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 JUNE 30, 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.
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2008
INDEX
PAGE
PART 1 -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Balance Sheets-- June 30, 2008 and December 31, 2007 1
Statements of Operations - Three and Six Months Ending 2
June 30, 2008 and June 30, 2007, and for the period beginning
August 4, 2003 (inception) through June 30, 2008 2
Statement of Stockholders Equity - For the period beginning 3
August 4, 2003 (inception) through June 30, 2008
Statements of Cash Flows-- Three and Six Months Ending 4
June 30, 2008 and June 30, 2007, and for the period
beginning August 4, 2003 (inception) through June 30, 2008
Notes to Consolidated Financial Statements--June 30, 2008 5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 14
AND RESULTS OF OPERATIONS
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 15
ITEM 4T. CONTROLS AND PROCEDURES 15
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 16
ITEM 2. UNREGISTERED SALES OF EQUITY 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 17
GULF COAST OIL & GAS, INC.
(AN EXPLORATION STAGE COMPANY)
BALANCE SHEETS
JUNE 30, 2008 AND DECEMBER 31, 2007
JUNE 30, DECEMBER 31,
ASSETS 2008 2007
------------ ------------
Current Assets
Cash in banks $ 80,876 $ 234,383
Accounts receivable -other -- --
Deferred financing 111,051 176,460
------------ ------------
Total Current Assets 191,927 410,843
Fixed Assets
Office equipment 7,537 7,537
Oil equipment 49,897 49,897
Less accumulated depreciation (16,386) (12,342)
------------ ------------
41,048 45,092
Other Assets
Website costs less accumulated
amortization of $500 and $0 246 314
Deferred financing - Non-current -- 22,821
Deposit on interest in unproved oil and gas leases 892,163 928,810
------------ ------------
892,409 951,945
------------ ------------
Total Assets $ 1,125,384 $ 1,407,880
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 62,196 $ 62,198
Due to shareholder 40,619 43,619
Accrued interest 281,031 313,075
Accrued expenses 35,631 35,631
------------ ------------
Total Current Liabilities 419,477 454,523
Long-Term Debt
Notes payable 798,002 943,028
Derivative Liability Arising From Warrants -- --
Stockholders' Equity
Series A Preferred stock, 1,000,000 shares
authorized, 0 shares outstanding,
par value $.001 per share -- --
Series B Preferred stock, 10,000,000 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 999,953 673,640
Additional contributed capital 6,536,550 6,643,063
Deficit accumulated during exploration stage (7,910,350) (7,588,126)
Accumulated other comprehensive income 281,752 281,752
Stock subscription advances -- --
------------ ------------
(92,095) 10,329
------------ ------------
Total Liabilities and Stockholders' Equity $ 1,125,384 $ 1,407,880
============ ============
See accompanying notes to financial statements.
1
GULF COAST OIL & GAS, INC.
(AN EXPLORATION STAGE COMPANY)
STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDING JUNE 30, 2008 AND JUNE 30, 2006, AND FOR THE
PERIOD BEGINNING AUGUST 4, 2003 (INCEPTION) THROUGH JUNE 30, 2008
Quarter Ended Year to Date Quarter Ended Year to Date
June 30, June, 30 June 30, June 30, Since
2008 2008 2007 2007 Inception
------------- ------------- ------------- ------------- -------------
Revenues
Sales $ -- $ -- $ 56,479 $ 150,676 209,821
Interest income 207 1,250 4,553 8,752 42,913
------------- ------------- ------------- ------------- -------------
207 1,250 61,032 159,428 252,734
Cost of sales
Exploration costs -- -- 16,541 36,646 196,271
------------- ------------- ------------- ------------- -------------
Gross Profit 207 1,250 44,491 122,782 56,463
Expenses
Administrative 159,474 323,474 161,820 336,266 7,660,950
------------- ------------- ------------- ------------- -------------
(159,267) (322,224) (117,329) (213,484) (7,604,487)
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 (159,267) (322,224) (117,329) (213,484) (7,554,167)
------------- ------------- ------------- ------------- -------------
Discontinued operations
Mineral rights abandoned -- -- -- -- (193,226)
------------- ------------- ------------- ------------- -------------
Net Loss (159,267) (322,224) (117,329) (213,484) (7,747,393)
Other Comprehensive Income
Decrease in fair value of derivatives -- -- 8,333 8,333 273,419
------------- ------------- ------------- ------------- -------------
Net Comprehensive Income / (Loss) $ (159,267) $ (322,224) $ (108,996) $ (205,151) $ (7,473,974)
============= ============= ============= ============= =============
Net loss per share $ (0.00) $ (0.00) $ (0.00) $ (0.00)
Other comprehensive income per share $ -- $ -- $ 0.00 $ 0.00
Average shares outstanding 820,346,258 820,346,258 186,491,011 165,190,243
See accompanying notes to financial statements.
