UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(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, 2008
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.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEVADA 98-0128688
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
5847 SAN FELIPE, SUITE 1700
HOUSTON, TEXAS 77057
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(713) 821-1731
(ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act during the
preceding 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 large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
Large Accelerated filer | | Accelerated filer | |
Non-accelerated filer | | Smaller reporting company |X|
(Do not check if a smaller reporting company)
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 PRECEDING 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 subsequent to the
distribution of securities under a plan confirmed by a court. Yes | | No | |
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: As of May 15, 2008, 999,952,788
shares of common stock.
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-Q
FOR THE QUARTER ENDED MARCH 31, 2008
INDEX
PAGE
PART 1--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Balance Sheets-- March 31, 2008 and December 31, 2007 1
-----------------------------------------------------
Statements of Operations - Three Months Ending March 31, 2008 and March 31, 2007, and period 2
---------------------------------------------------------------------------------------------
from August 4, 2003 (inception) to March 31, 2008
-------------------------------------------------
Statements of Cash Flows-- Three Months Ending March 31, 2008 and March 31, 2007, and period 3
---------------------------------------------------------------------------------------------
from August 4, 2003 (inception) to March 31, 2008
-------------------------------------------------
Notes to Consolidated Financial Statements--March 31, 2008 4
----------------------------------------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 13
-------------------------------------------------------------------------------------
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 14
----------------------------------------------------------
ITEM 4T. CONTROLS AND PROCEDURES 14
-----------------------
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 15
-----------------
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 15
-----------------------------------------------------------
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 15
-------------------------------
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 15
---------------------------------------------------
ITEM 5. OTHER INFORMATION 15
-----------------
ITEM 6. EXHIBITS 15
--------
GULF COAST OIL & GAS, INC. AND SUBSIDIARY
(AN EXPLORATION STAGE COMPANY)
BALANCE SHEETS
FOR THE QUARTERS ENDING MARCH 31, 2008 AND DECEMBER 31, 2008
March 31, 2008 December 31, 2007
----------- -----------
ASSETS
Current Assets
Cash in banks $ 137,284 $ 234,383
Accounts receivable -other -- --
Deferred financing 155,166 176,460
----------- -----------
Total Current Assets 292,450 410,843
Fixed Assets
Office equipment 7,537 7,537
Oil equipment 49,897 49,897
Less accumulated depreciation (14,364) (12,342)
----------- -----------
43,070 45,092
Other Assets
Website costs less accumulated
amortization of $500 and $0 280 314
Deferred financing - Non-current -- 22,821
Deposit on interest in unproved oil and gas leases 910,487 928,810
----------- -----------
910,767 951,945
----------- -----------
Total Assets $ 1,246,287 $ 1,407,880
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 62,197 $ 62,198
Due to shareholder 23,619 43,619
Accrued interest 334,440 313,075
Accrued expenses 35,631 35,631
- ------------------------------------------------------- ----------- -----------
Total Current Liabilities 455,887 454,523
Long-Term Debt
Notes payable 756,128 943,028
Derivative Liability Arising From Warrants -- --
Stockholders' Equity
Series A Preferred stock, 1,000,000 shares
authorized, 0 shares outstanding,
par value $.001 per share -- --
Common stock, 1,000,000,000 shares authorized,
967,052,788 and 673,639,728 shares
outstanding at respective period ends,
par value $.001 per share 967,053 673,640
Additional contributed capital 6,536,550 6,643,063
Deficit accumulated during exploration stage (7,751,083) (7,588,126)
Accumulated other comprehensive income 281,752 281,752
Stock subscription advances -- --
- ------------------------------------------------------- ----------- -----------
34,272 10,329
----------- -----------
Total Liabilities and Stockholders' Equity $ 1,246,287 $ 1,407,880
=========== ===========
See accompanying notes to financial statements.
