MARCH 31, 2007 AND DECEMBER 31, 2006 3
STATEMENTS OF OPERATIONS - QUARTERS ENDING MARCH 31, 2007
AND MARCH 31, 2006, AND PERIOD FROM AUGUST 4, 2003 (INCEPTION) TO
MARCH 31, 2007 4
STATEMENT OF CASH FLOWS--QUARTERS ENDING MARCH 31, 2007
AND MARCH 31, 2006 AND PERIOD FROM AUGUST 4, 2003 (INCEPTION) TO
MARCH 31, 2007 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--MARCH 31, 2007 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 14
ITEM 3. CONTROLS AND PROCEDURES 15
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 16
ITEM 2. UNREGISTERED SALES OF SECURITIES AND USE OF PROCEEDS 16
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 16
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 16
ITEM 5. OTHER INFORMATION 16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 16
-2-
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, 2007 AND DECEMBER 31, 2006
March 31, December 31,
ASSETS 2007 2006
----------- -----------
Current Assets
Cash in banks $ 599,117 $ 573,438
Accounts receivable -other -- --
Deferred financing 176,460 176,460
----------- -----------
Total Current Assets 775,577 749,898
Fixed Assets
Office equipment 7,537 7,537
Oil equipment 49,897 --
----------- -----------
57,434 7,537
Less accumulated depreciation (6,276) (4,254)
----------- -----------
51,158 3,283
Other Assets
Oil reserves less accumulated
depletion of $18,323 and $0 714,603 --
Website costs less accumulated
amortization of $1,184 and $1,150 416 450
Deferred financing - Non-current 155,166 199,281
Deposit on interest in unproved oil and gas leases 130,000 912,822
----------- -----------
1,000,185 1,112,553
----------- -----------
Total Assets $ 1,826,920 $ 1,865,734
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 72,613 $ 76,812
Due to shareholder 56,119 47,119
Accrued interest 216,052 166,912
Accrued expenses 35,631 35,631
----------- -----------
Total Current Liabilities 380,415 326,474
Long-Term Debt
Notes payable 1,795,551 1,965,551
Derivative Liability Arising From Warrants 8,333 8,333
Stockholders' Equity
Series A Preferred stock, 1,000,000 shares
authorized, 0 shares outstanding,
par value $.001 per share -- --
Common stock, 600,000,000 shares authorized,
157,880,221 and 134,878,634 shares
outstanding at respective period ends,
par value $.001 per share 157,880 134,879
Additional contributed capital 6,308,000 6,157,601
Deficit accumulated during exploration stage (7,146,580) (7,050,425)
Accumulated other comprehensive income 273,419 273,419
Stock subscription advances 49,902 49,902
----------- -----------
(357,379) (434,624)
----------- -----------
Total Liabilities and Stockholders' Equity $ 1,826,920 $ 1,865,734
=========== ===========
See accompanying notes to financial statements.
-3-
GULF COAST OIL & GAS, INC. AND SUBSIDIARY
(Formerly OTISH MOUNTAIN DIAMOND COMPANY AND SUBSIDIARY)
(An Exploration Stage Company)
STATEMENT OF OPERATIONS
FOR THE QUARTER ENDING MARCH 31, 2007 AND THE QUARTER ENDING
MARCH 31, 2006, AND FOR THE PERIOD BEGINNING AUGUST 4, 2003
(INCEPTION) THROUGH MARCH 31, 2007
MARCH 31, MARCH 31, SINCE
2007 2006 INCEPTION
------------- ------------- -------------
Revenues
Sales $ 94,197 $ -- $ 94,197
Interest income 4,199 3,987 33,264
------------- ------------- -------------
98,396 3,987 127,461
Cost of sales
Exploration costs 20,105 -- 179,730
------------- ------------- -------------
Gross Profit 78,291 3,987 (52,269)
Expenses
Administrative 174,446 120,632 6,951,405
------------- ------------- -------------
(96,155) (116,645) (7,003,674)
Other income and expenses
Loss on sale of fixed assets -- -- (684)
Gain on settlement of debt -- -- 67,693
Foreign exchange (loss) gain -- -- (16,689)
------------- ------------- -------------
-- -- 50,320
------------- ------------- -------------
Loss from continuing operations (96,155) (116,645) (6,953,354)
------------- ------------- -------------
Discontinued operations
Mineral rights abandoned -- -- (193,226)
------------- ------------- -------------
Net Loss (96,155) (116,645) (7,146,580)
Other Comprehensive Income
Decrease in fair value of derivatives -- (732,609) 273,419
------------- ------------- -------------
Net Comprehensive Income / (Loss) $ (96,155) $ (849,254) $ (6,873,161)
============= ============= =============
Net loss per share $ (0.00) $ (0.00)
Other comprehensive income per share $ -- --
Average shares outstanding 143,100,857 119,536,793
See accompanying notes to financial statements.
