PROSPECTUS As Filed Pursuant to Rule 424(b)(3)
Registration No. 333-120659
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WESTSIDE ENERGY CORPORATION
2100 West Loop South, Suite 900
Houston, Texas 77027
(713) 590-3791
17,772,077 Shares of Common Stock
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This prospectus relates to up to 17,772,077 shares of our common stock,
$0.01 par value per share, being offered by the persons who are our
stockholders. These persons are referred to throughout this prospectus as
"selling stockholders." Of these shares:
* 16,261,577 were previously issued to 61 stockholders, and
* 1,510,500 shares are issuable upon the exercise of certain
warrants issued to 20 holders (all but one of whom are also
included in the preceding group of stockholders)
All of the common shares and warrants described above (except any shares of
common stock which may be issued in the future upon the exercise of warrants)
were previously issued in private placement transactions.
The selling security holders may offer the shares covered by this
prospectus at fixed prices, at prevailing market prices at the time of sale, at
varying prices or negotiated prices, in negotiated transactions or in trading
markets for our common stock. We will not receive any cash proceeds from the
selling security holders' subsequent sales of the shares covered by this
prospectus. However, we will receive the exercise price of a warrant upon its
exercise.
Our common stock trades in the over-the-counter market on the OTC
Electronic Bulletin Board under the symbol "WEGC" The closing price of our
common stock on the OTC Electronic Bulletin Board on December 21, 2004 was
$4.20 per share.
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You should consider carefully the Risk Factors beginning on page 5 of
this prospectus.
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Neither the Securities and Exchange Commission nor any state securities
commission has approved these securities or determined that this prospectus is
accurate or complete. Any representation to the contrary is a criminal offense.
The date of this prospectus is January 10, 2005.
TABLE OF CONTENTS
SUMMARY INFORMATION......................................................... 3
RECENT EVENTS .............................................................. 4
RISK FACTORS ............................................................... 5
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS............................14
USE OF PROCEEDS ............................................................15
DIVIDEND POLICY ............................................................15
PRICE RANGE OF COMMON STOCK ................................................15
BUSINESS ...................................................................16
MANAGEMENT .................................................................24
EXECUTIVE COMPENSATION .....................................................25
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS .............................26
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS OR MANAGEMENT ..............27
DESCRIPTION OF SECURITIES ..................................................29
SELLING STOCKHOLDERS .......................................................30
PLAN OF DISTRIBUTION .......................................................35
EXPERTS ....................................................................36
INDEX TO FINANCIAL STATEMENTS...............................................37
2
SUMMARY INFORMATION
This summary highlights information contained elsewhere in this
prospectus. You should read the entire prospectus carefully, including "Risk
Factors," before investing in our common stock.
Common stock outstanding 17,048,331 shares (1)
prior to this offering
Common stock being offered for Up to 17,772,077shares
resale to the public
Common stock outstanding
after this offering 18,558,831 shares (2)
Price per share to the public Market or negotiated price at the
time of sale or resale.
Total proceeds raised by offering We will not receive any proceeds from
the resale of shares offered by any
selling stockholders. We did receive
proceeds from the sale of our common
stock and warrants in private
placements. We will receive proceeds
from the exercise of the warrants
whose underlying shares of common
stock are covered by this prospectus.
These proceeds may equal as much as
$1,986,250 if all of the warrants are
exercised.
Use of proceeds For working capital and general
corporate purposes.
Plan of distribution The offering of our shares of common
stock is being made by our
stockholders who may wish to sell
their shares. Selling stockholders
may sell the shares covered by this
prospectus in the open market or in
privately negotiated transactions and
at discounted prices, fixed prices,
or negotiated prices.
Risk factors Significant risks are involved in
investing in our company. For a
discussion of risk factors you should
consider before buying our common
stock, see "RISK FACTORS" beginning
on page 5.
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(1) Does not include up to 1,510,500 shares issuable upon the exercise of
warrants whose underlying shares of common stock are covered by this
prospectus.
(2) Includes up to 1,510,500 shares issuable upon the exercise of warrants
whose underlying shares of common stock are covered by this prospectus.
3
RECENT EVENTS
Westside Energy Corporation, f/n/a "Eventemp Corporation" (the
"Company"), was incorporated on November 30, 1995 under the laws of the State of
Nevada. In February 2004, the Company decided to focus its efforts on the
acquisition of attractive crude oil and natural gas prospects, and the
exploration, development and production of oil and gas on these prospects. For
several years prior to February 2004, the Company had been dormant from a
business perspective.
In connection with the change in the Company's business focus, the
Company has undertaken the following activities:
* The Company changed its corporate name from "Eventemp
Corporation" to "Westside Energy Corporation" on March 17,
2004 to reflect the Company's new business focus.
* The Company expanded its Board of Directors from one member to
two members and elected Jimmy D. Wright to fill the newly
created vacancy. Mr. Wright has considerable experience in the
oil & gas industry. Keith D. Spickelmier remains as the
Company's other director. For more information about Messrs.
Wright and Spickelmier, see "MANAGEMENT" herein.
* The Company elected Jimmy D. Wright as the Company's Chief
Executive Officer and Chief Financial Officer. Keith D.
Spickelmier remains as the Company's Chairman of the Board.
* The Company began acquiring rights in certain oil and gas
leases. As of December 15, 2004, the Company had acquired
total leased acreage of 18,515 gross acres and 17,159 net
acres in Jack, Wise, Denton, Hill, Ellis and Hamilton
Counties in Texas in the Barnett Shale. As of the date of
this prospectus, we have drilled only one well on these
leases, and a sufficient amount of time following the
completion of this well has not transpired to establish proved
reserves.
* The Company completed several rounds of financings. The
most recent financing involved the sale of 10 million shares
of the Company's common stock in a private placement
transaction resulting in gross proceeds of $20 million and net
proceeds to the Company of approximately $18.5 million after
offering expenses. A portion of the proceeds from this
private placement was used to retire indebtedness in the
aggregate original principal amount of $810,000 plus interest.
All of this indebtedness was either owed directly to members
of the Company's management or owed to entities controlled by
members of the Company's management. Some of this indebtedness
was secured by all of the Company's assets, including the
Company's current oil and gas interests as well as all such
interests to be acquired in the future. In connection with
the payment of this indebtedness, the liens on the Company's
assets were released. In addition, in connection with the
closing of the private placement, a holder of a short-term
convertible promissory note having a principal balance of
$300,000 converted the principal balance of the promissory
note into 150,000 shares of the Company's common stock. As a
result of these transactions, the Company does not now have
any secured indebtedness or any indebtedness on any promissory
note. The Company expects that, if its plan of operation
progresses in accordance with its terms, the Company will in
the future seek third party debt financing to further such
plan. Management believes that the funds generated from the
$18.5 million private placement will be sufficient to cover
the cash needs of the Company for the next 12 months,
although there can be no assurance in this regard.
4
RISK FACTORS
The securities covered by this prospectus involve a high degree of risk.
Accordingly, they should be considered extremely speculative. You should read
the entire prospectus and carefully consider, among the other factors and
financial data described herein, the following risk factors:
RISKS RELATED TO OUR COMPANY
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OUR EXTREMELY LIMITED HISTORY MAKES AN EVALUATION OF US AND OUR FUTURE
EXTREMELY DIFFICULT, AND PROFITS ARE NOT ASSURED.
The Company was incorporated on November 30, 1995 for the purpose of
commercially exploiting a proprietary self-contained climate control system for
vehicles (known as the Etemp system) that allowed the user to call his or her
vehicle from any available telephone and pre-cool or pre-heat the interior of
the vehicle within five minutes before arriving with the engine turned off.
During February 2004, we decided to focus our business on the acquisition of
attractive crude oil and natural gas prospects, and the exploration, development
and production of oil and gas on these prospects. Since that time, we have
acquired rights in oil and gas properties that we believe represent attractive
opportunities for exploration. As of the date of this Prospectus, we have just
recently commenced the production of oil and gas in limited quantities from our
first and only well. All of the oil and gas properties that we have leased to
date are considered "undeveloped acreage," which the U.S. Securities and
Exchange Commission (the "Commission") defines as "lease acreage on which wells
have not been drilled or completed to a point that would permit the production
of commercial quantities of oil and gas regardless of whether such acreage
contains proved reserves." We have established no proved or probable reserves
with respect to any of our properties. In view of our extremely limited history
in the oil and gas exploration business, you may have difficulty in evaluating
us and our business and prospects. You must consider our business and prospects
in light of the risks, expenses and difficulties frequently encountered by
companies in their early stage of development. For our business plan to succeed,
we must successfully undertake most of the following activities:
* Find and acquire rights in attractive oil and gas properties;
* Drill successfully exploratory test wells on our oil and gas
properties to determine the presence of oil and gas in commercially
viable quantities;
* Develop our oil and gas properties to a stage at which oil and gas
are being produced in commercially viable quantities;
* Procure purchasers of our commercial production of oil and gas upon
such commencement;
* Comply with applicable laws and regulations;
* Identify and enter into binding agreements with suitable joint
venture partners for our future projects;
* Implement and successfully execute our business strategy;
* Respond to competitive developments and market changes; and
* Attract, retain and motivate qualified personnel.
There can be no assurance that we will be successful in undertaking such
activities. Our failure to undertake successfully most of the activities
described above could materially and adversely affect our business, prospects,
financial condition and results of operations. In addition, there can be no
assurance that our exploration and production activities will produce oil and
gas in commercially viable quantities, if any at all. Moreover, even if we
succeed in producing oil and gas, we expect to incur operating losses until such
time (if ever) as we produce and sell a sufficient volume of our commercial
production to cover direct production costs as well as corporate overhead. There
can be no assurance that sales of our oil and gas production will ever generate
significant revenues, that we will ever generate positive cash flow from our
operations or that (if ever attained) we will be able to sustain profitability
in any future period.
5
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WE DEPEND ON CERTAIN KEY PERSONNEL.
We substantially depend upon the efforts and skills of Jimmy D. Wright,
a director and the President of the Company. The loss of Mr. Wright's services,
or his inability to devote sufficient attention to our operations, could
materially and adversely affect our operations. Mr. Wright has not entered into
an employment agreement or a covenant not to compete agreement with us. As a
result, Mr. Wright may discontinue providing his services to us at any time and
for any reason, and even thereafter commence competition with us. Moreover, we
do not maintain key man life insurance on Mr. Wright.
OUR CURRENT MANAGEMENT RESOURCES MAY NOT BE SUFFICIENT FOR THE FUTURE,
AND WE HAVE NO ASSURANCE THAT WE CAN ATTRACT ADDITIONAL QUALIFIED PERSONNEL.
There can be no assurance that the current level of management is
sufficient to perform all responsibilities necessary or beneficial for
management to perform. Our success in attracting additional qualified personnel
will depend on many factors, including our ability to provide them with
competitive compensation arrangements, equity participation and other benefits.
There is no assurance that (if we need to) we will be successful in attracting
highly qualified individuals in key management positions.
LIMITATIONS ON CLAIMS AGAINST OUR OFFICERS AND DIRECTORS, AND OUR
OBLIGATION TO INDEMNIFY THEM, COULD PREVENT OUR RECOVERY FOR LOSSES CAUSED BY
THEM.
The corporation law of Nevada allows a Nevada corporation to limit the
liability of its directors to the corporation and its stockholders to a certain
extent, and our Restated Articles of Incorporation have eliminated our
directors' liability to the maximum extent permitted by the corporation law of
Nevada. Moreover, our Bylaws provide that we must indemnify each director,
officer, agent and/or employee to the maximum extent provided for by the
corporation law of Nevada. Further, we may purchase and maintain insurance on
behalf of any such persons whether or not we have the power to indemnify such
person against the liability insured against. Consequently, because of the
actions or omissions of officers, directors, agents and employees, we could
incur substantial losses and be prevented from recovering such losses from such
persons. Further, the Commission maintains that indemnification for liabilities
arising under the Securities Act is against the public policy expressed in the
Securities Act, and is therefore unenforceable.
INCUMBENT MANAGEMENT OWNS A LARGE PERCENTAGE OF OUR OUTSTANDING STOCK,
AND CUMULATIVE VOTING IS NOT AVAILABLE TO STOCKHOLDERS.
Our current management, Jimmy D. Wright and Keith D. Spickelmier,
currently owns (directly or indirectly) approximately 32.2% of our outstanding
common stock (considered on an undiluted basis); Messrs. Wright's and
Spickelmier's stock ownership would increase if they were to exercise certain
outstanding warrants issued to them directly or indirectly. Cumulative voting in
the election of directors is expressly denied in our Restated Articles of
Incorporation. Accordingly, the holder or holders of a majority of our
outstanding shares of common stock may elect all of our directors. Management's
large percentage ownership of our outstanding common stock helps enable them to
maintain their positions as such and thus control of our business and affairs.
Moreover, Messrs. Wright and Spickelmier have entered into a Voting Agreement,
pursuant to which they agreed until February 26, 2006 to vote all of their
shares of common stock to elect themselves or their nominees to the Company's
Board of Directors. This Voting Agreement could further entrench current
management during the term of its existence.
WE MAY EXPERIENCE RAPID GROWTH, AND IN SUCH CASE WE WILL NEED TO MANAGE
THIS GROWTH EFFECTIVELY.
We believe that, given the right business opportunities, we may expand
our operations rapidly and significantly. If rapid growth were to occur, it
could place a significant strain on our management, operational and financial
resources. To manage any significant growth of our operations, we will be
required to undertake the following successfully:
* Manage relationships with various strategic partners and other third
parties;
* Hire and retain skilled personnel necessary to support our business;
* Train and manage a growing employee base; and
* Continually develop our financial and information management systems.
If we fail to make adequate allowances for the costs and risks associated with
this expansion or if our systems, procedures or controls are not adequate to
support our operations, our business could be harmed. Our inability to manage
growth effectively could materially adversely affect our business, results of
operations and financial condition.
6
<page>
WE HAVE ENTERED INTO CERTAIN TRANSACTIONS WITH PERSONS WHO ARE OUR
OFFICERS AND DIRECTORS.
We have entered into certain transactions (the "Related Party
Transactions") either directly with, or with entities controlled by one or both
of, Jimmy D. Wright, one of our directors and our President and Chief Financial
Officer, and Keith D. Spickelmier, one of our directors and our Chairman of the
Board. The Related Party Transactions are described in "CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS." Some of the Related Party Transactions were not the
result of arms-length negotiations. Accordingly, there can be no assurance that
the terms and conditions of the Related Party Transactions are as favorable to
us as those that could have been obtained in true arms-length negotiations.