-1-
GULF COAST OIL & GAS, INC. AND SUBSIDIARY
(AN EXPLORATION STAGE COMPANY)
STATEMENT OF OPERATIONS
FOR THE QUARTER ENDING MARCH 31, 2008 AND YEAR ENDING MARCH 31, 2007,
AND FROM AUGUST 4, 2003 (INCEPTION) TO
MARCH 31, 2008 (UNAUDITED)
March 31, March 31, Since
2008 2007 Inception
------------- ------------- -------------
Revenues
Sales $ -- $ 94,197 209,821
Interest income 1,043 4,199 43,749
------------- ------------- -------------
1,043 98,396 253,570
Cost of sales
Exploration costs -- 20,105 196,271
------------- ------------- -------------
Gross Profit 1,043 78,291 57,299
Expenses
Administrative 164,000 174,446 7,665,476
------------- ------------- -------------
(162,957) (96,155) (7,608,177)
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 (162,957) (96,155) (7,557,857)
------------- ------------- -------------
Discontinued operations
Mineral rights abandoned -- -- (193,226)
------------- ------------- -------------
Net Loss (162,957) (96,155) (7,751,083)
Other Comprehensive Income
Decrease in fair value of derivatives -- -- 273,419
------------- ------------- -------------
Net Comprehensive Income / (Loss) $ (162,957) $ ( 96,155) $ (7,477,664)
============= ============= =============
Net loss per share $ (0.00) $ (0.00)
Other comprehensive income per share $ -- $ --
Average shares outstanding 820,346,258 143,100,857
See accompanying notes to financial statements.
-2-
GULF COAST OIL & GAS, INC. AND SUBSIDIARY
(AN EXPLORATION STAGE COMPANY)
STATEMENT OF CASH FLOWS
FOR THE QUARTER ENDING MARCH 31, 2008, AND THE QUARTER
ENDING MARCH 31, 2007, AND FOR THE PERIOD
BEGINNING AUGUST 4, 2003
(INCEPTION) THROUGH MARCH 31, 2008 (UNAUDITED)
March 31, March 31, Since
2008 2007 Inception
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss for the period $ (162,957) $ (96,155) $(7,751,084)
Adjustments to reconcile net earnings to net
cash provided (used) by operating activities:
Depreciation 2,022 2,022 25,421
Amortization 44,149 62,472 265,150
Services paid by stock -- 1,700 5,447,795
Mineral rights abandoned -- -- 195,226
Changes in Current assets and liabilities:
(Increase) decrease in Accounts receivable - other -- -- --
(Increase) in Deferred financing -- -- (135,000)
(Decrease) Increase in Accounts payable (1) (2,500) 62,197
Increase in Due to shareholder (20,000) 9,000 483
Increase in Accrued interest 21,365 49,140 334,440
(Decrease) Increase in Accrued expenses -- -- 58,767
----------- ----------- -----------
NET CASH (USED) BY
OPERATING ACTIVITIES (115,422) 25,679 (1,496,605)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Mineral rights -- -- (91,534)
Purchase of Interest in unproved oil and gas leases 18,323 -- (910,487)
Purchase of Website costs -- -- (27,519)
Purchase of Fixed assets -- -- (74,163)
----------- ----------- -----------
NET CASH (USED) BY
INVESTING ACTIVITIES 18,323 -- (1,103,703)
CASH FLOWS FROM FINANCING ACTIVITIES
Redemption of Preferred stock -- -- --
Proceeds from Notes payable -- -- 2,000,000
Sale of Common stock -- -- 737,400
Stock subscription advances -- -- --
----------- ----------- -----------
NET CASH PROVIDED BY
FINANCING ACTIVITIES -- -- 2,737,400
----------- ----------- -----------
NET INCREASE IN CASH (97,099) 25,679 137,092
CASH FROM OTISH DIAMOND MERGER -- -- 192
CASH AT BEGINNING OF PERIOD 234,383 573,438 --
----------- ----------- -----------
CASH AT END OF PERIOD $ 137,284 $ 599,117 $ 137,284
=========== =========== ===========
See accompanying notes to financial statements.
-3-
GULF COAST OIL & GAS, INC. AND SUBSIDIARY
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
March 31, 2008
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
-4-
GULF COAST OIL & GAS, INC. AND SUBSIDIARY
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
March 31, 2008
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.