-4-
GULF COAST OIL & GAS, INC. AND SUBSIDIARY
(Formerly OTISH MOUNTAIN DIAMOND COMPANY AND SUBSIDIARY)
(An Exploration Stage Company)
STATEMENT OF CASH FLOWS
FOR THE QUARTER ENDING MARCH 31, 2007 AND THE
QUARTER ENDING MARCH 31, 2006, AND FOR THE
PERIOD BEGINNING AUGUST 4, 2003 (INCEPTION) THROUGH MARCH 31, 2007
MARCH 31, MARCH 31, SINCE
2007 2006 INCEPTION
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss for the period $ (96,155) $ (116,645) $(7,146,580)
Adjustments to reconcile net earnings to net
cash provided (used) by operating activities:
Depreciation 2,022 -- 17,333
Amortization 62,472 39,561 106,877
Services paid by stock 1,700 13,346 5,447,795
Mineral rights abandoned -- -- 195,226
Changes in Current assets and liabilities:
(Increase) Decrease in Accounts receivable - other -- 731 --
(Increase) in Deferred financing -- (135,000) (135,000)
(Decrease) Increase in Accounts payable (2,500) (3,859) 74,312
Increase in Due to shareholder 9,000 -- 32,983
Increase in Accrued interest 49,140 166,912 216,052
(Decrease) Increase in Accrued expenses -- -- 58,767
----------- ----------- -----------
NET CASH (USED) BY
OPERATING ACTIVITIES 25,679 (241,427) (1,132,235)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Mineral rights -- -- (91,534)
Purchase of Interest in unproved oil and gas
leases -- -- (912,822)
Purchase of Website costs -- -- (27,519)
Purchase of Fixed assets -- -- (24,267)
----------- ----------- -----------
NET CASH (USED) BY
INVESTING ACTIVITIES -- -- (1,056,142)
CASH FLOWS FROM FINANCING ACTIVITIES
Redemption of Preferred stock -- -- --
Proceeds from Notes payable -- -- 2,000,000
Sale of Common stock -- 1,000,000 737,400
Stock subscription advances -- -- 49,902
----------- ----------- -----------
NET CASH PROVIDED BY
FINANCING ACTIVITIES -- 1,000,000 2,787,302
----------- ----------- -----------
NET INCREASE IN CASH 25,679 758,573 598,925
CASH FROM OTISH DIAMOND MERGER -- -- 192
CASH AT BEGINNING OF PERIOD 573,438 34,424 --
----------- ----------- -----------
CASH AT END OF PERIOD $ 599,117 $ 792,997 $ 599,117
=========== =========== ===========
See accompanying notes to financial statements.
-5-
GULF COAST OIL & GAS, INC. AND SUBSIDIARY
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
March 31, 2007
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
HISTORY
Otish Mountain Diamond Company (formerly First Cypress, Inc.), a Nevada
corporation, was organized on September 14, 1999. From inception to September
30, 2003, the Company had not generated any revenues and was considered a
development stage enterprise, as defined in Financial Accounting Standards Board
No. 7. The Company was in the process of developing an internet computer
software program known as EngineMax. Essentially, software development was
suspended in November 2002 due to cash flow constraints. In October 2002, the
Company acquired certain items constituting the "Money Club Financial" business
concept and business plan. Due to the Company's inability to raise the necessary
equity capital to further the Money Club Financial business concept, no monies
were spent furthering the business concept from the date of acquisition to
September 30, 2003. The Company discontinued its involvement in these operations
in the third quarter of 2003.