However, we believe that all Related Party Transactions were fair as to the
Company at the time they were authorized or approved and therefore valid under
applicable Nevada law. Moreover, because of Messrs. Wright's and Spickelmier's
position with us, there can be no assurance that we would enforce a claim
against either of them arising out of any of the Related Party Transactions.
RISKS RELATED TO OUR BUSINESS
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OIL AND GAS PRICES ARE VOLATILE, HAVE BEEN LOW IN RECENT YEARS, AND
COULD BE LOW AGAIN IN THE FUTURE.
Our revenues, profitability and future growth and the carrying value of
our properties will depend substantially on the prices we realize for our oil
and gas production. Our realized prices will also affect the amount of cash flow
available for capital expenditures and our ability to borrow and raise
additional capital. Oil and gas are commodities and, therefore, their prices are
subject to wide fluctuations in response to relatively minor changes in supply
and demand. Historically, the markets for oil and gas have been volatile, and
they are likely to continue to be volatile in the future. For example, natural
gas prices increased significantly in late 2000 and steadily declined in 2001.
In 2002, natural gas and oil prices started a steady climb, which continued
until almost the end of May 2004, at which time prices began to fall. Oil prices
started to recover again in July 2004 (although they suffered an interim decline
from which they have largely recovered), while natural gas prices started to
recover again in early September 2004. Despite the fairly high current prices
for natural gas and oil, there can be no assurance that low prices will not be
experienced again in the future. Among the factors that can cause price
volatility are:
* worldwide or regional demand for energy, which is affected by
economic conditions;
* the domestic and foreign supply of oil and gas;
* weather conditions;
* domestic and foreign governmental regulations;
* political conditions in gas or oil producing regions;
* the ability of members of the Organization of Petroleum Exporting
Countries to agree upon and maintain oil prices and production
levels; and
* the price and availability of alternative fuels.
Oil and gas price movements cannot be predicted with certainty. Lower oil and
gas prices may not only decrease our revenues on a per unit basis but also may
reduce the amount of oil and gas that we can produce economically. A substantial
or extended decline in oil and gas prices may materially and adversely affect
our future business, financial condition, results of operations, liquidity and
ability to finance capital expenditures.
7
<page>
THE SUCCESS OF OUR BUSINESS DEPENDS ON OUR ABILITY TO SELECT OIL AND
GAS PROJECTS THAT ULTIMATELY PROVE SUCCESSFUL ECONOMICALLY.
We intend to drill exploratory test wells on properties with no proved
oil and gas reserves, although such properties will typically be situated in
areas of proved production reserves. Drilling of oil and gas wells always
involves the risk that no commercially productive oil or gas reservoirs will be
encountered. While all drilling (whether developmental or exploratory) involves
this risk, exploratory drilling involves greater risks of dry holes or failure
to find commercial quantities of oil and gas. Because of our proposed
exploratory drilling activities, we are especially likely to experience
exploration and abandonment expenses from time to time in the future. The
economic success of any project will depend on a number of factors, including
our ability to discern and estimate the volumes of recoverable reserves relating
to the project, rates of future production, future commodity prices, operating
costs, and possible environmental liabilities. All of these factors affect
whether or not a project will ultimately generate cash flows sufficient to
provide a suitable return on investment. Our assessments and estimations of
these factors (which are inherently inexact and uncertain) may prove inaccurate.
Moreover, there is no specific criterion for selecting the oil and gas projects
that we will decide to pursue. Accordingly, we will have significant flexibility
in selecting such projects. There can be no assurance that we will be able to
identify economically successful oil and gas projects or that we will be able to
pursue these projects successfully even if identified. Our failure to select
economically successful oil and gas project will materially and adversely affect
our business, results of operations and financial condition. Even if we create
reserves through our exploration activities, our reserves will decline as they
are produced. We will be constantly constrained to add new reserves through
further exploration or further development of our existing properties. There can
be no assurance that our exploration and development activities will be
successful in adding new reserves. If we fail to replace reserves, our level of
production and cash flows will be adversely impacted.
THE SELECTION OF OIL AND GAS PROJECTS INVOLVES NUMEROUS RISKS UNRELATED
TO THE PRESENCE OR ABSENCE OF RECOVERABLE RESERVES RELATING TO THE PROJECT.
Even though we intend to perform a review (that we believe is
consistent with industry practices) of each project we decide to pursue, reviews
of this nature are often limited in scope. Moreover, these reviews may not
reveal all existing or potential problems nor will they permit us to become
sufficiently familiar with the related properties to fully assess their
deficiencies and capabilities. In addition, inspections may not always be
performed on every platform or well, and structural or environmental problems
may not be observable even when an inspection is undertaken. Even when problems
are identified, the seller or lessor may be unwilling or unable to provide
effective contractual protection against all or part of the problems. We are
generally not entitled to contractual indemnification for environmental
liabilities, and we may be required to pursue many projects on an "as is" basis.
Accordingly, we may be required to make significant expenditures to cure
environmental contamination relating to acquired properties. If we are unable to
remedy or cure any title defect or potential environmental problem of a nature
such that drilling operations on the property would not be prudent, we could
suffer a loss of our entire investment in the property.
WE ARE CURRENTLY FOCUSING OUR EXPLORATION EFFORTS IN ONLY ONE
GEOGRAPHICAL AREA, AND OUR CURRENT LACK OF GREATER DIVERSIFICATION ENTAILS
CONSIDERABLE RISKS.
Currently, all of our oil and gas interests lie in the Barnett Shale
located in the State of Texas, although we may in the future explore areas other
than the Barnett Shale. At the present, our success depends entirely upon our
ability to locate and produce oil and gas on a profitable basis on and from our
interests in the Barnett Shale. There can be no assurance that we will be able
to do this, and that we will not encounter one or more problems arising from the
particular geological characteristics of the Barnett Shale. Our current lack of
diversification beyond the Barnett Shale may make our results of operations more
volatile than they would be if we were seeking to develop interests in more than
one area. For more information about the Barnett Shale, see "BUSINESS - Plan of
Operation -Proposed Initial Activities."
8
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OUR APPROACH TO TITLE ASSURANCE COULD MATERIALLY ADVERSELY AFFECT OUR
BUSINESS AND OPERATIONS.
We intend to purchase working and revenue interests in oil and gas
leasehold interests. The existence of a material title deficiency can render a
lease worthless and can result in a large expense to our business. In some
instances, we may forego the expense of retaining lawyers to examine the title
to the mineral interest to be placed under lease or already placed under lease.
Rather, we will rely upon the judgment of oil and gas lease brokers or landmen
who perform the field work in examining records in the appropriate governmental
office before attempting to place under lease a specific mineral interest. This
is customary practice in the oil and gas industry. Prior to the drilling of an
oil and gas well, however, it is the normal practice in the oil and gas industry
for the person or company acting as the operator of the well to obtain a
preliminary title review of the spacing unit within which the proposed oil and
gas well is to be drilled to ensure there are no obvious deficiencies in title
to the well. In some instances, we, or the person or company acting as operator
of the wells located on the properties that we intend to lease, may not obtain
counsel to examine title to such spacing unit until the well is about to be
drilled. As a result of such examinations, certain curative work may have to be
performed to correct deficiencies in the marketability of the title, and such
curative work entails expense. The work might include obtaining affidavits of
heirship or causing an estate to be administered. Occasionally, the examination
made by the title lawyers reveals that the oil and gas lease or leases are
worthless, having been purchased in error from a person who is not the owner of
the mineral interest desired. In such instances, the amount paid for such oil
and gas lease or leases is generally lost. If we were to lose the amount paid
for any such oil and gas lease, such loss could materially adversely affect our
business. Since we do not intend to retain title lawyers in connection with our
acquisitions, the risk of such losses in our operations is increased. We note,
however, that we did obtain a drill site title opinion for our initial well
being drilled as of the date of this Prospectus.
DEVELOPMENT ACTIVITIES ON EVEN WELL-SELECTED PROJECTS MAY BE
UNSUCCESSFUL FOR MANY REASONS, INCLUDING WEATHER, COST OVERRUNS, EQUIPMENT
SHORTAGES AND MECHANICAL DIFFICULTIES.
The selection of attractive oil and gas projects does not ensure
success. The development of oil and gas projects involves a variety of operating
risks, including:
* fires;
* explosions;
* blow-outs and surface cratering;
* uncontrollable flows of natural gas, oil and formation water;
* natural disasters, such as hurricanes and other adverse
weather conditions;
* pipe, cement, subsea well or pipeline failures;
* casing collapses;
* ineffective hydraulic fracs;
* embedded oil field drilling and service tools;
* abnormally pressured formations; and
* environmental hazards, such as natural gas leaks, oil spills,
pipeline ruptures and discharges of toxic gases.
If we experience any of these problems, it could affect well bores, platforms,
gathering systems and processing facilities, which could adversely affect our
ability to conduct operations.
We could also incur substantial losses as a result of:
* injury or loss of life;
* severe damage to and destruction of property, natural
resources and equipment;
* pollution and other environmental damage;
* clean-up responsibilities;
* regulatory investigation and penalties;
* suspension of our operations; and
* repairs to resume operations.
These conditions can cause substantial damage to facilities and interrupt
production. As a result, we could incur substantial liabilities that could
reduce or eliminate the funds available for development or property
acquisitions, or result in loss of equipment and properties.
9
<page>
Presently, because of budget constraints, we do not maintain insurance
in accordance with prevailing industry practices, but instead we rely upon the
insurance coverage of our operators to protect us against the types of risks,
losses and liabilities that customarily arise out of oil and gas exploration and
production activities. Our operators' insurance may prove inadequate. Our lack
of customary insurance coverage may expose us to certain risks, losses and
liabilities for the indefinite future. As funds become available, we intend to
broaden our insurance coverage. However, we may never obtain insurance for some
risks if we believe the cost of available insurance is excessive relative to the
risks presented. In addition, some risks may not be fully insurable if insurable
at all. Even if we broaden our insurance coverage, our insurance would probably
not cover all potential claims or may not adequately indemnify us for all
liability to which we will be exposed. Any liability or legal defense expenses
not covered by insurance or exceeding our insurance coverage could materially
and adversely affect our business, operating results and financial condition.
Moreover, we do not currently carry business interruption insurance.
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Finally, the successful drilling of an oil and gas well does not ensure
a profit on investment. A variety of factors, both geological and
market-related, can cause a well to become uneconomical or only marginally
economic.
WE WILL RELY ON A NUMBER OF THIRD PARTIES, AND SUCH RELIANCE EXPOSES US
TO A NUMBER OF RISKS.
Our operations will depend on a number of third parties. We will have
limited control over these third parties. We will probably not have many
long-term agreements with many of them. We may rely upon various companies to
assist us in identifying desirable gas and oil prospects to acquire and provide
us with technical assistance and services. We also may rely upon the services of
geologists, geophysicists, chemists, engineers and other scientists to explore
and analyze our prospects to determine a method in which the prospects may be
developed in a cost-effective manner. In addition, we intend to rely upon the
owners and operators of oil rigs and drilling equipment, and upon providers of
oilfield services, to drill and develop our prospects to production. Moreover,
if any of our wells proves to hold commercially producible gas, we will have to
rely on third party gathering or pipeline facilities to transport and purchase
our production. We have identified the locations of all major gathering and
other facilities currently installed in the general vicinity of our targeted
area and have initiated contacts with the owners of these facilities to
ascertain their specific requirements with respect to transporting our gas to
pipelines for transmission, including volume and quality of gas and connection
costs. Management believes that these pipelines basically purchase all available
gas that they can. However, some of the owners of these pipelines produce their
own gas, which they also transport along with other third-party gas such as that
which we intend to produce. Most of the pipelines in the area of our current oil
and gas interests are not required by law to transport any gas that we may
produce. As a result, if pipelines in the area reach capacity, any productive
natural gas well that we develop could be "shut-in" because of a lack of
available natural gas pipeline capacity. Overall, our inability to maintain
satisfactory relationships with the requisite third parties on acceptable
commercial terms, or the failure of such third parties to maintain the quality
of services they provide at a satisfactory standard, could materially adversely
affect our business, results of operations and financial condition.
10
<page>
THE UNAVAILABILITY OR HIGH COST OF DRILLING RIGS, EQUIPMENT, SUPPLIES,
PERSONNEL AND OILFIELD SERVICES COULD MATERIALLY ADVERSELY AFFECT US.
Either shortages or increases in the cost of drilling rigs, equipment,
supplies or personnel could delay or adversely affect our operations, which
could materially adversely affect our business, financial condition and results
of operations. Drilling activity in the area of our proposed initial activities
is comparatively high. Increased drilling activity could decrease the
availability of rigs and oilfield services. As a further result of the increased
drilling activity, associated costs (including those related to drilling rigs,
equipment, supplies and personnel and the services and products of other vendors
to the industry) could increase as well. These costs may increase further, and
necessary equipment and services may not be available to us at economical
prices.
WE MAY INCUR SUBSTANTIAL IMPAIRMENT WRITEDOWNS IN THE FUTURE.
If and when we are successful in establishing proved oil and gas
properties, we will review such properties in the future for impairment when
circumstances suggest there is a need for such a review. For each property
determined to be impaired, we will recognize an impairment loss equal to the
difference between the carrying value and the fair value of the property on our
balance sheet. Fair value is estimated to be the present value of expected
future net cash flows computed by applying estimated future oil and gas prices
(as determined by management) to the estimated future production of oil and gas
reserves over the economic life of a property. Future cash flows are based upon
an independent engineer's estimate of proved reserves. In addition, other
factors such as probable and possible reserves are taken into consideration when
justified by economic conditions and actual or planned drilling. If oil and gas
prices decrease or if the recoverable reserves on a property are revised
downward, we may be required to record impairment writedowns in the future,
which would result in a negative impact to our financial position.
OUR HEDGING DECISIONS MAY IMPACT OUR POTENTIAL GAINS FROM CHANGES IN
COMMODITY PRICES AND MAY RESULT IN LOSSES.
To reduce our exposure to fluctuations in the prices of oil and gas, we
may in the future enter into hedging arrangements with respect to a portion of
our expected production. Hedging arrangements expose us to risk of financial
loss in some circumstances, including the following:
* production is less than expected;
* the other party to the hedging contract defaults on its
contract obligations;
* we could be required to post additional cash to cover margin
requirements, which could materially adversely affect our
liquidity;
* we could be unable to meet additional margin requirements,
which could result in the closing of our positions thereby
leading to a financial loss as well as the possible loss of
the anticipated benefits of the related hedging transactions;
and
* there is a change in the expected differential between the
underlying price in the hedging agreement and actual prices
received.