2
GULF COAST OIL & GAS, INC.
(AN EXPLORATION STAGE COMPANY)
STATEMENT OF STOCKHOLDERS EQUITY
FOR THE PERIOD BEGINNING AUGUST 4, 2003 (INCEPTION) THROUGH JUNE 30, 2008
Series A Preferred Stock Series B Preferred Stock Common Stock
Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------
Balance August 4, 2003 -- $ -- -- $ --
Shares issued for services -- -- 24,300,000 24,300
Shares issued for cash -- -- 11,700,000 11,700
Shares issued for mineral rights -- -- 9,000,000 9,000
Merger with Otish Mountain
Company 1,000,000 1,000 323,283 324
Net loss for the period -- -- -- --
---------- ----------- ---------- ----------- ----------- -----------
Balance December 31, 2003 1,000,000 1,000 45,323,283 45,324
Shares issued for services -- -- 60,900,000 60,900
Shares issued for mineral rights -- -- 150 --
Shares issued for cash -- -- 7,902,000 7,902
Redemption of Preferred Shares (1,000,000) (1,000) -- --
Net loss for the period -- -- -- --
---------- ----------- ---------- ----------- ----------- -----------
Balance at December 31, 2004 -- -- 114,125,433 114,126
Shares issued for Debt -- -- 996,360 996
Shares sold -- -- 4,115,000 4,115
Shares issued for services -- -- 300,000 300
Stock subscription advance -- -- -- --
Net loss for the period -- -- -- --
---------- ----------- ---------- ----------- ----------- -----------
Balance at December 31, 2005 -- -- 119,536,793 119,537
Shares issued for debt -- -- 13,341,841 13,342
Shares issued for services -- -- 2,000,000 2,000
Net (loss) income for the period -- -- -- --
---------- ----------- ---------- ----------- ----------- -----------
Balance December 31, 2006 -- -- 134,878,634 134,879
Shares issued for debt -- -- 537,061,084 537,061
Shares issued for services -- -- 1,700,000 1,700
Repayment of advanced funds -- -- -- --
Net (loss) income for the period -- -- -- --
---------- ----------- ---------- ----------- ----------- -----------
Balance December 31, 2007 -- -- 673,639,718 673,640
Shares issued for debt -- -- 293,413,060 293,413
Net (loss) income for the period -- -- -- --
---------- ----------- ---------- ----------- ----------- -----------
Balance March 31, 2008 -- -- 967,052,778 967,053
Preferred Serices B established -- -- -- $ -- -- --
Shares issed for debt -- -- -- -- 32,900,000 32,900
Net (loss) income for the
period -- -- -- -- -- --
---------- ----------- ---------- ----------- ----------- -----------
Balance June 30, 2008 -- $ -- -- $ -- 999,952,778 $ 999,953
========== =========== ========== =========== =========== ===========
Accumulated
Additional Other Stock
Contributed Retained Comprehensive Subscription
Capital Deficit Income Advances Total
------- ------- ------ -------- -----
Balance August 4, 2003 $ -- $ -- $ -- $ -- $ --
Shares issued for services (16,200) -- -- -- 8,100
Shares issued for cash 162,300 -- -- -- 174,000
Shares issued for mineral rights 62,250 -- -- -- 71,250
Merger with Otish Mountain
Company (216) (1,167) -- -- (59)
Net loss for the period -- (94,138) -- -- (94,138)
----------- ----------- ----------- ----------- -----------
Balance December 31, 2003 208,134 (95,305) -- -- 159,153
Shares issued for services 5,119,100 -- -- -- 5,180,000
Shares issued for mineral rights 53 -- -- -- 53
Shares issued for cash 255,498 -- -- -- 263,400
Redemption of Preferred Shares -- -- -- -- (1,000)
Net loss for the period -- (6,013,462) -- -- (6,013,462)
----------- ----------- ----------- ----------- -----------
Balance at December 31, 2004 5,582,785 (6,108,767) -- -- (411,856)
Shares issued for Debt 236,124 -- -- -- 237,120
Shares sold 295,885 -- -- -- 300,000
Shares issued for services 23,700 -- -- -- 24,000
Stock subscription advance -- -- -- 49,902 49,902
Net loss for the period -- (186,943) -- -- (186,943)
----------- ----------- ----------- ----------- -----------
Balance at December 31, 2005 6,138,494 (6,295,710) -- 49,902 12,223
Shares issued for debt 19,107 -- -- -- 32,449
Shares issued for services -- -- -- -- 2,000
Net (loss) income for the period -- (754,715) 273,419 -- (481,296)
----------- ----------- ----------- ----------- -----------
Balance December 31, 2006 6,157,601 (7,050,425) 273,419 49,902 (434,624)
Shares issued for debt 485,462 -- -- -- 1,022,523
Shares issued for services -- -- -- -- 1,700
Repayment of advanced funds -- -- -- (49,902) (49,902)
Net (loss) income for the period -- (537,701) 8,333 -- (529,368)
----------- ----------- ----------- ----------- -----------
Balance December 31, 2007 6,643,063 (7,588,126) 281,752 -- 10,329
Shares issued for debt (106,513) -- -- -- 186,900
Net (loss) income for the period -- (162,957) -- -- (162,957)
----------- ----------- ----------- ----------- -----------
Balance March 31, 2008 6,536,550 (7,751,083) 281,752 -- 34,272
Preferred Serices B established -- -- -- -- --
Shares issed for debt -- -- -- -- 32,900
Net (loss) income for the
period -- (159,267) -- -- (159,267)
----------- ----------- ----------- ----------- -----------
Balance June 30, 2008 $ 6,536,550 $(7,910,350) $ 281,752 $ -- $ (92,095)
=========== =========== =========== =========== ===========
See accompanying notes to financial statements.