On November 30, 2003, the Company successfully acquired 100% of Otish Mountain
Diamond Corp. ("Otish Corp."). The business activities of Otish Corp. became the
business activities of the Company. In connection with the merger the
capitalization of the Company was amended to reflect a 220:1 reverse stock split
and to increase the authorized capital to 600,000,000 shares, consisting of
500,000,000 common shares with a par value of $0.001, and 100,000,000 preferred
shares with a par value of $0.001. Also, 1,000,000 shares of a Serial A
Preferred were issued for services rendered. Finally, the then president of the
Company entered into two agreements with the Company; one, assumed all the known
liabilities of the company, and the second, agreed to convert debt owed the
president of $236,000 into 236,000 shares of Company common stock.
The Company's income statement at the date of merger was as follows:
Revenues $ -0-
Expenses:
Exploration costs $ 36,293
Administrative $ 136,284
Net Loss $ 172,577
Otish Mountain Diamond Corp. was incorporated in the state of Nevada on August
4, 2003. The Company was formerly engaged in the mining and exploration business
and had mineral rights in the Otish Mountain and Superior Craton regions of
Canada.
On November 30, 2003, the Company declared a 1 for 220 reverse stock split. On
July 13, 2005, the Company declared a 3 for 1 forward stock split. All shares
amount referenced in these footnotes represent the share equivalents after
taking into account, to the extent applicable, the effect of the reverse
-6-
GULF COAST OIL & GAS, INC. AND SUBSIDIARY
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
March 31, 2007
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
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.
On January 13, 2005, the Company changed its name to Gulf Coast Oil & Gas, Inc.
On April 15, 2005, the Company settled an accounts payable debt of $232,120 for
696,360 shares of common stock.
On May 2, 2005, the Company received $100,000 for 1,665,000 shares of common
stock.
On May 26, 2005, the Company settled a current period debt of $5,000 for 300,000
of common stock.
On June 17, 2005, the Company received $100,000 for 1,200,000 shares of common
stock.
On July 17, 2005, the Company received $50,000 for 625,000 shares of common
stock.
On August 15, 2005, the Company issued 300,000 shares of common stock for
consulting services valued at $24,000.
On September 26, 2005, the Company received $50,000 for 625,000 shares of common
stock.
On November 14, 2006, the Company issued 1,500,000 shares of common stock for
consulting services valued at $24,000.
On December 31, 2006, the Company issued 500,000 shares of common stock for
consulting services valued at $11,000.
On January 1, 2007, the Company issued 1,700,000 shares of common stock for
consulting services valued at $1,700.
-7-
GULF COAST OIL & GAS, INC. AND SUBSIDIARY
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
March 31, 2007
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
FINANCIAL STATEMENT PRESENTATION
The Company was a shell at the time of the acquisition having only $192 in
assets; the acquisition was treated as a reverse merger whereby the acquired
company is treated as the acquiring company for accounting purposes.
AN EXPLORATION STAGE COMPANY
The Company is an Exploration Stage Company since it is engaged in the search
for mineral deposits, which are not in the development or productions stage. As
an exploration stage company the Company will present, Since Inception, results
on its statements of operations, stockholders' equity and cash flows.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all
short-term debt securities purchased with a maturity of three months or less to
be cash equivalents. There was no cash paid during the periods for interest or
taxes.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost. Maintenance, repairs and renewals
are expensed as incurred. Depreciation of property and equipment is provided for
over their estimated useful lives, which range from three to five years, using
the straight-lined method.
WEBSITE DEVELOPMENT COSTS
The Company has expended $1,500 in Website Development Costs, for internal use
software. These costs are being amortized over a three year estimated life.
MINERAL RIGHTS
The Company uses the "full costs method" of accounting for its mineral reserves.
Under this method of accounting, properties are divided into cost centers. The
Company presently has two cost centers. All acquisition, exploration, and
development costs for properties within each cost center are capitalized when
incurred. The Company intends to deplete these costs equally over the estimated
units to be recovered from the properties. These costs were written off at
December 31, 2004 as part of the cost of mineral rights abandoned.