These hedging arrangements may limit the benefit we would receive from
increases in the prices for oil and gas. Furthermore, if we choose not to engage
in hedging arrangements in the future, we may be more adversely affected by
changes in oil and gas prices than had we engaged in hedging arrangements.
WE ARE SUBJECT TO COMPLEX LAWS AND REGULATIONS, INCLUDING ENVIRONMENTAL
REGULATIONS, WHICH CAN ADVERSELY AFFECT THE COST, MANNER OR FEASIBILITY OF DOING
BUSINESS.
Development, production and sale of oil and gas are subject to
extensive laws and regulations, including environmental laws and regulations. We
may be required to make large expenditures to comply with environmental and
other governmental regulations. Matters subject to regulation include:
* discharge permits for drilling operations;
* bonds for ownership, development and production of oil and gas
properties;
* reports concerning operations; and
* taxation.
Under these laws and regulations, we could be liable for personal
injuries, property damage, oil spills, discharge of hazardous materials,
remediation and clean-up costs and other environmental damages. Failure to
comply with these laws and regulations also may result in the suspension or
termination of our operations and subject us to administrative, civil and
criminal penalties. Moreover, these laws and regulations could change in ways
that substantially increase our costs. Accordingly, any of these liabilities,
penalties, suspensions, terminations or regulatory changes could materially
adversely affect our financial condition and results of operations.
Our competitors may have greater resources, which could enable them to
pay a higher price for properties and to better withstand periods of low market
prices for oil and natural gas.
The petroleum and natural gas industry is intensely competitive, and we
compete with other companies that have substantially larger financial resources,
operations, staffs and facilities. Many of these companies not only explore for
and produce crude oil and natural gas but also carry on refining operations and
market oil and other products on a regional, national or worldwide basis. Such
companies may be able to pay more for productive oil and natural gas properties
and exploratory prospects or define, evaluate, bid for and purchase a greater
number of properties and prospects than our financial or human resources permit.
In addition, such companies may have a greater ability to continue exploration
activities during periods of low hydrocarbon market prices. Our ability to
acquire additional properties and to discover reserves in the future will be
dependent upon our ability to evaluate and select suitable properties and to
consummate transactions in a highly competitive environment. For more
information regarding the competition to which we will be exposed, see "BUSINESS
- - Competition."
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RISKS RELATED TO OUR COMMON STOCK
---------------------------------
OUR AUTHORIZED PREFERRED STOCK EXPOSES HOLDERS of our common stock TO
CERTAIN RISKS.
Our Restated Articles of Incorporation, as amended, authorize the
issuance of up to 10,000,000 shares of preferred stock, par value $.01 per
share. The authorized but unissued preferred stock constitutes what is commonly
referred to as "blank check" preferred stock. This type of preferred stock may
be issued by the Board of Directors from time to time on any number of
occasions, without stockholder approval, as one or more separate series of
shares comprised of any number of the authorized but unissued shares of
preferred stock, designated by resolution of the Board of Directors stating the
name and number of shares of each series and setting forth separately for such
series the relative rights, privileges and preferences thereof, including, if
any, the: (i) rate of dividends payable thereon; (ii) price, terms and
conditions of redemption; (iii) voluntary and involuntary liquidation
preferences; (iv) provisions of a sinking fund for redemption or repurchase; (v)
terms of conversion to common stock, including conversion price, and (vi) voting
rights. Such preferred stock may provide our Board of Directors the ability to
hinder or discourage any attempt to gain control of us by a merger, tender offer
at a control premium price, proxy contest or otherwise. Consequently, the
preferred stock could entrench our management. The market price of our common
stock could be depressed to some extent by the existence of the preferred stock.
As of the date of this Prospectus, no shares of preferred stock had been issued.
WE HAVE CERTAIN OBLIGATIONS AND THE GENERAL ABILITY TO ISSUE ADDITIONAL
SHARES OF COMMON STOCK IN THE FUTURE, AND SUCH FUTURE ISSUANCES MAY DEPRESS THE
PRICE OF OUR COMMON STOCK.
We have various obligations and the ability to issue additional shares
of common stock in the future. These obligations and abilities include the
following:
* Approximately 320,500 registered shares of our common
stock are available as of November 24, 2004 for issuance to
outside consultants to compensate them for services provided;
and
* Warrants to purchase approximately 1,510,500 unregistered
shares of common stock had been issued as of November 24,
2004.
The warrants described above permit the holders to purchase shares of
common stock at specified prices. These purchase prices may be less than the
then current market price of our common stock. Any shares of common stock issued
pursuant to these warrants would further dilute the percentage ownership of
existing stockholders. The terms on which we could obtain additional capital
during the life of these warrants may be adversely affected because of such
potential dilution. Finally, we may issue additional shares in the future other
than as listed above. There are no preemptive rights in connection with our
common stock. Thus, the percentage ownership of existing stockholders may be
diluted if we issue additional shares in the future. For issuances of shares and
grants of options to consultants, our Board of Directors will determine the
timing and size of the issuances and grants and the consideration or services
required therefor. Our Board of Directors intends to use its reasonable business
judgment to fulfill its fiduciary obligations to our then existing stockholders
in connection with any such issuance or grant. Nonetheless, future issuances of
additional shares could cause immediate and substantial dilution to the net
tangible book value of shares of common stock issued and outstanding immediately
before such transaction. Any future decrease in the net tangible book value of
such issued and outstanding shares could materially and adversely affect the
market value of the shares.
SALES OF LARGE QUANTITIES OF OUR COMMON STOCK, INCLUDING THOSE SHARES
COVERED BY THIS PROSPECTUS (WHICH MAY BE SOLD AT ANY PRICE AND ANY TIME), COULD
REDUCE THE PRICE OF OUR COMMON STOCK.
Any sales of large quantities of shares of our common stock could
reduce the price of our common stock. The holders of the shares covered by this
Prospectus may offer to sell such shares at any price and at any time determined
by them without limitation. If holders sell large quantities of shares of our
common stock, our common stock price may decrease and the public market for our
common stock may otherwise be adversely affected because of the additional
shares available in the market.
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OUR COMMON STOCK HAS EXPERIENCED ONLY EXTREMELY LIMITED TRADING.
Our common stock had been quoted and traded on the over-the-counter
market in the United States under the symbol "EVTP." In connection with the
recent change of our corporate name, the trading symbol of our common stock
changed to "WEGC." Our common stock recently began trading again in very limited
quantities in the "Electronic Pink Sheets" of the National Quotation Bureau.
Management believes that, prior to these recent sales, no public sale of our
common stock had occurred since June 2002. An application for our common stock
to trade in the over-the-counter market on the OTC Electronic Bulletin Board
was recently accepted. However, there can be no assurance as to the prices at
which the shares of our common stock will trade. Until shares of our common
stock become more broadly held and orderly markets develop and even thereafter,
the prices of our common stock may fluctuate significantly. Prices for our
common stock will be determined in the marketplace and may be influenced by many
factors, including the following:
* The depth and liquidity of the markets for our common stock;
* Investor perception of us and the industry in which we
participate;
* General economic and market conditions;
* Responses to quarter-to-quarter variations in operating
results;
* Failure to meet securities analysts' estimates;
* Changes in financial estimates by securities analysts;
* Conditions, trends or announcements in the oil and gas
industry;
* Announcements of significant acquisitions, strategic
alliances, joint ventures or capital commitments by us or our
competitors;
* Additions or departures of key personnel;
* Sales of our common stock;
* Accounting pronouncements or changes in accounting rules that
affect our financial statements; and
* Other factors and events beyond our control.
The market price of our common stock could experience significant
fluctuations unrelated to our operating performance. As a result, a stockholder
(due to personal circumstances) may be required to sell such stockholder's
shares of our common stock at a time when our stock price is depressed due to
random fluctuations, possibly based on factors beyond our control.
The market price of our common stock has risen significantly in a very
short period of time.
The market price of our common stock increased from a last reported
sale of approximately $.01 per share near the end of March 2004 to up to $4.25
per share at the beginning of November 2004. There can be no assurance that the
market price of our common stock will remain at or near its current level, which
is high from the standpoint of recent trading in our common stock.
THE TRADING PRICE OF OUR COMMON STOCK MAY ENTAIL ADDITIONAL REGULATORY
REQUIREMENTS, WHICH MAY NEGATIVELY AFFECT SUCH TRADING PRICE.
The trading price of our common stock has been and may continue to be
below $5.00 per share. As a result of this price level, trading in our common
stock is subject to the requirements of certain rules promulgated under the
Exchange Act. These rules require additional disclosure by broker-dealers in
connection with any trades generally involving any non-NASDAQ equity security
that has a market price of less than $5.00 per share, subject to certain
exceptions. Such rules require the delivery, before any penny stock transaction,
of a disclosure schedule explaining the penny stock market and the risks
associated therewith, and impose various sales practice requirements on
broker-dealers who sell penny stocks to persons other than established customers
and accredited investors (generally institutions). For these types of
transactions, the broker-dealer must determine the suitability of the penny
stock for the purchaser and receive the purchaser's written consent to the
transaction before sale. The additional burdens imposed upon broker-dealers by
such requirements may discourage broker-dealers from effecting transactions in
our common stock. As a consequence, the market liquidity of our common stock
could be severely affected or limited by these regulatory requirements.
13
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BECAUSE OUR BOARD OF DIRECTORS DOES NOT INTEND TO PAY DIVIDENDS ON OUR
COMMON STOCK IN THE FORESEEABLE FUTURE, STOCKHOLDERS MAY HAVE TO SELL THEIR
SHARES OF OUR COMMON STOCK TO REALIZE A RETURN ON THEIR INVESTMENT IN THE
COMPANY.
The holders of our common stock are entitled to receive dividends when,
as and if declared by our Board of Directors out of funds legally available
therefor. To date, we have paid no dividends. Our Board of Directors does not
intend to declare any dividends in the foreseeable future, but instead intends
to retain all earnings, if any, for use in our business operations. Accordingly,
a return on an investment in shares of our common stock may be realized only
through a sale of such shares, if at all.
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements within the meaning
of Section 24A of the Securities Act of 1933. These statements appear in a
number of places including "BUSINESS" and "MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS." These statements regard:
* our belief regarding the attractiveness of our oil and gas
properties for purposes of exploration;
* our intention and plan to perform risk assessments and due
diligence reviews that we believe are consistent with
industry practices of each project we decide to pursue;
* our belief regarding the possible rapid and significant
expansion of our operations;
* our belief regarding the sufficiency of our current acreage
for purposes of conducting our initial plan of drilling;
* our belief regarding the availability and qualifications of
necessary third party service providers;
* our belief regarding the cost of identifying drill sites;
* our belief regarding the availability of sufficient cash flow
and conventional bank financing for purposes of properly
pursuing our plan of operation;
* our belief regarding our ability to satisfy all payment
obligations that we incur as a result of the acceptance of
outstanding offers;
* our belief regarding our ability to enter into long-term sales
contracts for our production;
* our belief regarding our permitted or permittable capacity to
continue our operations if any regulatory agency requires us
to forego construction, modification or operation of certain
air emission sources;
* our belief regarding the effect of continued compliance
with existing requirements of environmental laws and
regulations;
* our expectations to pay our operators commercially prevailing
rates;
* our expectations that the initial phase of our plan of
operation will take approximately two years from start to
finish;
* our expectations that we will be able to retain a promotional
interest in prospects presented to other industry investors;
* our expectations regarding our use of employees and outside
consultants;
* our expectations regarding management remuneration;
* our plans as to how we will finance our business;
* our expectations regarding the costs of drilling our wells;
* our expectations regarding our ability to sell our production
to purchasers and end-users at prevailing market prices and
under arrangements that are usual and customary in the
industry;
* our expectations regarding the effect of compliance with
existing federal, state and local laws, rules and regulations
governing the release of materials in the environment or
otherwise relating to the protection of the environment; and
* our estimates regarding the length of time required to drill,
test and complete each well, and install the facilities to
connect to gathering or pipeline facilities.
14
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Such statements can be identified by the use of forward-looking
terminology such as "believes," "expects," "may," "estimates," "will," "should,"
"plans" or "anticipates" or the negative thereof or other variations thereon or
comparable terminology, or by discussions of strategy. Readers are cautioned
that any such forward-looking statements are not guarantees of future
performance and involve significant risks and uncertainties, and that actual
results could differ materially from those projected in the forward-looking
statements. Factors that could cause actual results to differ materially
include, but are not limited to, those discussed under "RISK FACTORS"
immediately below. As a result, these forward-looking statements represent the
Company's judgment as of the date of this prospectus. The Company does not
express any intent or obligation to update these forward-looking statements.
USE OF PROCEEDS
The potential net proceeds to the Company from the exercise of the
warrants for shares of common stock covered by this prospectus will be up to
approximately $1,986,250. The Company intends to use such net proceeds, if any,
for general working capital and other corporate purposes. As of the end of
trading hours on December 21, 2004 when the Company's common stock closed at
$4.20 per share, all of the warrant shares covered by this prospectus were
"in-the-money," meaning that the holder of the warrant could acquire the shares
at a strike price lower than the market price then in effect. There can be no
assurance that any of these warrants will be exercised before they expire and,
as a result, that the Company will receive any proceeds from them. Even if some
or all of these warrants are exercised, the Company cannot predict when they
will be exercised and when the proceeds will be received.
- --------
The Company will receive no proceeds from any sales of the shares of
common stock issuable upon the exercise of the warrants. The selling
stockholders of these shares will receive all of the net proceeds from such
sales.
DIVIDEND POLICY
The Company has paid no cash dividends on its Common Stock and the
Company presently intends to retain earnings to finance the expansion of its
business. Payment of future dividends, if any, will be at the discretion of the
Board of Directors after taking into account various factors, including the
Company's financial condition, results of operations, current and anticipated
cash needs and plans for expansion.
PRICE RANGE OF COMMON STOCK
The Company's common stock had been quoted and traded on the
over-the-counter market in the United States under the symbol "EVTP." In
connection with the recent change of the Company's corporate name, the trading
symbol of the Company's Common Stock changed to "WEGC." The Company's common
stock recently began trading again in very limited quantities in the "Electronic
Pink Sheets" of the National Quotation Bureau. Management believes that, prior
to these recent sales, no public sale of the Company's common stock had occurred
since June 2002. In any event, after a reasonable effort, management was unable
to find any data regarding the bid, ask and sales prices of the Company's common
stock since January 1, 2000 (if any such data exists) up until April 6, 2004.