3
GULF COAST OIL & GAS, INC.
STATEMENTS OF CASH FLOWS
FOR THE THREE AND SIX MONTHS ENDING JUNE 30, 2008 AND JUNE 30, 2007 AND FOR THE
PERIOD BEGINNING AUGUST 4, 2003 (INCEPTION) THROUGH JUNE 30, 2008
Quarter Ended Year to Date Quarter Ended Year to Date
June 30, June 30, June 30, June 30, Since
2008 2008 2007 2007 Inception
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss for the period $ (159,267) $ (322,224) $ (117,329) $ (213,484) $(7,747,394)
Adjustments to reconcile net earnings to net
cash provided (used) by operating activities:
Depreciation 2,022 4,044 2,022 4,044 25,421
Amortization 80,796 124,945 62,472 124,944 301,797
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) (12,114) (14,614) 62,197
Increase in Due to shareholder 17,000 (3,000) 6,500 15,500 37,483
Increase in Accrued interest 21,365 42,730 49,140 98,280 334,440
(Decrease) Increase in Accrued expenses -- -- -- -- 58,767
----------- ----------- ----------- ----------- -----------
NET CASH (USED) BY OPERATING ACTIVITIES (38,085) (153,507) (9,309) 16,370 (1,419,268)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Mineral rights -- -- -- (91,534)
Purchase of Interest in unproved oil and gas
leases (18,323) -- (139,177) (139,177) (947,133)
Purchase of Website costs -- -- -- -- (27,519)
Purchase of Fixed assets -- -- -- -- (74,163)
----------- ----------- ----------- ----------- -----------
NET CASH (USED) BY
INVESTING ACTIVITIES (18,323) -- (139,177) (139,177) (1,140,349)
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 (56,408) (153,507) (148,486) (122,807) 177,783
CASH FROM OTISH DIAMOND MERGER -- -- -- 192
CASH AT BEGINNING OF PERIOD 137,284 234,383 599,117 573,438 --
----------- ----------- ----------- ----------- -----------
CASH AT END OF PERIOD $ 80,876 $ 80,876 $ 450,631 $ 450,631 $ 177,975
=========== =========== =========== =========== ===========
See accompanying notes to financial statements.
4
GULF COAST OIL & GAS, INC.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
June 30, 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
5
GULF COAST OIL & GAS, INC.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
June 30, 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.
6
GULF COAST OIL & GAS, INC.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
June 30, 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.
7
GULF COAST OIL & GAS, INC.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
June 30, 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.
8
GULF COAST OIL & GAS, INC.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
June 30, 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.
9
GULF COAST OIL & GAS, INC.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
June 30, 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.
10
GULF COAST OIL & GAS, INC.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
June 30, 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.
In the Second quarter 2008, the Company exchanged 32,900,000 shares of common
stock for the retirement of $32,900 of convertible notes payable.
11
GULF COAST OIL & GAS, INC.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
June 30, 2008
NOTE 4 - NOTES PAYABLE - CONTINUED
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.
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.
Series B - On June 23, 2008 Company established a Series B preferred stock. Each
share is convertible at the option of the holder into one share of common stock.
Each share of preferred has 15,000 votes to each share of common. In addition
certain actions of the Company require the consent of two-thirds of the
outstanding shares of this class.
12
GULF COAST OIL & GAS, INC.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
June 30, 2008
NOTE 7 - RELATED PARTIES
The Company owes it present President $40,619 and $43,619 for compensation and
expense reimbursement at June 30, 2008 and December 31, 2007 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. Management feels
the revenue flow from the wells will generate the necessary working capital
needed in 2008. Management also feels with the revenues and related income there
will be an increase in the Company's stock price thereby causing a portion of
the outstanding warrants to be exercised and thereby raising additional capital.