DEPOSIT ON INTEREST IN UNPROVED OIL AND GAS LEASES
On June 8, 2005, the Company paid $100,000 to acquire, subject to lease
availability, a 75% working interest in oil and gas leases in Louisiana. Under
the terms of the agreement the Company will pay 100% of the costs of
acquisition, exploration and development of the leases, the lease are subject to
overriding royalties, and has one year to submit the remaining portion of the
total costs. In the event the leases are unavailable, the funds advanced, less
expense incurred will be returned to the Company.
-8-
GULF COAST OIL & GAS, INC. AND SUBSIDIARY
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
March 31, 2007
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
On August, 2006, the Company paid $30,000 to renew the lease in Louisiana for
two additional years.
On May 9, 2006, the Company paid a deposit of $262,500 on oil and gas property
(the Weil 8-C) in Corpus Christi Texas. Under the agreement, the Company
acquired an undivided 28% working interest and a 21% net revenue interest in the
Weil 8-C well for a 46.66% billing interest.
On August 1, 2006, the Company paid $104,533 to hookup the 8-C to bring the well
production ready. The facility had not been placed into service at December 31,
2006. When placed into service the asset will be moved from investments to fixed
assets and depreciated on a straight-line basis over a seven year life.
On August 15, 2006, the Company paid a deposit of $108,251 on oil & gas
property, namely, the Weil 3-C, in Corpus Christi Texas. Under the agreement,
the Company acquired an undivided 28% working interest and a 21% net revenue
interest in the Weil 3-C well for a 46.66% billing interest.
On August 31, 2006, The Company paid a deposit of $134,520.78 on oil & gas
property, namely, the Weil 7-C, in Corpus Christi Texas. Under the agreement,
the Company acquired an undivided 28% working interest and a 21% net revenue
interest in the Well 7-C well for a 46.66% billing interest.
On September 19, 2006, the Company paid $135,948.57 to bring the 3-C and 7-C
wells into production as well as convert both the 2-C and 6-C wells on property
to Salt Water disposal wells. It is the intent of the Company to offer Salt
Water disposal services to neighboring companies as a side revenue generating
service. In the first quarter of 2007, all the wells, except the Louisiana
wells, generated revenues. Accordingly $49,897 was transferred to depreciable
assets and $732,926 to Oil reserves.
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.
-9-
GULF COAST OIL & GAS, INC. AND SUBSIDIARY
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
March 31, 2007
NOTE 2 - MINERAL RIGHTS
Otish Mountain Diamond Corporation
On August 19, 2003 the Company purchased the mineral rights for 60,933 acres in
the Otish Mountain and Superior Craton regions of Quebec, Canada. The claims
were purchased for $42,506 and 17,045 shares of common stock. The Company is
required to spend a minimum of $135 CDN per mining claim on exploration before
the expiration date of each claim. The Company is required to spend $105 CDN per
claim maintenance/renewal fee to the appropriate governmental authority before
the expiration date of the mining claim. If the Company fails to meet its
obligations under this agreement the seller has the option to make the
expenditures and to reassume title to the mining claims.
On November 4, 2003 the Company purchased the mineral rights for 775 acres in
the Otish Mountain region of Quebec, Canada. The Claims were purchased for
$1,855 and 3409 shares of common stock. The Company is required to pay a 2%
royalty of the net smelter returns and a 2% royalty on the gross overriding
royalty as defined in the agreement. The Company shall also pay to the seller
$5,000 CDN minimum annual advance royalty beginning on November 1, 2004 and each
year thereafter. The Company is also required to keep the property in good
standing for 1 year or the seller shall be entitled to reacquire the claims.
On November 4, 2003 the Company entered into a joint venture agreement for the
mineral rights for 15,361 acres in the Otish Mountain region of Quebec, Canada.
The investment was $33,383 and 20454 shares of common stock. The Company paid
the required claim tax/renewal fees of $12,495 CDN by the due date of November
27, 2003. The Company was required to make a minimum advanced royalty payment of
$15,000 CDN once mining stage began. Royalties were subject to underlying
royalties of 2% of the net smelter returns and 2% of the gross overriding
royalty as defined in the agreement. The Company's total outlay for the joint
venture was not to exceed $375,000 CDN. The Company owned 45% of the joint
venture.
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.