The following table sets forth the high and low closing reported sales prices
for the Company's Common Stock for completed quarters since April 6, 2004. Such
quotations represent interdealer prices, without retail markup, markdown or
commission, and do not necessarily represent the price of actual transactions
for the fiscal quarters indicated.
HIGH LOW
---- ---
2004
Third Quarter $3.20 $2.70
Second Quarter 3.40 1.25
An application for our common stock to trade in the over-the-counter market
on the OTC Electronic Bulletin Board was recently accepted. However, there
can be no assurance as to the prices at which the shares of our common stock
will trade.
As of November 19, 2004, the Company had 196 holders of record.
Management believes that the Company has between 400 and 500 beneficial
holders of its stock, although the exact number of these holders cannot be
determined.
15
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BUSINESS
General
In February 2004, Westside Energy Corporation (the "Company") decided
to focus its efforts on the acquisition of attractive crude oil and natural gas
prospects, and the exploration, development and production of oil and gas on
these prospects. For several years prior to February 2004, the Company had been
dormant from a business perspective. The Company intends to focus its efforts
initially in the State of Texas. The Company's major emphasis will be in the
participation in the oil and gas segment, acquiring interests in producing oil
or gas properties and participating in drilling operations. The Company's
principal products will be crude oil and natural gas. The Company intends to
engage in a broad range of activities associated with the oil and gas business
in an effort to develop oil and gas reserves. With the assistance of the
Company's management, independent contractors retained from time to time by the
Company, and, to a lesser extent, unsolicited submissions, the Company intends
to identify prospects that it believes are suitable for acquisition and
drilling.
When the Company acquires an interest in acreage on which exploration
or development drilling is planned, the Company will assess the relative
potential and risks of each prospect and determine the degree to which the
Company will participate in the exploration or development drilling. In the
right circumstances, the Company will assume the entire risk of the acquisition
and drilling. On the other hand, the Company may determine that it will be more
beneficial to invite industry participants to share the risk and the reward of
the prospect by financing some or all of the costs of drilling contemplated
wells. In such cases, the Company may retain a carried working interest, a
reversionary interest, or may be required to finance all or a portion of the
Company's proportional interest in the prospect. Although this approach will
reduce the Company's potential return should the drilling operations prove
successful, it will also reduce the Company's risk and financial commitment to a
particular prospect.
Conversely, the Company may from time to time participate in drilling
prospects offered by other persons if the Company believes that the potential
benefit from the drilling operations outweighs the risk and the cost of the
proposed operations. This approach will allow the Company to diversify into a
larger number of prospects at a lower cost per prospect, but these operations
(commonly known as "farm-ins") are generally more expensive than operations
where the Company offers the participation to others (known as "farm-outs").
In addition to its exploration and drilling activities, the Company
expects that it will try to accumulate oil and gas reserves through the purchase
of existing reserves from others. In this connection, the Company may initiate
workovers, recompletions, development drilling, secondary and tertiary recovery
operations and other production enhancement techniques to maximize current
production and the ultimate recovery of reserves acquired or developed.
There can be no assurance that the Company will be successful in its
exploratory and production activities. The oil and gas business involves
numerous risks. See "Risk Factors" herein.
Plan of Operation
-----------------
Proposed Initial Activities
Currently, the Company's primary area of interest is in the Barnett
Shale located in the state of Texas. The Company has acquired as of December 15,
2004 total leased acreage of 18,515 gross acres and 17,159 net acres in Jack,
Wise, Denton, Hill, Ellis and Hamilton Counties in Texas in the Barnett Shale.
The Company has just begun the initial phase of its plan of operation. It
completed its first well, the Lucille Pruitt #1, during November 2004. This
was completed in two stages and produced at an average flow rate of 685 MMBtu
per day of natural gas equivalent during the first 30 days of production. The
Company is the operator of this well, and the Company owns a 75% working
interest in this well, which is located approximately 25 miles northwest
of Denton, Texas. As of the date of this prospectus, production from this
well has not been sustained for a sufficient period of time to permit a
third party engineering report to establish proved reserves. Thus, the
Company does not have as of the date of this prospectus any estimates of oil
and gas reserves. Consequently the Company has not reported its reserve
estimates to any state or federal authority. The Company cannot assure anyone
that it will find commercially producible amounts of oil and gas.
16
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An article in the January 19, 2004 edition of the Oil & Gas Journal
described the Barnett Shale as "one of the hottest areas of drilling activity in
the continental US." Houston-based Mitchell Energy made the first economic
completion in the Barnett Shale in the early 1980's. At the end of 2002, the
Barnett Shale had 1,870 producing wells. During summer 2003, it had an average
rig count of 50. The Barnett Shale now is considered as a world-class,
unconventional, blanket gas reservoir. At current gas prices, wells drilled in
this area are regarded as low-risk, high-reward propositions because of their
long-term, steady production. Once focused largely in Denton and Wise counties,
expansion has occurred into a number of other counties. Productive
characteristics vary widely across the Barnett Shale, reflecting the geologic
variability of the formation itself. Moreover, the Barnett Shale has presented
difficulty in establishing sufficient recovery efficiency, but highly detailed
reservoir characterization studies and more refined drilling, completion, and
fracturing practices have improved well deliverability and economics. The
largest operator in the Barnett Shale is Devon Energy Corp, which reported total
revenues from all activities in 2003 of $7.0 billion. Devon now operates about
1,500 wells in the Barnett core area, representing about 60-70% of the producing
wells in the total Barnett area. It holds about 120,000 acres in the core area
and 430,000 acres outside. In 2004, Devon plans to drill about 150 wells in the
Barnett shale.
The initial phase of the Company's plan of operation will involve
drilling and testing wells on the Company's currently leased acreage in the
Barnett Shale to prove reserves, completing promising test wells, extracting the
oil, gas and other hydrocarbons that the Company finds, and delivering them to
market. The Company believes that this acreage is sufficient for the Company's
initial phase of drilling, which consists of between 10 and 20 wells. If the
initial phase of the Company's plan of operation is fully implemented, the
Company will drill, test and complete these wells over the next two years. Some
of the Company's current leases are subject to the Company's confirmation that
the related lessors have satisfactory title to their acreage. Until such
confirmation, the Company will not make payments pursuant to the leases. If the
Company is unable to confirm that any related lessor has satisfactory title to
any of this additional acreage, then the Company will not make any payments, and
the lease will terminate in the near future as a result. The Company is also in
the process of acquiring rights in additional acreage.
Based on recent price increases, the Company anticipates that each
vertical well in its targeted area will cost approximately $800,000 to complete
and that each horizontal well in its targeted area will cost approximately
$1,600,000 to complete, but such costs will depend on the drilling depth of a
particular well. The Company's anticipated costs of drilling operations are
based on estimates obtained from third-party service providers whom the Company
believes will be available to it to provide the services that the Company will
need. However, the actual costs of such operations may be more or less than the
estimates contained herein. If actual costs of operations exceed the Company's
estimates to any significant degree, the Company may require additional funding
to achieve its initial objectives.
Before committing substantial resources, including obtaining necessary
permits and preparing for drilling on any particular leased property, the
Company plans to complete its due diligence on its leased property. However, the
Company may not in some instances incur the expense of retaining lawyers to
examine the title to the Company's mineral interests. This practice could expose
the Company to certain risks, which are described in the "RISK FACTORS - OUR
APPROACH TO TITLE ASSURANCE COULD MATERIALLY ADVERSELY AFFECT OUR BUSINESS AND
OPERATIONS." The Company did obtain a drill site title opinion for its initial
well currently being drilled.
The Company will select future drill sites based on a variety of
factors, including information gathered from historic records and drill logs,
proximity to existing pipelines, ease of access for drilling equipment, seismic
data, the presence of oil and natural gas in the immediate vicinity, and
consultations with the Company's geologist, geophysicist, operator, driller and
frac companies. Because a majority of this research information has already been
obtained, the Company believes that the cost of identifying drill sites will be
low relative to other costs. With the exception of the evaluation of the
geological structures that the Company encounters during the drilling process,
the cost of which has been factored into the Company's estimated drilling costs,
the Company does not anticipate needing any further product research except
possibly 3-D seismic.
17
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Once the Company has identified a proposed drilling site, it will
engage the services of a third party operator licensed to operate oil and gas
wells in the State of Texas. The operator will be responsible for permitting the
well, which will include obtaining permission from state authorities relative to
spacing requirements and any other state and federal environmental clearances
required at the commencement of the permitting process. Additionally, the
operator will formulate and deliver to all interest owners an operating
agreement establishing each participants' rights and obligations in that
particular well based on the location of the well and the ownership. In addition
to the permitting process, the operator will be responsible for hiring the
driller, frac company, construction contractor and other third parties to
provide services for all aspects of the drilling operation except for geological
services, and supervising their efforts, and actually drilling the well to the
target zone. Should the well be successful, the operator would thereafter be
responsible for completing the well and connecting it to the most appropriate
transmission facility for the hydrocarbons produced. The Company expects to pay
the operator commercially prevailing rates. The Company intends to make sure
that the operator selected has insurance believed to be adequate.
The operator will be the caretaker of the well once production has
commenced. As such, the operator will be responsible for paying bills related to
the well, billing working interest owners for their proportionate expenses in
drilling and completing the well, and selling the production from the well.
Unless each interest owner sells its production separately, the operator will
collect purchase payments from the purchaser of the production, and, once a
division order has been established and confirmed by the interest owners, the
operator will issue the checks to each interest owner in accordance with its
appropriate interest. The operator will not perform these functions when each
interest owner sells its production separately, in which case the interest
owners will undertake these activities separately. After production commences on
a well, the operator also will be responsible for maintaining the well and the
wellhead site during the entire term of the production or until such time as the
operator has been replaced.
Although the Company presently does not intend to seek status as a
licensed operator, if in the future the Company believes that seeking licensed
operator status is appropriate and the Company has adequate staff available to
it, the Company may decide to operate its own wells.
The Company has entered into an agreement with Brammer Engineering,
Inc., engaging this company to act as the operator of the Company's first well.
Brammer has represented that it was founded in 1968 and has a staff of over 100
oil and gas professionals. Management believes that Brammer is amply qualified
to act as the operator of the Company's first well. For future wells, the
Company may use the services of Brammer or other qualified operators. Management
foresees no problem in procuring the services of qualified operators and
drillers in connection with the initial phase of the Company's plan of
operation, although a considerable increase in drilling activities in the area
of the Company's properties could make difficult (and perhaps expensive) the
procurement of operating and drilling services.
Each well will be drilled and tested individually. If commercially
producible amounts of oil or gas are present, the well will be completed and
facilities installed to connect to gathering or pipeline facilities. Completed
wells that are producing and connected to distribution pipelines will begin
generating revenues as soon as they begin flowing although actual funds for the
sale of production may be delayed and not be received until 30 days after the
end of the month of sale or even longer. If any of the Company wells proves to
hold commercially producible gas, the Company may need to install necessary
infrastructure to permit delivery of the Company gas from the wellhead to a
major pipeline. The Company has identified the locations of all major gathering
and other facilities currently installed in the general vicinity of the
Company's targeted area and has initiated contacts with the owners of these
facilities to ascertain their specific requirements with respect to transporting
the Company's gas to pipelines for transmission, including volume and quality of
gas and connection costs. Management believes that these pipelines basically
purchase all available gas that they can. However, some of the owners of these
pipelines produce their own gas, which they also transport along with other
third-party gas such as that the Company intends to produce. Most of the
pipelines in the area of the Company's current oil and gas interests are not
required by law to transport any gas that the Company may produce. As a result,
if pipelines in the area reach capacity, any productive natural gas well
developed by the Company could be "shut-in" because of a lack of available
natural gas pipeline capacity.
The cost of installing an infrastructure to deliver the Company's gas
to a pipeline or gatherer will vary depending upon the distance the gas must
travel from the wellhead to the tap, tap fees, and whether the gas first must be
treated to meet the purchasing company's quality standards. To minimize the
costs of transporting gas to existing pipelines, the Company intends to drill as
close to existing pipelines as practicable. However, ultimate connection costs
cannot now be accurately predicted.
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The Company recently entered into a standard gas sales agreement with
Dynegy, Inc. pursuant to which Dynegy has agreed to purchase from the Company
all production that is realized from the approximately 352-acre tract upon which
the Company's first well was drilled and future Company wells are expected
to be drilled.
Capital Requirements
From the time that the Company changed its business to oil and gas
exploration and development in February 2004 through the beginning of November
2004, the Company financed its business through a series of financings that
could be regarded as involving "seed" capital or bridge financing. These
financings were undertaken to sustain the Company until it could raise more
long-term capital. Many of these financings were funded in whole or in part by
members of the Company's management, either directly or through entities
controlled by them. (For more information regarding management's participation
in these financings, see "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS"
herein.) A total of $1.11 million in debt financing was obtained. As discussed
herein, all of this indebtedness has either been repaid or converted into
equity. In connection with these borrowings, the Company granted warrants to
purchase up to an aggregate of 820,000 shares of the Company's common stock for
a per-share exercise price of $.50. These warrants have a term of and are
exercisable for five years. With regard to equity financings, in February 2004
the Company raised some "seed" capital from management by selling to them,
directly or through entities controlled by them, a total or 4,080,000 shares of
the Company's common stock for a per-share purchase price of $.01. During the
quarter ended June 30, 2004, the Company completed a second round of equity
financing by selling 385,500 units of the Company's securities to a total of 17
accredited investors. Each unit was comprised of two shares of the Company's
common stock and a warrant to purchase one share of the Company's common stock
at a per share price of $2.50. The warrants have a term of and are exercisable
for two years. The purchase price for a unit was $2.00, with the Company
receiving aggregate offering proceeds of $771,000 from the offering.