The accompanying financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
NOTE 9 - SUBSQUENT EVENTS
On July 22, 2008 the Company entered into a Forbearance Agreements with its note
holders. The agreement calls for extension of the expiration date of the five
year warrants to seven years, the issuance of new seven year warrants to
purchase a total of 24,633,330 shares of common stock at exercise prices of $.01
to $.03 per share, the interest rate on the debentures was increased from 10% to
18% and the conversion rate was changed to 75% of the average trading price for
the ten day period prior to the exchange. Finally, the Company agreed to
increase the authorized shares of common stock to 15,000,000,000 shares.
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
LIQUIDITY AND FINANCIAL CONDITION
At June 30, 2008, cash and cash equivalents were $80,876, a decrease of $153,507
over December 31, 2007. Total liabilities at June 30, 2008 were $1,217,479, of
which $419,477 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 did 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 June 30, 2008 we had a working deficit of $227,550, 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 and professional expenses not offset by
any revenues in the second quarter.
The Company does not believe that future revenues, if any, from the Corpus
Christi wells will be sufficient to meet its overhead expenses for much longer.
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. If the Company can not obtain additional financing, it may be forced
to cease conducting business and consider alternatives including filing of a
bankruptcy proceeding.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2008
COMPARED TO SIX MONTHS ENDED JUNE 30, 2007
REVENUES
The Company generated $159,428 in revenue for the six months ended June 30, 2007
consisting of $150,676 from distributions from the Company's interest in the
Corpus Christi wells and interest income of $8,752. In the second quarter of
2008, the Company did not have any revenues, other than $207 of interest income,
as the Corpus Christi wells were in the process of being reworked in order to
stimulate production.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses during the six months ended June 30, 2008
declined slightly to $323,474 from $336,266 in the same period in 2007. This
decrease was the result of slightly lower fees paid to outside professionals.
14
NET GAIN/LOSS TO COMMON SHAREHOLDERS
Net operating loss to common shareholders was ($322,224) or ($0.00) per share
for the six months ended June 30, 2008 as compared to a net operating loss of
($213,484) or ($0.00) for the six months ended June 30, 2007. The increase in
net loss results from the Company's failure to generate any revenues in the
second 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 June
30, 2008, our accumulated deficit was ($7,747,393).
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
Our management is responsible for establishing and maintaining adequate internal
control over financial reporting for the Company as defined in Rules 13a-15(f)
and 15d-15(f) under the Exchange Act. Our internal control over financial
reporting is designed to provide reasonable assurance regarding the (i)
effectiveness and efficiency of operations, (ii) reliability of financial
reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles, and (iii) compliance
with applicable laws and regulations.
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
Management's assessment of the effectiveness of the small business issuer's
internal control over financial reporting is as of the quarter ended June 30,
2008. We believe that internal control over financial reporting is effective. We
have not identified any, current material weaknesses considering the nature and
extent of our current operations and any risks or errors in financial reporting
under current operations.
This report does not include an attestation report of the Company's registered
public accounting firm regarding internal control over financial reporting.
Management's report was not subject to attestation by the Company's registered
public accounting firm pursuant to temporary rules of the Securities and
Exchange Commission that permits us to provide only management's report in this
quarterly report.
CHANGES IN INTERNAL CONTROLS
There have been no changes in our internal controls over financial reporting
during the quarter ended June 30, 2008 that have materially affected or are
reasonably likely to materially affect our internal controls.
15
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.
SUBSEQUENT EVENTS
As reported in a Form 8-K filed with the U.S. Securities and Exchange Commission
("SEC"), on July 22, 2008 we entered into forbearance agreements dated July 15,
2008 (the "Forbearance Agreements") with YA, Certain Wealth, Ltd. ("Certain
Wealth"), and TAIB Bank, B.S.C. (c) ("TAIB") (collectively, the "Holders"),
pursuant to which the Holders agreed to forbear from exercising certain of their
rights and remedies under certain transaction documents whereby the Company
issued the Holders secured convertible debentures in the total principal amount
of $2,000,000 (collectively, the "Debentures").
The Forbearance Agreements call for extension of the expiration date of certain
five year warrants to seven years, the issuance of new seven year warrants to
purchase a total of 24,633,330 shares of common stock at exercise prices ranging
from $.01 to $.03 per share, an increase of the interest rate on the Debentures
from 10% to 18% and the conversion rate was changed to 75% of the average
trading price for the ten day period prior to the date of conversion. We also
agreed that the Company will take the necessary steps with the Nevada Secretary
of State and the SEC to increase its authorized shares of common stock to
fifteen billion (15,000,000,000) with no par value per share.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
16
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.
17
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: August 19, 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)
18