-10-
GULF COAST OIL & GAS, INC. AND SUBSIDIARY
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
March 31, 2007
NOTE 3 - DEPOSIT ON INTEREST IN UNPROVED OIL AND GAS LEASES
On June 8, 2005, the Company paid $100,000 to acquire, subject to lease
availability, a 75% working interest in oil and gas leases in Louisiana. Under
the terms of the agreement the Company will pay 100% of the costs of
acquisition, exploration and development of the leases, the leases are subject
to overriding royalties, and has one year to submit the remaining portion of the
total costs. In the event the leases are unavailable, the funds advanced, less
expenses incurred will be returned to the Company.
On August, 2006, the Company paid $30,000 to renew the lease in Louisiana for
two additional years.
On May 9, 2006, the Company paid a deposit of $262,500 on oil and gas property
(the Weil 8-C) in Corpus Christi Texas. Under the agreement, the Company
acquired an undivided 28% working interest and a 21% net revenue interest in the
Weil 8-C well for a 46.66% billing interest.
On August 1, 2006, The Company paid $104,533 to hookup the 3-C to bring the well
production ready. The facility had not been placed into service at December 31,
2006. When placed into service the asset will be moved from investments to fixed
assets and depreciated on a straight-line basis over a seven year life.
On August 15, 2006, the Company paid a deposit of $108,251 on oil & gas
property, namely, the Weil 3-C, in Corpus Christi Texas. Under the agreement,
the Company acquired an undivided 28% working interest and a 21% net revenue
interest in the Weil 3-C well for a 46.66% billing interest.
On August 31, 2006, The Company paid a deposit of $134,520.78 on oil & gas
property, namely, the 7-C in Corpus Christi Texas. Under the agreement, the
Company acquired an undivided 28% working interest and a 21% net revenue
interest in the Well 7-C well for a 46.66% billing interest.
On September 19, 2006, the Company paid $135,948.57 to bring the 3-C and 7-C
wells into production as well as convert both the 2-C and 6-C wells on property
to Salt Water disposal wells. It is the intent of the Company to offer Salt
Water disposal services to neighboring companies as a side revenue generating
service. In the first quarter of 2007, all the wells, except the Louisiana
wells, generated revenues. Accordingly $49,897 was transferred to depreciable
assets and $732,926 to Oil reserves.
-11-
GULF COAST OIL & GAS, INC. AND SUBSIDIARY
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
March 31, 2007
NOTE 4 - NOTES PAYABLE
On February 1, 2006, the Company entered into a Securities Purchase Agreement
with Cornell Capital Partners, L.P., Certain Wealth, Ltd., and TAIB Bank, B.S.C.
pursuant to which the Buyers agreed to purchase secured convertible debentures
in the principal amount of $2,000,000. On February 2, 2006 the Company sold and
issued $1,000,000 in principal amount of Debentures to the Buyers. In connection
with the Securities Purchase Agreement, the Company issued Cornell Capital
five-year warrants to purchase 30,000,000 shares of our common stock at the
following exercise prices: 7,500,000 at $0.02 per share, 7,500,000 at $0.03 per
share, 5,000,000 at $0.04 per share, 5,000,000 at $0.05 per share, and 5,000,000
at $0.06 per share.
The debentures are convertible at the option of the Buyers any time up to
maturity into shares of the Company's common stock. The debentures have a
three-year term and accrue interest at 10% per year. All unpaid interest and
principal are due on or before February 1, 2009.
On April 5, 2006, the Company sold the balance, $1,000,000, of the secured
convertible debentures. The terms and conditions are the same. The debentures
have a three-year term and accrue interest at 10% per year. All unpaid interest
and principal are due on or before April 5, 2009.
On September 14, 2006, the Company exchanged 892,857 shares of common stock for
the retirement of $20,000 of convertible notes payable.
In the fourth quarter of 2006, the Company exchanged 12,448,984 shares of common
stock for the retirement of $12,449 of convertible notes payable.
In the first quarter of 2007, the Company exchanged 21,301,587 shares of common
stock for the retirement of $170,000 of convertible notes payable.