On November 2, 2004, the Company completed the private placement of an
aggregate of 10,000,000 shares of its common stock, $.01 par value, at a price
of $2.00 per share. The cash offering resulted in $20 million in gross proceeds
and approximately $18.5 million in net proceeds to the Company after deducting
placement-related costs. The shares were issued to a total of 48 investors, all
of whom are accredited. The Company's placement agent received a placement fee
in the amount of $1,400,000, and was granted a five-year warrant to purchase
300,000 shares of common stock at a purchase price of $2.00 per share. A portion
of the proceeds from this private placement was used to retire indebtedness in
the aggregate original principal amount of $810,000 plus interest. All of this
indebtedness was either owed directly to members of the Company's management or
owed to entities controlled by members of the Company's management. Some of this
indebtedness was secured by all of the Company's assets, including the Company's
current oil and gas interests as well as all such interests to be acquired in
the future. In connection with the payment of this indebtedness, the liens on
the Company's assets were released. In addition, in connection with the closing
of the private placement, a holder of a short-term convertible promissory note
having a principal balance of $300,000 converted the principal balance of the
promissory note into 150,000 shares of the Company's common stock. As a result
of these transactions, the Company does not now have any secured indebtedness or
any indebtedness on any promissory note. The Company expects that, if its plan
of operation progresses in accordance with its terms, the Company will in the
future seek third party debt financing to further such plan. Management believes
that the funds generated from this private placement will be sufficient to cover
the cash needs of the Company for the next 12 months, although there can be no
assurance in this regard.
During November 2004, the Company completed its first well, the
Lucille Pruitt #1. This well is located on the Company's approximately 352-acre
tract of leased land approximately 25 miles northwest of Denton, Texas. This
well was completed in two stages and produced at an average flow rate of 685
MMBtu per day of natural gas equivalent during the first 30 days of
production. The Company is the operator of this well, and the Company owns a
75% working interest in this well. As of the date of this prospectus,
production from this well has not been sustained for a sufficient period of
time to permit a third party engineering report to establish proved
reserves. The Company would like to commence drilling of a second well before
the end of calendar 2004, probably also on the 352-acre tract of leased
land. In this connection, the Company is seeking a rig to undertake the
drilling. The completion of a second well will not occur before the end of
calendar 2004.
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Production from any successful efforts in the Company's exploration and
drilling efforts would provide the Company with cash flow, and proven reserves
would increase the value of the Company's leased rights and should enable the
Company to obtain bank financing (after the wells have produced for a period of
time to satisfy the related lender). Cash flow and conventional bank financing
are as critical to the Company's plan of operation as the equity infusion from
the Company's recent private placement that resulted in approximately $18.5
million in net proceeds. Management believes that, if the Company's plan of
operation progresses (and production is realized) as planned, sufficient cash
flow and conventional bank financing will be available for purposes of properly
pursuing the Company's plan of operation, although the Company can make no
assurances in this regard.
To conserve on the Company's capital requirements, the Company intends
occasionally to seek other industry investors who are willing to participate in
the Company's exploration and production activities. The Company expects to
retain a promotional interest in these prospects, but generally the Company will
have to finance a portion (and sometimes a significant portion) of the
acquisition and drilling costs. Also, the Company may acquire interests in
properties by issuing shares of its common stock.
Future Activities
If the Company is successful in its initial exploratory activities, the
Company will continue with the subsequent exploration and development of its
current properties and additional properties to be acquired in the future. The
continuation of the Company's plan of operation depends on the development of
operating wells that are producing gas and generating revenues. The Company
intends to lease additional available land to the extent that it believes such
land will further the Company's exploration and development activities. Such
leases could be in the Barnett Shale, other regions in Texas, or in areas
outside of the state of Texas.
Markets and Marketing
The petroleum industry has been characterized by fluctuating crude oil
and natural gas commodity prices and relatively stable supplier costs during the
past four years. However, during and just prior to 2000, the Organization of
Petroleum Exporting Countries ("OPEC") and certain other oil exporting nations
reduced their oil export volumes. Those reductions in oil export volumes had a
positive impact on world oil prices, as did overall gas supply and demand
fundamentals on North American gas prices. During 2001, world oil and North
American gas supply and demand fundamentals shifted, primarily as a result of an
economic recession curtailing demand, causing reductions in world oil and North
American gas prices. During 2002, world oil prices increased in response to
political unrest and supply disruptions in the Middle East and Venezuela. During
the third and fourth quarters of 2002, North American gas prices improved as
market fundamentals strengthened. Worldwide oil and North American gas prices
currently remain favorable. However, the outlook for future commodity prices is
uncertain. Significant factors that will impact future commodity prices include
the final resolution of issues currently impacting the Middle East and
Venezuela; the extent to which members of OPEC and other oil exporting nations
are able to manage oil supply through export quotas; and overall North American
gas supply and demand fundamentals.
The Company does not expect to refine any of its production, although
the Company may have to process some of its production to transport it or to
meet the purchasing company's quality standards. Instead, the Company expects
that all or nearly all of its production will be sold to a relatively small
number of customers. Production from the Company's properties will be marketed
consistent with industry practices. The availability of a ready market for the
Company's production will depend upon a number of factors beyond the Company's
control, including the availability of other domestic production, price, crude
oil imports, the proximity and capacity of oil and gas pipelines, and general
fluctuations in supply and demand. Although the effect of these factors cannot
be accurately predicted or anticipated, the Company does not anticipate any
unusual difficulty in contracting to sell its production of oil and gas to
purchasers and end-users at prevailing market prices and under arrangements that
are usual and customary in the industry. However, there can be no assurance that
market, economic and regulatory factors will not in the future materially
adversely affect the Company's ability to sell its production. The Company will
strive to develop markets with end-users, local distribution companies, and
natural gas brokers for gas produced from successful exploratory wells and
development wells. The Company expects that most of the natural gas that the
Company is able to find (if any) will be transported through gas gathering
systems and gas pipelines that are not owned by the Company. The Company's
current leased land is in fairly close proximity to gas pipelines suitable for
carrying the Company's production. Transportation space on gas gathering systems
and pipelines is occasionally limited and at times unavailable due to repairs or
improvements being made to the facilities or due to use by other gas shippers
with priority transportation agreements or who own or control the relevant
pipeline. If transportation space is restricted or is unavailable, the Company's
cash flow from the affected properties could be adversely affected. The Company
does not now have any long-term sales contracts for any crude oil and natural
gas production that it realizes, but it expects that it will generally sell any
production that it develops pursuant to these types of contracts. The Company
does not believe that it will have any difficulty in entering into long-term
sales contracts for its production, although there can be no assurance in this
regard.
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Sales prices for oil and gas production are negotiated based on factors
normally considered in the industry, such as the spot price for gas or the
posted price for oil, price regulations, regional price variations, distance
from the well to the pipeline, well pressure, estimated reserves, commodity
quality and prevailing supply conditions. Historically, prices of crude oil and
natural gas market have experienced high volatility. This high volatility is a
result of ever changing perceptions throughout the industry centered on supply
and demand. Although the Company cannot predict the occurrence of events that
may affect oil and gas prices or the degree to which oil and gas prices will be
affected, the prices for any oil or gas that the Company produces should be
equivalent to current market prices in the geographic region, and the Company
will strive to obtain the best price in the area of its production. The
Company's revenues, profitability and future growth will depend substantially on
prevailing prices for crude oil and natural gas. Decreases in the prices of oil
and gas would likely adversely affect the carrying value of any proved reserves
Company is successful in establishing and the Company's prospects, revenues,
profitability and cash flow.
Competition
The Company operates in the highly competitive areas of oil and gas
exploration, development and production. The Company believes that the level of
competition in these areas will continue into the future and may even intensify.
In the areas of oil and gas exploration, development and production, competitive
advantage is gained through superior capital investment decisions, technological
innovation and costs management. The Company's competitors include major oil and
gas companies, a large number of independent oil and gas companies, and numerous
individuals. Competition focuses primarily on the acquisitions of properties
that appear attractive for the exploration for oil and gas. The principal
competitive factors in the acquisition of oil and gas properties include the
staff and data necessary to identify, investigate and purchase such properties
and the financial resources necessary to acquire and develop them. The Company
also will compete for the equipment and labor required to operate and to develop
its properties. Most of the Company's competitors have substantially larger
operating staffs and greater financial and other resources. In addition, larger
competitors may be able to absorb the burden of any changes in federal, state
and local laws and regulations more easily than the Company can, which would
adversely affect the Company's competitive position. These competitors may be
able to pay more for natural gas and oil properties and may be able to define,
evaluate, bid for and acquire a greater number of properties than the Company
can. In addition, most of the Company's competitors have been operating for a
much longer time than the Company has and have demonstrated the ability to
operate through a number of industry cycles. The Company's ability to acquire
additional properties and to discover reserves in the future will depend upon
its ability to evaluate and select suitable properties and to consummate
transactions in this highly competitive environment. The effect of the intense
competition that the Company will face cannot now be determined.
Regulation
Oil and Gas Regulation
The availability of a ready market for oil and gas production depends
upon numerous factors beyond the Company's control. These factors include state
and federal regulation of oil and gas production and transportation, as well as
regulations governing environmental quality and pollution control, state limits
on allowable rates of production by a well or proration unit, the amount of oil
and gas available for sale, the availability of adequate pipeline and other
transportation and processing facilities and the marketing of competitive fuels.
For example, a productive gas well may be "shut-in" because of an over-supply of
gas or lack of an available gas pipeline in the areas in which the Company may
conduct operations. State and federal regulations are generally intended to
prevent waste of oil and gas, protect rights to produce oil and gas between
owners in a common reservoir, and control contamination of the environment.
Pipelines and gas plants are also subject to the jurisdiction of various
Federal, state and local agencies which may affect the rates at which they are
able to process or transport gas from the Company's properties.
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The Company's sales of natural gas will be affected by the
availability, terms and costs of transportation. The rates, terms and conditions
applicable to the interstate transportation of gas by pipelines are regulated by
the Federal Energy Regulatory Commission ("FERC") under the Natural Gas Acts
("NGA"), as well as under Section 311 of the Natural Gas Policy Act ("NGPA").
Since 1985, the FERC has implemented regulations intended to increase
competition within the gas industry by making gas transportation more accessible
to gas buyers and sellers on an open-access, non-discriminatory basis.
The Company's sales of oil are also affected by the availability, terms
and costs of transportation. The rates, terms, and conditions applicable to the
interstate transportation of oil by pipelines are regulated by the FERC under
the Interstate Commerce Act. FERC has implemented a simplified and generally
applicable ratemaking methodology for interstate oil pipelines to fulfill the
requirements of Title VIII of the Energy Policy Act of 1992 comprised of an
indexing system to establish ceilings on interstate oil pipeline rates. The FERC
has announced several important transportation-related policy statements and
rule changes, including a statement of policy and final rule issued February 25,
2000 concerning alternatives to its traditional cost-of-service rate-making
methodology to establish the rates interstate pipelines may charge for their
services. The final rule revises FERC's pricing policy and current regulatory
framework to improve the efficiency of the market and further enhance
competition in natural gas markets.
In the event the Company conduct operations on federal, state or Indian
oil and gas leases, such operations must comply with numerous regulatory
restrictions, including various nondiscrimination statutes, royalty and related
valuation requirements, and certain of such operations must be conducted
pursuant to certain on-site security regulations and other appropriate permits
issued by the Bureau of Land Management ("BLM") or Minerals Management Service
("MMS") or other appropriate federal or state agencies.
The Mineral Leasing Act of 1920 ("Mineral Act") prohibits direct or
indirect ownership of any interest in federal onshore oil and gas leases by a
foreign citizen of a country that denies "similar or like privileges" to
citizens of the United States. Such restrictions on citizens of a
"non-reciprocal" country include ownership or holding or controlling stock in a
corporation that holds a federal onshore oil and gas lease. If this restriction
is violated, the corporation's lease can be canceled in a proceeding instituted
by the United States Attorney General. Although the regulations of the BLM
(which administers the Mineral Act) provide for agency designations of
non-reciprocal countries, there are presently no such designations in effect.
Certain holders of equity interests in the Company may be citizens of foreign
countries, which at some time in the future might be determined to be
non-reciprocal under the Mineral Act.
Environmental Regulation
- General. The Company's activities will be subject to existing
federal, state and local laws and regulations governing environmental quality
and pollution control. The Company anticipates that, absent the occurrence of an
extraordinary event, compliance with existing federal, state and local laws,
rules and regulations governing the release of materials in the environment or
otherwise relating to the protection of the environment will not have a material
effect upon the Company's operations, capital expenditures, earnings or
competitive position. The Company's activities with respect to exploration,
drilling and production from wells, natural gas facilities, including the
operation and construction of pipelines, plants and other facilities for
transporting, processing, treating or storing natural gas and other products,
will be subject to stringent environmental regulation by state and federal
authorities including the Environmental Protection Agency ("EPA"). Such
regulation can increase the cost of such activities. In most instances, the
regulatory requirements relate to water and air pollution control measures.
- Waste Disposal. The Company currently leases properties that it will
try to use for the production of oil and gas. Although the Company intends to
utilize operating and disposal practices that are standard in the industry,
hydrocarbons or other wastes may be released on or under the properties that the
Company currently or now after owns or leases. State and federal laws applicable
to oil and gas wastes and properties have become stricter. In the future, the
Company could be required to remediate property, including ground water,
containing or impacted by releases of hydrocarbons or other wastes or to perform
remedial plugging operations to prevent future or mitigate existing
contamination. The Company may generate wastes, including hazardous wastes that
are subject to the federal Resource Conservation and Recovery Act ("RCRA") and
comparable state statutes. The EPA has limited the disposal options for certain
wastes that are designated as hazardous under RCRA ("Hazardous Wastes").
Furthermore, it is possible that certain wastes generated by the Company's oil
and gas operations that are currently exempt from treatment as Hazardous Wastes
may in the future be designated as Hazardous Wastes, and therefore be subject to
more rigorous and costly operating and disposal requirements.
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- Superfund. The federal Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA"), also known as the "Superfund" law,
imposes joint and several liability for costs of investigation and remediation
and for natural resource damages, without regard to fault or the legality of the
original conduct, on certain classes of persons with respect to the release into
the environment of substances designated under CERCLA as hazardous substances
("Hazardous Substances"). These classes of persons or potentially responsible
parties ("PRP's") include the current and certain past owners and operators of a
facility where there is or has been a release or threat of release of a
Hazardous Substance and persons who disposed of or arranged for the disposal of
the Hazardous Substances found at such a facility. CERCLA also authorizes the
EPA and, in some cases, third parties to take actions in response to threats to
the public health or the environment and to seek to recover from the PRP's the
costs of such action. Although CERCLA generally exempts petroleum from the
definition of Hazardous Substances in the course of the Company's operations,
the Company may in the future generate wastes that fall within CERCLA's
definition of Hazardous Substances. The Company may also in the future become an
owner of facilities on which Hazardous Substances have been released by previous
owners or operators. The Company may in the future be responsible under CERCLA
for all or part of the costs to clean up facilities at which such substances
have been released and for natural resource damages. Crude oil exempt under
Superfund may be modified increasing compliance costs. The Company has not been
named a PRP under CERCLA nor does the Company know of any prior owners or
operators of the Company's current properties that are named as PRP's related to
their ownership or operation of such property.