-5-
GULF COAST OIL & GAS, INC. AND SUBSIDIARY
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
March 31, 2008
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.
-6-
GULF COAST OIL & GAS, INC. AND SUBSIDIARY
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
March 31, 2008
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
In 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 was moved from investments to fixed
assets and will be 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.
-7-
GULF COAST OIL & GAS, INC. AND SUBSIDIARY
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
March 31, 2008
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.
-8-
GULF COAST OIL & GAS, INC. AND SUBSIDIARY
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
March 31, 2008
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.
In 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 Weil 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.
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. During the second quarter of 2007, the Company
invested $139,177 in the Corpus Christi project to improve the efficiency of the
wells.
-9-
GULF COAST OIL & GAS, INC. AND SUBSIDIARY
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
March 31, 2008
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.
In the second quarter of 2007, the Company exchanged 88,728,878 shares of common
stock for the retirement of $277,049 of convertible notes payable.
In the third quarter of 2007, the Company exchanged 291,837,000 shares of common
stock for the retirement of $823,222 of convertible notes payable.
In the fourth quarter of 2007, the Company exchanged 291,837,000 shares of
common stock for the retirement of $440,280 of convertible notes payable.
In the first quarter of 2008, the Company exchanged 293,413,060 shares of common
stock for the retirement of $186,900 of convertible notes payable.
At quarter end, the Company no longer had the necessary shares of common stock
in treasury to effect the conversion of the notes to common stock as required
under the convertible loan agreements. The Company is therefore in default under
the Notes.
-10-
GULF COAST OIL & GAS, INC. AND SUBSIDIARY
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2008
NOTE 4 - NOTES PAYABLE - CONTINUED
Maturities of long term debt at December 31, 2007 were as follows:
2006 $ -0-
2007 $ -0-
2008 $ -0-
2009 $ 943,028
NOTE 5 - DERIVATIVE LIABILITY ARISING FROM WARRANTS
The Company accounts for debt with embedded conversion features and warrant
issues in accordance with EITF 98-5: ACCOUNTING FOR CONVERTIBLE SECURITIES WITH
BENEFICIAL CONVERSION FEATURES OR CONTINGENCY ADJUSTABLE CONVERSION and EITF No.
00-27: APPLICATION OF ISSUE NO 98-5 TO CERTAIN CONVERTIBLE INSTRUMENTS.
Conversion features determined to be beneficial to the holder are valued at fair
value and recorded to additional paid in capital. The Company determines the
fair value to be ascribed to the detachable warrants issued with the convertible
debentures utilizing the BLACK-SCHOLES method. Any discount derived from
determining the fair value to the debenture conversion features and warrants is
amortized to financing cost over the life of the debenture. The unamortized
discount, if any, upon the conversion of the debentures is expensed to financing
cost on a pro rata basis.
Debt issue with the variable conversion features are considered to be embedded
derivatives and are accountable in accordance with FASB 133; ACCOUNTING FOR
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. The fare value of the embedded
derivative is recorded to derivative liability. This liability is required to be
marked each reporting period. The resulting discount on the debt is amortized to
interest expense over the life of the related debt.
NOTE 6 - SERIES A PREFERRED STOCK
Each share of preferred has 15 votes compared to each share of common, which has
only one vote. In the second quarter 2004 all outstanding shares of Preferred
Stock were redeemed for $1,000.
NOTE 7 - RELATED PARTIES
The Company owed its present President $23,619 and $43,619 for compensation and
expense reimbursement at March 31, 2008 and December 31, 2007, respectively.
-11-
GULF COAST OIL & GAS, INC. AND SUBSIDIARY
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
March 31, 2008
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.
-12-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
LIQUIDITY AND FINANCIAL CONDITION
At March 31, 2008, cash and cash equivalents were $137,284, a decrease of
$97,099 over December 31, 2007. Total liabilities at March 31, 2008 were
$1,212,015, of which $455,887 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.