Maturities of long term debt at December 31, 2006 were as follows:
2006 $ -0-
2007 $ -0-
2008 $ -0-
2009 $ 1,965,551
-12-
GULF COAST OIL & GAS, INC. AND SUBSIDIARY
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
March 31, 2007
NOTE 5 - DERIVATIVE LIABILITY ARISING FROM WARRANTS
The Company accounts for debt with embedded conversion features and warrant
issues in accordance with EITF 98-5: ACCOUNTING FOR CONVERTIBLE SECURITIES WITH
BENEFICIAL CONVERSION FEATURES OR CONTINGENCY ADJUSTABLE CONVERSION and EITF No.
00-27: APPLICATION OF ISSUE NO 98-5 TO CERTAIN CONVERTIBLE INSTRUMENTS.
Conversion features determined to be beneficial to the holder are valued at fair
value and recorded to additional paid in capital. The Company determines the
fair value to be ascribed to the detachable warrants issued with the convertible
debentures utilizing the BLACK-SCHOLES method. Any discount derived from
determining the fair value to the debenture conversion features and warrants is
amortized to financing cost over the life of the debenture. The unamortized
discount, if any, upon the conversion of the debentures is expensed to financing
cost on a pro rata basis.
Debt issue with the variable conversion features are considered to be embedded
derivatives and are accountable in accordance with FASB 133; ACCOUNTING FOR
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. The 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.
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 $56,119 and $47,119 for compensation and
expense reimbursement at March 31, 2007 and December 31, 2006, respectively.
-13-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
LIQUIDITY AND FINANCIAL CONDITION
At March 31, 2007, cash and cash equivalents were $599,117, an increase of
$25,679 over December 31, 2006. Total liabilities at March 31, 2007 were
$1,469,541 of which $380,415 were current liabilities. The remainder of the
liabilities relate to the February and April, 2006 issuance of $2,000,000 of
convertible debentures (the "Convertible Debentures") to three investors and
recognition of a derivative liability arising from the warrants issued in that
transaction.
As of March 31, 2007 we had a working capital surplus of $395,162 as compared to
a working capital surplus of $423,424 at December 31, 2006. The decrease in
working capital is attributable to an increase in accrued interest on the
Convertible Debentures.
In the second and third quarters of 2006, the Company acquired interests in
three exploratory oil and gas wells located within one mile of each other in
Corpus Christi, Texas. Each of the three wells has recently been placed into
production. As of March 31, 2007, the Company had recognized revenues of $94,197
relating to this production.
The Company achieved positive cash flow of $25,679 in the first quarter of 2007.
The Company believes that revenues from oil and gas production will be
sufficient to meet its overhead expenses for at least the next twelve to
eighteen months.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2007
COMPARED TO THREE MONTHS ENDED MARCH 31, 2006
REVENUES
The Company did not generate any revenues in the quarter ended March 31, 2006
(other than interest income). The revenues for the three months ending March 31,
2007 were $98,396, consisting of $94,197 from distributions from the Company's
interest in three producing oil and gas wells in Corpus Christi, Texas and
interest income of $4,199.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses during the quarter ended March 31, 2007
increased to $174,446 from $120,632 in the same period in 2006. This increase
was primarily due an increase in salaries and consulting fees as the Company
prepares to implement its business plan and an increase in interest costs from
the convertible debenture financing.
NET GAIN/LOSS TO COMMON SHAREHOLDERS
Net operating loss to common shareholders was ($96,155) or ($0.00) per share for
the quarter ended March 31, 2007 as compared to a net operating loss of
($116,645) or $0.00 for the quarter ended March 31, 2006. The decrease in net
loss primarily results from the Company's receipt of production related revenues
in the quarter ended March 31, 2007 which, after deducting exploration costs
attributable to the production, more than offset the increase in general and
administrative costs set forth above.
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ACCUMULATED DEFICIT
Since inception, we have incurred substantial operating losses and may incur
substantial additional operating losses over the next several years. As of March
31, 2007, our accumulated deficit was $7,146,580.
ITEM 3. CONTROLS AND PROCEDURES
As of March 31, 2007, 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 fist quarter of fiscal 2007 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
In January of 2007, the Company issued 1,700,000 shares to a consultant in
exchange for consulting services valued at $1,700. These shares were issued
pursuant to a Section 4(2) exemption under the Securities Act of 1933, as
amended.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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, 2007, the Company
filed the following reports on Form 8-K:
None
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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: May 21, 2007 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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