- Air Emissions. The Company's operations will be subject to local,
state and federal regulations for the control of emissions of air pollution.
Major sources of air pollutants are subject to more stringent, federally imposed
permitting requirements, including additional permits. Administrative
enforcement actions for failure to comply strictly with air pollution
regulations or permits are generally resolved by payment of monetary fines and
correction of any identified deficiencies. Alternatively, regulatory agencies
could require the Company to forego construction, modification or operation of
certain air emission sources, although the Company believes that in the latter
cases the Company would have enough permitted or permittable capacity to
continue the Company's operations without a material adverse effect on any
particular producing field.
- Clean Water Act. The Clean Water Act ("CWA") imposes restrictions and
strict controls regarding the discharge of wastes, including produced waters and
other oil and natural gas wastes, into waters of the United States, a term
broadly defined. These controls have become more stringent over the years, and
it is probable that additional restrictions will be imposed in the future.
Permits must be obtained to discharge pollutants into federal waters. The CWA
provides for civil, criminal and administrative penalties for unauthorized
discharges of oil, hazardous substances and other pollutants. It imposes
substantial potential liability for the costs of removal or remediation
associated with discharges of oil or hazardous substances. State laws governing
discharges to water also provide varying civil, criminal and administrative
penalties and impose liabilities in the case of a discharge of petroleum or it
derivatives, or other hazardous substances, into state waters. In addition, the
EPA has promulgated regulations that may require the Company to obtain permits
to discharge storm water runoff, including discharges associated with
construction activities. In the event of an unauthorized discharge of wastes,
the Company may be liable for penalties and costs.
Management believes that the Company is in substantial compliance with
current applicable environmental laws and regulations and that continued
compliance with existing requirements will not materially adversely impact the
Company.
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Employees
As of the date of this prospectus, the Company had only one employee,
its Chief Executive Officer. The Company expects that it will employ some
combination of between four to five employees or outside consultants over the
next two years. The Company does not now foresee problems in hiring additional
qualified employees to meet its labor needs.
Facilities
The Company's principal executive offices are fairly small and are
located at 2100 West Loop South, Suite 900, Houston, Texas 77027. They are
rented on essentially a month-to-month basis. Management believes that
additional space will be needed if the Company's plan of operation progresses in
accordance with its terms. Management further believes that such additional
space and any required alternative office space can be readily obtained if
needed.
Legal Proceedings
As of the date of this prospectus, the Company is not been involved in
any legal proceedings. There can be no assurance, however, that the Company will
not in the future be involved in litigation incidental to the conduct of its
business.
Available Information
The Company has filed with the Commission a Registration Statement on
Form SB-2 and exhibits relating thereto (the "Registration Statement") under the
Securities Act of 1933, as amended (the "Act"), of which this prospectus is a
part. This prospectus does not contain all the information set forth in the
Registration Statement. Reference is made to such Registration Statement for
further information with respect to the Company and the securities of the
Company covered by this prospectus. Statements contained herein concerning the
provisions of documents are necessarily summaries of such documents, and each
statement is qualified in its entirety by reference to the copy of the related
document filed with the Commission.
The Company has registered as a reporting company under the Securities
Exchange Act of 1934 (the "Exchange Act"). As a consequence, the Company will
file with the Commission Annual Reports on Form 10-KSB, Quarterly Reports on
Form 10-QSB, and Current Reports on Form 8-K. The Annual Reports on Form 10-KSB
will contain audited financial statements. After they are filed, these reports
can be inspected at, and copies thereof may be obtained at prescribed rates, at
the Commission's Public Reference Room located at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Please call the Commission at 1-800-SEC-0330 for further
information on the Public Reference Room. The Commission maintains a World Wide
Web site that contains reports, proxy statements and information statements and
other information (including the Registration Statement) regarding issuers that
file electronically with the Commission. The address of such site is
http://www.sec.gov. The Company's reports can be inspected at, and copies
downloaded from, the Commission's World Wide Web.
MANAGEMENT
The directors and executive officers of the Company are as follows:
Name Age Positions
Keith D. Spickelmier 43 Chairman of the Board
Jimmy D. Wright 45 Chief Executive Officer and
Chief Financial Officer
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Keith D. Spickelmier has served as a Director of the Company since May
2002. He also served as the President, Treasurer & Secretary of the Company from
May 2002 until February 2004, at which time he resigned so that Jimmy D. Wright
could be elected as the Company's Chief Executive Officer. Mr. Spickelmier has
also served as an attorney in the capacities of Of Counsel and consultant to the
law firm of Haynes and Boone LLP from April 2001 through July 2003. He has also
engaged in personal investment activity during that time. Prior to that time,
Mr. Spickelmier had been a partner with the law firm of Verner, Liipfert,
Bernhard, McPherson and Hand since 1993. He has an undergraduate degree from the
University of Nebraska at Kearney and a law degree from the University of
Houston.
Jimmy D. Wright has served as a Director and the Chief Executive
Officer and Chief Financial Officer of the Company since February 2004. He
continues to serve as the chief executive officer of several entities
wholly-owned by him (including Westside Resources, LP) holding investments in
oil, gas and related businesses, some of these entities being started as early
as August 2002. Mr. Wright has indicated that he does not intend to make any
further oil and gas investments through these or any other entities that would
be competitive with the Company's business pursuits. From June 2001 to July
2002, Mr. Wright served in several capacities with the EnergyClear
organization, first as Senior Vice President of EnergyClear Operating Corp.,
then the operator of EnergyClear Corporation. He later was also elected as the
President of EnergyClear Corporation itself, then an over-the-counter energy
clearinghouse approved by the Commodity Futures Trading Commission. From
February 1997 to June 2001, Mr. Wright held various senior management positions
with Midcoast Energy Resources Inc., which merged into Enbridge, Inc., a
publicly traded company. When he left this organization, Mr. Wright held the
position of Chief Executive Officer of an International subsidiary of Enbridge
Energy Partners, LP., also a publicly traded company. Mr. Wright holds a
Bachelor of Science degree in Mechanical Engineering from the University of
Memphis.
The authorized number of directors of the Company is presently fixed at
two. Each director serves for a term of one year that expires at the following
annual stockholders' meeting. During February 2004, Messrs. Wright and
Spickelmier entered into a Voting Agreement pursuant to which they agreed for
two years to vote all of their shares of stock in the Company to elect a person
nominated by each of them separately (for a total of two nominees) to the
Company's Board of Directors. Executive officers are appointed by the Board of
Directors and serve until their successors are appointed. There are no family
relationships, or other arrangements or understandings between or among any of
the directors, executive officers or other person pursuant to which such person
was selected to serve as a director or officer, other than the Voting Agreement
described immediately above.
The Company's Board of Directors does not have a separately-designated
standing audit committee or a committee performing similar functions. The
Company's entire Board of Directors is acting as the Company's Audit Committee.
The Company's Board of Directors has determined that it does not have among its
member an "audit committee financial expert," as defined by applicable by
Commission rules and regulations. The Company's Board of Directors believes
that, in view of the Company's extremely limited financial activity over the
past several years, the presence of a person meeting the requirements of an
"audit committee financial expert" on the Board has not been necessary. The
Company's Board of Directors intends to consider, as the Company's financial
activity increases, the possible creation of a separately-designated standing
audit committee and (whether or not such a committee is created) the election of
a person meeting the requirements of an "audit committee financial expert" to
the Board.
EXECUTIVE COMPENSATION
The Company has paid no compensation to any member of management during
fiscal years 2003, 2002 and 2001. In addition, the Company has not adopted any
retirement, pension, profit sharing, stock option or insurance programs or other
similar programs for the benefit of its management or employees. However,
commencing November 1, 2004, the Company will pay an annual salary in the amount
of $150,000 to Jimmy D. Wright for serving as the Company's Chief Executive
Officer and Chief Financial Officer. This salary is subject to increase,
decrease or elimination at any time for any reason at the discretion of the
Company's Board of Directors. In addition, commencing November 1, 2004, the
Company has engaged Keith D. Spickelmier, the Company's Chairman of the Board,
as a consultant and will pay to him a monthly consulting fee in the amount of
$6,000. This consulting engagement is terminable at the will of either the
Company or Mr. Spickelmier, and the consulting fee is subject to increase,
decrease or elimination at any time for any reason at the discretion of the
Company's Board of Directors. Neither of Messrs. Wright or Spickelmier has
entered into a written employment or consulting agreement or a covenant not to
compete agreement with the Company. As a result,each of Messrs. Wright and
Spickelmier may discontinue providing services to the Company at any time and
for any reason, and even thereafter commence competition with the Company.
Conversely, the Company may discontinue employing or engaging either of Messrs.
Wright or Spickelmier at any time and for any reason at the discretion of the
Company's Board of Directors. However, in view of the current composition of the
Company's Board of Directors (which includes each of Messrs. Wright and
Spickelmier), the Company's discontinuation of either of Mr. Wright's employment
or Mr. Spickelmier's consulting engagement is not likely in the foreseeable
future.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company's initial oil and gas interests were undivided interests in
the leases covering approximately 819 gross acres of land in Jack, Wise and
Denton Counties in Texas. The interests were acquired by the Company from
Westside Resources, L.P. (the "Partnership"), an entity formerly known as
"Westside Energy, L.P." and wholly-owned by Jimmy D. Wright, a director of the
Company and the Company's new Chief Executive Officer and Chief Financial
Officer. These initial interests were acquired pursuant to the terms, provisions
and conditions of a lease acquisition agreement that management believes to be
reasonable and customary. They were acquired in consideration of the issuance by
the Company to the Partnership of 700,000 shares of the Company's common stock
and the assumption of the liabilities associated with such interests. These
shares constituted approximately 11.8% of the shares of the Company's common
stock outstanding after the completion of all of the stock issuances occurring
at that time. Because the shares of common stock received by the Partnership
were not registered under the Securities Act of 1933, as amended (the "Act"),
such shares are "restricted securities" (as defined in Rule 144 promulgated
under the Act) and accordingly, may not be sold or transferred by the
Partnership unless such shares are registered under the Act or are sold or
transferred pursuant to an exemption therefrom. In connection with this
acquisition, the Company agreed to register all shares owned by the
Partnership or to be acquired pursuant to derivative securities, including the
shares issued in connection with this acquisition. This prospectus covers the
shares issued in connection with this acquisition to the Partnership.
Mr. Wright has indicated that the Partnership expended approximately
$27,000 in direct costs in connection with the acquisition and maintenance of
the interests in the leases conveyed to the Company. In connection with the
acquisition of the interests in the leases, in consideration of the Company's
agreement to reimburse the Partnership for all of its reasonable expenses
incurred in connection with the offers described immediately hereafter, the
Company also acquired and assumed from the Partnership the rights and obligation
of any contracts that would result from the acceptance of certain outstanding
lease offers made by the Partnership to certain landowners.
The consideration for the acquisition of the interests in the leases
described above (including the number of shares issued to the Partnership) was
determined in arms-length negotiations between Mr. Wright and Keith D.
Spickelmier, the Company's only member of management at the time. The factors
addressed by Mr. Spickelmier in negotiating this consideration included the
present developmental status of the leases; the future prospects for the leases
in terms of revenues and earnings; an assessment of Mr. Wright's ability to
contribute to the management of the Company's business; and anticipated ability
of the Company's business to grow by virtue of the Company's ownership of the
leases.
Prior to and at the time of the consummation of the acquisition by the
Company of the interests in the leases described above, Mr. Spickelmier and Mr.
Wright had been and continued to be co-investors in a couple of other business
endeavors. Mr. Spickelmier's large percentage ownership of the Company's
outstanding common stock gives to him an interest in assuring that the terms of
the Company's acquisition of the leases are commercially reasonable.
Accordingly, Mr. Spickelmier does not believe that his prior and current
relationship with Mr. Wright impaired his ability to negotiate commercially
reasonable terms in connection with the Company's acquisition of the interests
in the leases.
In addition to the preceding, the Company raised "seed" capital in the
amount of approximately $450,800 from Mr. Spickelmier, the Partnership, and
Bering Partners No. 2, LLC, an entity owned by the Company's two directors and
certain other investors. A total of $410,000 of this capital was structured in
the form of loans from Bering Partners No. 2, LLC to the Company secured by all
of the Company's assets, including the oil and gas interests briefly described
herein as well as all such interests acquired in the future. Interest accrued on
the loans at a rate of 10% per annum. In consideration of making the loans, the
Company granted warrants to the owners of Bering Partners No. 2, LLC to purchase
up to an aggregate of 820,000 shares of the Company's common stock for a
per-share exercise price of $.50. These warrants have a term of and are
exercisable for five years. All of the preceding indebtedness has been paid in
full.
The remaining $40,800 of the initial capital took the form of an equity
investment in the Company's common stock. Mr. Spickelmier and the Partnership
made this investment in exchange for the issuance to them of an aggregate of
4,080,000 shares of the Company's common stock. At that time, these shares
constitute approximately 68.7% of the shares of the Company's common stock
outstanding after the completion of all of the stock issuance then taking place.
Because the shares of common stock received by Mr. Spickelmier and the
Partnership were not registered under the Securities Act of 1933, as amended
(the "Act"), such shares are "restricted securities" (as defined in Rule 144
promulgated under the Act) and accordingly, may not be sold or transferred by
Mr. Spickelmier and the Partnership unless such shares are registered under the
Act or are sold or transferred pursuant to an exemption therefrom. In connection
with this investment, the Company agreed to register all shares owned by
Mr. Spickelmier or the Partnership or to be acquired pursuant to derivative
securities, including the shares issued in connection with this investment and
the shares to be acquired upon exercise of the warrants issued in connection
with the loans described above. This prospectus covers the shares issued in
connection with this investment and the shares to be acquired upon exercise of
the warrants issued in connection with the loans described above.
26
Moreover, between the middle of September 2004 through the middle of
October 2004, the Company issued to three accredited investors a total of five
unsecured short-term convertible promissory notes in the aggregate original
principal amount of $700,000. These accredited investors included Mr.