The Company's sole source of revenues has been from its interest in three wells
located in Corpus Christi. Those wells had to be reworked in late 2007 and the
operator has not recovered the costs and has not therefore commenced paying
distributions as of the date of this Report. The Company does not anticipate the
receipt of revenues in the second quarter of 2008 but believes that production
will be sufficient so that distributions will be received in the third quarter
of 2008.
As of March 31, 2008 we had a working deficit of $163,437, as compared to a
working capital deficit of $43,680 at December 31, 2007. The decrease in working
capital is largely attributable to an increase in accrued interest on the
Convertible Debentures and a decrease in cash. The decrease in cash is largely
attributable to administrative overhead expenses not offset by any revenues in
the first quarter.
The Corpus Christi wells continue to produce oil and gas. However, revenues have
been used to pay the costs of the rework and the Company anticipates that it
will receive distributiions again commencing in the third quarter of 2008. The
Company will use such revenues to pay its administrative overhead. The Company
is currently negotiating with several prospective partners with respect to the
Saratoga Prospect, but revenues, if any, from such project will not be realized
in the near term. The Company also intends to seek additional financing for
future projects.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2008
COMPARED TO THREE MONTHS ENDED MARCH 31, 2007
REVENUES
The Company generated $94,197 in sales for the three months ended March 31, 2007
which reflect distributions from the Company's interest in three producing oil
and gas wells in Corpus Christi, Texas. In the first quarter of 2008, the
Company did not have any revenues as revenues from the Corpus Christi wells were
used to pay rework expenses.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses during the three months ended March 31, 2008
declined slightly to $164,000 from $174,000 in the same period in 2007. This
decrease was the result of slightly lower fees paid to outside professionals.
-13-
NET GAIN/LOSS TO COMMON SHAREHOLDERS
Net operating loss to common shareholders was ($162,957) or ($0.00) per share
for the three months ended March 31, 2008 as compared to a net operating loss of
($96,155) or ($0.00) for the three months ended March 31, 2007. The increase in
net loss results from the Company's failure to generate any revenues in the
first quarter of 2008 for the reason set forth above.
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, 2008, our accumulated deficit was ($7,751,083).
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a "smaller reporting company" as defined by Item 10-K of Regulation S-K, the
Company is not required to provide this information.
ITEM 4T. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our reports filed pursuant to the
Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the SEC's rules, regulations and related forms, and that
such information is accumulated and communicated to our principal executive
officer and principal financial officer, as appropriate, to allow timely
decisions regarding required disclosure.
As of March 31, 2008, we carried out an evaluation, under the supervision and
with the participation of our principal executive officer and our principal
financial officer of the effectiveness of the design and operation of our
disclosure controls and procedures. Based on this evaluation, our principal
executive officer and our principal financial officer concluded that our
disclosure controls and procedures were effective as of the end of the period
covered by this report.
CHANGES IN INTERNAL CONTROLS
There have been no changes in our internal controls over financial reporting
during the quarter ended March 31, 2008 that have materially affected or are
reasonably likely to materially affect our internal controls.
-14-
PART II.
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. UNREGISTERED SALES OF SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
The Company received a letter dated March 17, 2008 from YA Global Investments,
L.P. (f/k/a Cornell Capital Partners, L.P.) ("YA") serving as notice that the
Company is in default under the terms of the Debentures and related agreements.
YA's letter states that the Company is in default for, among other things, the
Company's failure to reserve a sufficient number of authorized shares of common
stock to allow for full conversion of the Debentures and YA demanded full
payment of the YA Debenture. Pursuant to the terms of the Debentures, the
Company covenanted that it would reserve a sufficient number of authorized
common shares to permit the conversion of the Debentures.
As of the date hereof, YA has not taken any further action pursuant to the
notice of default. The Company is currently evaluating options for attempting to
increase the number of authorized common shares in order to cure the default.
The Company has also had oral discussions with representatives of Taib Bank
B.S.C. (c) and Certain Wealth, Ltd. concerning the default and potential cure.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
(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.
-15-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: May 15, 2008 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)
-16-