Spickelmier, the Partnership and a new investor in the Company (the "New
Investor"). Each of Mr. Spickelmier and the Partnership provided $200,000 of the
$700,000 aggregate amount, while the New Investor provided $300,000. Interest
accrued on the loans at a rate of 10% per annum. The notes were convertible into
shares of the Company's stock at a rate of one share for every $2.00 of
indebtedness. The New Investor converted his note in original principal amount
of $300,000 into 150,000 shares. Each of Mr. Spickelmier and the Partnership
received repayment of their notes in the aggregate original principal amount of
$400,000, plus interest out of the proceeds of the Company's recent $20 million
private placement.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS OR MANAGEMENT
The following table sets forth as of November 19, 2004, the number
of shares of the Company's Common Stock beneficially owned by (i) each director
of the Company; (ii) each of the Company's executive officers; (iii) each person
known by the Company to beneficially own more than 5% of the outstanding shares
of Common Stock; and (iv) all executive officers and directors as a group.
Unless otherwise indicated, each person has sole voting and dispositive power
over such shares. Shares not outstanding but deemed beneficially owned by virtue
of the right of a person or member of a group to acquire them within 60 days are
treated as outstanding only when determining the amount and percent owned by
such group or person.
Name and Address of Beneficial Ownership (1)
Beneficial Owner Number Percent
Westside Resources, L.P. 3,435,693(2) 19.8%
2100 West Loop South, Suite 900
Houston, Texas 77027
Jimmy D. Wright 3,435,693(3) 19.8%
2100 West Loop South, Suite 900
Houston, Texas 77027
Keith D. Spickelmier 2,650,760 (4) 15.3%
2100 West Loop South, Suite 900
Houston, Texas 77027
All directors and officers 6,086,453 (5) 34.5%
as a group (two persons)
Wellington Management Company, LLP 2,300,000(6) 13.6%
75 State St
Boston, MA 02109
BBT Fund, L.P., and 1,685,000(7) 9.9%
Concentrated Alpha Partners, L.P.
Corporate Centre
West Bay Road
Grand Cayman, Cayman Islands
SDS Capital Group SPC, Ltd. 1,000,000(8) 5.9%
Ogier & Boxalls
Queensgate House
113 South Church Street
P.O. Box 1234GT
Grand Cayman, Cayman Islands
North Sound Capital LLC 1,000,000(9) 5.9%
53 Forest Avenue, Suite 202
Old Greenwich, CT 06870
Spindrift Investors (Bermuda) L.P. 892,300(10) 5.3%
Clarendon House, 2 Church Street
Hamilton, Bermuda
(footnotes on next page)
- ---------------------------
27
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(footnotes to table on previous page)
- -------------------------------------
(1) Includes shares beneficially owned pursuant to options and warrants
exercisable within 60 days.
(2) Includes 3,144,585 shares held directly and 291,108 shares that may be
purchased pursuant to warrants that are currently exercisable. Jimmy D.
Wright has sole voting power and sole investment power over these
shares. These shares are also included in the table in the figure of
shares beneficially owned by Mr. Wright.
(3) All of these shares are held by Westside Resources, L.P., an entity
over which Mr. Wright has complete control. Accordingly, Mr. Wright has
sole voting power and sole investment power over these shares. These
shares are also included in the table in the figure of shares
beneficially owned by Westside Resources, L.P.
(4) Includes 2,346,868 shares held directly and 303,892 shares that may
be purchased pursuant to warrants that are currently exercisable.
(5) Includes 2,346,868 shares held directly, 3,144,585 shares held by a
related entity, and 595,000 shares that may be purchased pursuant to
warrants that are currently exercisable.
(6) Wellington Management Company, LLP ("WMC") has filed with the
Commission a Schedule 13G on November 10, 2004 indicating that it is
a registered investment advisor, and clients of WMC are the record
holders of all of the 2,300,000 shares reflected in the table. However,
in its capacity as investment advisor, WMC may be deemed to own
beneficially all of the 2,300,000 shares reflected in the table. Of
these shares, 892,300 shares are also included in the table in the
figure of shares beneficially owned by Spindrift Investors (Bermuda)
L.P.
(7) BBT Fund, L.P. and Concentrated Alpha Partners, L.P. have filed with
the Commission a joint Schedule 13G on November 10, 2004 indicating
that they respectively own 1,348,000 and 337,000 of the shares
reflected in the table. They indicated that they made the joint
filing because they might be deemed to constitute a "group" for
purposes of applicable law, although neither of them admitted to
their status as such. Sid R. Bass is the sole shareholder of, and
Clive D. Bode is the sole director of, the entities that have sole
voting power and sole investment power over the shares respectively
owned by BBT Fund, L.P. and Concentrated Alpha Partners, L.P. Solely
in the preceding capacities, Messrs. Bass and Bode may also be deemed
a beneficial owner of all of the shares reflected in the table.
(8) SDS Capital Group SPC, Ltd. ("SDS") has filed with the Commission a
Schedule 13G on November 5, 2004 indicating that SDS Management, LLC
and Steven Derby have shared voting power and shared dispositive power
with respect to all of the shares reported by SDS Capital Group SPC,
Ltd. Accordingly, each of SDS Management, LLC and Mr. Derby may be
deemed to own beneficially all of the 1,000,000 shares reflected in the
table.
(9) Includes 700,000 shares held by North Sound Legacy International Ltd.,
280,000 shares held by North Sound Legacy Institutional Fund LLC, and
20,000 shares held by North Sound Legacy Fund, LLC. North Sound Capital
LLC has filed with the Commission a Schedule 13G on November 4, 2004
indicating that its is the managing member of each of the preceding
entities, and that Thomas McAuley is the ultimate managing member of
North Sound Capital LLC. In these capacities, North Sound Capital LLC
and Thomas McAuley may be deemed to own beneficially all of the
1,000,000 shares reflected in the table.
(10) Spindrift Investors (Bermuda) L.P. has filed with the Commission a
Schedule 13G on November 2, 2004 indicating that Wellington Global
Holdings, Ltd. and Wellington Global Administrator, Ltd. are its
general partners. As such, these two general partners may be deemed to
own beneficially all of the 892,300 shares reflected in the table.
These 892,300 shares are also included in the table in the figure of
shares beneficially owned by Wellington Management Company, LLP
28
<page>
DESCRIPTION OF SECURITIES
Capital Stock.
The Company's authorized capital stock consists of 50,000,000 shares of
Common Stock, $.01 par value per share and 10,000,000 shares of Preferred Stock,
$.01 par value per share.
Common Stock.
The authorized Common Stock of the Company consists of 50,000,000
shares, par value $0.01 per share. After taking into consideration the issuance
of certain of the shares being registered, approximately 18,558,831 shares of
Common Stock will be issued and outstanding. All of the shares of Common Stock
are validly issued, fully paid and nonassessable. Holders of record of Common
Stock will be entitled to receive dividends when and if declared by the Board of
Directors out of funds of the Company legally available therefore. In the event
of any liquidation, dissolution or winding up of the affairs of the Company,
whether voluntary or otherwise, after payment of provision for payment of the
debts and other liabilities of the Company, including the liquidation preference
of all classes of preferred stock of the Company, each holder of Common Stock
will be entitled to receive his pro rata portion of the remaining net assets of
the Company, if any. Each share of Common stock has one vote, and there are no
preemptive, subscription, conversion or redemption rights. Shares of Common
Stock do not have cumulative voting rights, which means that the holders of a
majority of the shares voting for the election of directors can elect all of the
directors.
Preferred Stock.
The Company's Certificate of Incorporation authorizes the issuance of
up to 10,000,000 shares of the Company's $0.01 par value preferred stock (the
"Preferred Stock"). As of the date of this prospectus, no shares of Preferred
Stock were outstanding. The Preferred Stock constitutes what is commonly
referred to as "blank check" preferred stock. "Blank check" preferred stock
allows the Board of Directors, from time to time, to divide the Preferred Stock
into series, to designate each series, to issue shares of any series, and to fix
and determine separately for each series any one or more of the following
relative rights and preferences: (i) the rate of dividends; (ii) the price at
and the terms and conditions on which shares may be redeemed; (iii) the amount
payable upon shares in the event of involuntary liquidation; (iv) the amount
payable upon shares in the event of voluntary liquidation; (v) sinking fund
provisions for the redemption or purchase of shares; (vi) the terms and
conditions pursuant to which shares may be converted if the shares of any series
are issued with the privilege of conversion; and (vii) voting rights. Dividends
on shares of Preferred Stock, when and as declared by the Board of Directors out
of any funds legally available therefore, may be cumulative and may have a
preference over Common Stock as to the payment of such dividends. The provisions
of a particular series, as designated by the Board of Directors, may include
restrictions on the ability of the Company to purchase shares of Common Stock or
to redeem a particular series of Preferred Stock. Depending upon the voting
rights granted to any series of Preferred Stock, issuance thereof could result
in a reduction in the power of the holders of Common Stock. In the event of any
dissolution, liquidation or winding up of the Company, whether voluntary or
involuntary, the holders of each series of the then outstanding Preferred Stock
may be entitled to receive, prior to the distribution of any assets or funds to
the holders of the Common Stock, a liquidation preference established by the
Board of Directors, together with all accumulated and unpaid dividends.
Depending upon the consideration paid for Preferred Stock, the liquidation
preference of Preferred Stock and other matters, the issuance of Preferred Stock
could result in a reduction in the assets available for distribution to the
holders of the Common Stock in the event of liquidation of the Company. Holders
of Preferred Stock will not have preemptive rights to acquire any additional
securities issued by the Company. Once a series has been designated and shares
of the series are outstanding, the rights of holders of that series may not be
modified adversely except by a vote of at least a majority of the outstanding
shares constituting such series.
One of the effects of the existence of authorized but unissued shares
of Common Stock or Preferred Stock may be to enable the Board of Directors of
the Company to render it more difficult or to discourage an attempt to obtain
control of the Company by means of a merger, tender offer at a control premium
price, proxy contest or otherwise and thereby protect the continuity of or
entrench the Company's management, which concomitantly may have a potentially
adverse effect on the market price of the Common Stock. If in the due exercise
of its fiduciary obligations, for example, the Board of Directors were to
determine that a takeover proposal were not in the best interests of the
Company, such shares could be issued by he Board of Directors without
stockholder approval in one or more private placements or other transactions
that might prevent or render more difficult or make more costly the completion
of any attempted takeover transaction by diluting voting or other rights of the
proposed acquirer or insurgent stockholder group, by creating a substantial
voting block in institutional or other hands that might support the position of
the incumbent Board of Directors, by effecting an acquisition that might
complicate or preclude the takeover, or otherwise.
29
Nevada Legislation.
Sections 78.411-78.444 of the General Corporation law of Nevada
("Business Combination Statute") would be applicable to us when we have 200 or
more stockholders and certain other conditions are met. These provisions may
make it more difficult to effect certain transactions between a corporation and
a person or group that owns or has the right to acquire 10% or more of the
corporation's outstanding voting stock, or a person who is an affiliate or
associate of the corporation and who was the owner of 10% or more of such voting
stock at any time within three years immediately prior to the date in question
("Interested Stockholder"). The Business Combination Statute prevents the
following transactions between the corporation and the Interested Stockholder
for three years following the date the stockholder became a 10% or more holder
of the corporation's voting stock, unless certain conditions are met: (i) any
merger or consolidation; (ii) any sale, lease, exchange, mortgage, pledge,
transfer or other disposition of the corporation's assets having a total market
value equal to 10% or more of the total market value of all the assets of the
corporation; or 5% or more of the total market value of all outstanding shares
of the corporation or representing 10% or more of the earning power of the
corporation; (iii) the issuance or transfer by the corporation of any shares of
the corporation that have an aggregate market value equal to 5% or more of the
aggregate market value of all the outstanding shares of the corporation to
stockholders except under the exercise of warrants or rights to purchase shares
offered, or a dividend or distribution paid or made, pro rata to all
stockholders of the corporation; (iv) the adoption of any plan or proposal for
the liquidation or dissolution of the corporation proposed by, or under any
agreement or arrangement or understanding, whether or not in writing, with the
Interested Stockholder; (v) any reclassification of securities,
recapitalization, merger or consolidation or other transaction which has the
effect, directly or indirectly, of increasing the proportionate share of the
outstanding shares owned by the Interested Stockholder, and (vi) any receipt by
the Interested Stockholder of the benefit, except proportionally as a
stockholder of the corporation, of any loan or other financial assistance or any
tax credit or other tax advantage provided by or through the corporation. The
three-year ban does not apply if either the proposed transaction or the
transaction by which the Interested Stockholder became an Interested Stockholder
is approved by the Board of Directors of the corporation prior to the date the
stockholder became an Interested Stockholder.
Shares Eligible for Future Sale.
Sales of a substantial amount of Common Stock in the public market, or
the perception that such sales may occur, could adversely affect the market
price of the Common Stock prevailing from time to time in the public market and
could impair the Company's ability to raise additional capital through the sale
of its equity securities in the future. After taking into consideration the
issuance of certain of the shares being registered, approximately 18,558,831
shares of Common Stock will be issued and outstanding. After the registration of
the shares covered by this prospectus, management believes that all of the
Company's outstanding shares may be legally sold, so long as (in the case of the
shares covered by this prospectus) the registration statement of which this
prospectus is a part remains current and effective. Substantial sales of the
shares covered by this prospectus or otherwise could adversely affect the market
price of the Common Stock.
SELLING STOCKHOLDERS
The following table sets forth certain information as of November
19, 2004 pertaining to the beneficial ownership of Common Stock by the
Selling Stockholders. All of the shares beneficially owned by each Selling
Stockholder (other than 876 shares held by Keith D. Spickelmier) are being
offered pursuant to this prospectus. If all of the shares covered by this
prospectus are sold, no Selling Stockholder will beneficially own any shares
after the offering, other than Keith D. Spickelmier who would continue to hold
876 shares. In view of the preceding, the columns for "Number of Shares Being
Offered" and "Beneficial Ownership After Offering" have been omitted.
30
<page>
Beneficial Ownership
Stockholder Prior to Offering
Westside Resources, LP 3,435,693(1)
Keith D. Spickelmier 2,650,760(2)
WTC-CIF Energy Portfolio 79,500(3)(15)
WTC-CTF Energy Portfolio 522,600(3)(15)
Spindrift Partners, LP 741,700(3)(15)
General Mills Group Trust 50,200(3)(15)
General Mills & American Federation of
Grain Millers Health & Wellness Plan 13,700(3)(15)
Spindrift Investors (Bermuda) L.P. 892,300(3)(15)
Virtus Capital,L.P. 75,000(3)(16)
BBT Fund, LP 1,348,000(3)(17)
Concentrated Alpha Partners, LP 337,000(3)(17)
Knoll Capital Fund II Master Fund, Ltd. 525,000(3)(18)
Kellogg Capital Group, LLC 375,000(3)(19)
TRUK International Fund, LP 8,750(3)(20)
TRUK Opportunity Fund, LLC 116,250(3)(20)
Pemigewasset Partners, LP 110,000(3)(21)
Pemigewasset Offshore, Ltd. 40,000(3)(21)
North Sound Legacy Institutional
Fund LLC 280,000(3)(22)
North Sound Legacy Fund, LLC 20,000(3)(22)
North Sound Legacy International Ltd. 700,000(3)(22)
SDS Capital Group SPC, Ltd. 1,000,000(3)(23)
GLG North American Equity Fund 50,000(3)(24)
GLG North American Opportunity Fund 650,000(3)(24)
Dynamis Fund, LP 450,000(3)(25)
Afton Capital Management, LLC 350,000(3)(26)
ASF Canadian Small Cap Fund 170,000(3)(27)
ASF Canadian Resources Fund 159,500(3)(27)
GWL Canadian Resources Fund 35,600(3)(27)
31
<page>
London Life Resources Fund 14,900(3)(27)
ASF Special US Class 80,000(3)(28)
GB Barnett 15,000(3)
Douglas G. Manner 50,000(3)
Allsion Keeley 8,000(3)
Lorie Gordon 12,500(3)
Michelle Hijazi 7,000(3)
Corbin J. Robertson III 162,500(29
Atif Khan 50,000(3)
Mary Sponsel Stein 12,500(3)
Sheerin McConnell 5,000(3)
Michael H. McConnell 145,000(30)
Gary R. Peterson 25,000(3)
John T. Raymond 50,000(3)
Christopher M. Katz 25,000(3)
William C. O'Malley and Jane L. O'Malley 325,000(3)
Fred Brown 24,000(4)
Laurie Litherland-Dotter 15,000(4)
Bruce M. Feichtinger 22,500(4)
Steven J. Gibson 60,000(4)
A. Kelly & Roseanette Williams 45,000(4)
James P. & Sharon S. Wilson 150,000(4)
Robert Ittner 37,500(4)
ALCORN Interests. Inc. 30,000(4)(31)
JCE/CBI Ltd. 150,000(4)(32)
Rainbow Investment Company 47,500(5)
Barton L. Duckworth 40,000(6)
Spring Street Partners, LP 125,000(7)
32
<page>
RWM Partnership No. 1, Ltd. 125,000(8)
Lavery Investments Ltd. 62,500(9)
J. Burke O'Malley 150,000(10)
Dolphin Ventures, LLC 75,000(11)
Catherine I. McCauley 350,000(12)
Joseph F. Montle 40,000(13)
Sterne, Agee & Leach, Inc. 300,000(14)
(1) Includes 3,144,585 shares held directly and 291,108 shares that may
be purchased pursuant to warrants that are currently exercisable. Of
the shares owned outright, 700,000 were acquired in exchange for an
assignment of the Company's initial oil and gas interests, while the
remaining 2,444,585 shares were acquired from the Company for cash in
private transactions. All of the warrants were acquired from the
Company in private transactions in connection with the preceding equity
or other debt investments in the Company. Jimmy D. Wright has sole
voting power and sole investment power over these shares. Because Mr.
Wright was a director and the Company's Chief Executive Officer at the
time of these issuances, the issuances of these shares are claimed to
be exempt, and the issuance of the common stock underlying the warrants
will be claimed to be exempt, pursuant to Section 4(2) of the
Securities Act of 1933 (the "Act").
(2) Includes 2,346,868 shares held directly and 303,892 shares that may
be purchased pursuant to warrants that are currently exercisable. Of
the shares owned outright, 551,453 shares were acquired from Bering
Partners No. 2, LLC upon that entity's distribution of all of its
assets, while the remaining 1,795,415 shares were acquired from the
Company for cash in private transactions. All of the warrants were
acquired from the Company in private transactions in connection with
the preceding equity or other debt investments in the Company. Because
Mr. Spickelmier was a director and the Company's Chairman of the Board
at the time of these issuances, the issuances of these shares are
claimed to be exempt, and the issuance of the common stock underlying
the warrants will be claimed to be exempt, pursuant to Section 4(2) of
the Act. Of the number of shares indicated in the table, 876 shares are
not being registered and will continue to be held even if all of the
shares covered by this prospectus are sold.
(3) These shares were issued on or about November 2, 2004 in a private
placement to a total of 48 investors of an aggregate of 10,000,000
shares of the Company's common stock, $.01 par value, at a price of
$2.00 per share. The issuances of the common stock in this placement
are claimed to be exempt pursuant to Rule 506 of Regulation D under the
Act. No advertising or general solicitation was employed in offering
these securities. The offering and sale was made only to accredited
investors, and subsequent transfers were restricted in accordance with
the requirements of the Act.
(4) Two-third of these shares are owned outright, while one-third of
these shares may be purchased pursuant to warrants that are currently
exercisable. These shares and warrants were part of units offered
during the quarter ended June 30, 2004 in a private placement to a
total of 17 investors of an aggregate of 385,500 units of the Company's
securities at a price of $2.00 per unit. Each unit was comprised of two
shares of the Company's common stock and a warrant to purchase one
additional share of the Company's common stock. The issuances of the
common stock and the warrants is claimed to be exempt, and the issuance
of the common stock underlying the warrants will be claimed to be
exempt, pursuant to Rule 506 of Regulation D under the Act. No
advertising or general solicitation was employed in offering these
securities. The offering and sale was made only to accredited
investors, and subsequent transfers were restricted in accordance with
the requirements of the Act.
(5) Includes 35,000 shares owned outright and 12,500 shares that may be
purchased pursuant to warrants that are currently exercisable. Of these
securities, 10,000 shares owned outright were issued in the private
placement described in footnote (3) above, and 25,000 shares owned
outright and all of the warrants were issued in the private placement
described in footnote (4) above. The Company has been advised that
Duane Herbst has sole voting power and sole investment power over these
shares.
33
<page>
(6) Includes 32,500 shares owned outright and 7,500 shares that may be
purchased pursuant to warrants that are currently exercisable. Of these
securities, 17,500 shares owned outright were issued in the private
placement described in footnote (3) above, and 15,000 shares owned
outright and all of the warrants were issued in the private placement
described in footnote (4) above.
(7) Includes 100,000 shares owned outright and 25,000 shares that may
be purchased pursuant to warrants that are currently exercisable. Of
these securities, 50,000 shares owned outright were issued in the
private placement described in footnote (3) above, and 50,000 shares
owned outright and all of the warrants were issued in the private
placement described in footnote (4) above. The Company has been advised
that Michael McConnell has sole voting power and sole investment power
over these shares.
(8) Includes 100,000 shares owned outright and 25,000 shares that may
be purchased pursuant to warrants that are currently exercisable. Of
these securities, 50,000 shares owned outright were issued in the
private placement described in footnote (3) above, and 50,000 shares
owned outright and all of the warrants were issued in the private
placement described in footnote (4) above. The Company has been advised
that Richard Warren Mithoff has sole voting power and sole investment
power over these shares.
(9) Includes 50,000 shares owned outright and 12,500 shares that may be
purchased pursuant to warrants that are currently exercisable. Of these
securities, 25,000 shares owned outright were issued in the private
placement described in footnote (3) above, and 25,000 shares owned
outright and all of the warrants were issued in the private placement
described in footnote (4) above. The Company has been advised that T.
Pat Harrison has sole voting power and sole investment power over these
shares.
(10) These shares were issued upon the conversion of a short-term
convertible promissory note having a principal balance of $300,000.
This issuance of shares upon conversion of the promissory note is
claimed to be exempt pursuant to Rule 506 of Regulation D under the
Act. No advertising or general solicitation was employed in offering
these securities. The offering and sale was made only to one accredited
investor, and subsequent transfers were restricted in accordance with
the requirements of the Act.
(11) Includes 10,000 shares owned outright and 65,000 shares that may
be purchased pursuant to warrants that are currently exercisable. Of
these securities, all of the shares owned outright and warrants to
purchase 5,000 shares were issued to this selling stockholder as a loan
procurement fee. The issuances of the common stock and the warrants is
claimed to be exempt, and the issuance of the common stock underlying
the warrants will be claimed to be exempt, pursuant to Rule 506 of
Regulation D under the Act. No advertising or general solicitation was
employed in offering these securities. The offering and sale was made
only to one accredited investor, and subsequent transfers were
restricted in accordance with the requirements of the Act. The
remaining warrants to purchase 60,000 shares were issued in
consideration of a loan to the Company. The issuances of the warrants
to purchase 60,000 shares are claimed to be exempt, and the issuances
of the common stock underlying the warrants will be claimed to be
exempt, pursuant to Regulation D under the Act. No advertising or
general solicitation was employed in offering these securities. The
offering and sale was made only to five accredited investors, and
subsequent transfers were restricted in accordance with the
requirements of the Act. The Company has been advised that Paul Montle
has sole voting power and sole investment power over these shares.
(12) Includes 100,000 shares held directly and 250,000 shares that may
be purchased pursuant to warrants that are currently exercisable. Of
these securities, all of the shares owned outright and warrants to
purchase 50,000 shares were issued in the private placement described
in footnote (4) above. The remaining warrants to purchase 200,000
shares were issued in consideration of a loan to the Company. The
issuances of the warrants to purchase 200,000 shares are claimed to be
exempt, and the issuances of the common stock underlying the warrants
will be claimed to be exempt, pursuant to Rule 506 of Regulation D
under the Act. No advertising or general solicitation was employed in
offering these securities. The offering and sale was made only to five
accredited investors, and subsequent transfers were restricted in
accordance with the requirements of the Act.
(13) Includes 40,000 shares that may be purchased pursuant to warrants
that are currently exercisable. The issuances of these warrants are
claimed to be exempt, and the issuances of the common stock underlying
the warrants will be claimed to be exempt, pursuant to Rule 506 of
Regulation D under the Act. No advertising or general solicitation was
employed in offering these securities. The offering and sale was made
only to five accredited investors, and subsequent transfers were
restricted in accordance with the requirements of the Act.
(14) Includes 300,000 shares that may be purchased pursuant to warrants
that are currently exercisable. These warrants were issued to the
selling stockholder for services provided in connection with the
private placement described in footnote (3) above. The issuances the
warrants is claimed to be exempt, and the issuance of the common stock
underlying the warrants will be claimed to be exempt, pursuant to Rule
506 of Regulation D under the Act. No advertising or general
solicitation was employed in offering these securities. The offering
and sale was made only to one accredited investor, and subsequent
transfers were restricted in accordance with the requirements of the
Act. This selling stockholder is a registered broker-dealer, whose
Board of Directors has sole voting power and sole investment power over
these shares.
34
<page>
(15) The Company has been advised that Wellington Management Company,
LLP, a registered investment adviser, has sole voting power and sole
investment power over these shares.
(16) The Company has been advised that Steven Gidumal and Vince Rossi
have shared voting power and shared investment power over these shares.
(17) The Company has been advised that Sid R. Bass has sole voting
power and sole investment power over these shares.
(18) The Company has been advised that Fred Knoll has sole voting power
and sole investment power over these shares.
(19) The Company has been advised that Charles K. Kellogg, Mark
Schalles and Nicholas Cappelleri have shared voting power and shared
investment power over these shares.
(20) The Company has been advised that Michael E. Fein and Stephen
W. Saltzstein have shared voting power and shared investment power
over these shares. Each of Messrs. Fein and Saltzstein disclaim
beneficial ownership of these shares.
(21) The Company has been advised that James B. Vose has sole
voting power and sole investment power over these shares.
(22) The Company has been advised that Thomas E. McAuley has sole
voting power and sole investment power over these shares.
(23) The Company has been advised that Steve Derby has sole voting
power and sole investment power over these shares. Mr. Derby disclaims
beneficial ownership of these shares.
(24) The Company has been advised that Noam Gettesman, Pierre Lagrange
and Philippe Jabre have shared voting power and shared investment power
over these shares.
(25) The Company has been advised that Alex Bocock, Frederic
Bocock and John H. Bocock have shared voting power and shared
investment power over these shares. Frederic Bocock has indicated
that he is a one-third owner of Dynamis Advisors (the General Partner
of this selling stockholder), and that he is an employee of Scott
Stringfellow, a registered broker-dealer based in Richmond
Virginia. However, this selling stockholder is not a registered
broker-dealer and does not believe that it is an affiliate of a
registered broker-dealer.
(26) The Company has been advised that Coy Monk has sole voting power
and sole investment power over these shares.
(27) The Company has been advised that Charles Oliver has sole voting
power and sole investment power over these shares.
(28) The Company has been advised that Cameron Scruens has sole voting
power and sole investment power over these shares.
(29) Included 37,500 shares owned outright, and 125,000 shares also
beneficially owned by Michael H. McConnell and Spring Street Partners,
LP, an entity over whose shares Mr. Robertson (with Mr. McConnell)
has shared voting power and shared investment power. The foregoing
125,000 shares are also reflected in the table as being held by
Mr. McConnell and Spring Street Partners, LP. The 37,500 shares
owned outright were issued in the private placement described in
footnote (3) above.
(30) Included 20,000 shares owned outright, and 125,000 shares also
beneficially owned by Corbin J. Robertson III and Spring Street
Partners, LP, an entity over whose shares Mr. McConnell (with Mr.
Robertson) has shared voting power and shared investment power. The
foregoing 125,000 shares are also reflected in the table as being
held by Mr. Robertson and Spring Street Partners, LP. The 20,000
shares owned outright were issued in the private placement described
in footnote (3) above.
(31) The Company has been advised that George Alcorn, Jr. has sole
voting power and sole investment power over these shares.
(32) The Company has been advised that Andrew Echols, Hugh Echols
and John Echols have shared voting power and shared investment power
over these shares.
35
<page>
PLAN OF DISTRIBUTION
As of the date of this prospectus, we have not been advised by the
selling stockholders as to any plan of distribution. Shares owned by the selling
stockholders, or by their partners, pledgees, donees (including charitable
organizations), transferees or other successors in interest, may from time to
time be offered for sale either directly by such individual, or through
underwriters, dealers or agents or on any exchange on which the shares may from
time to time be traded, in the over-the-counter market, or in independently
negotiated transactions or otherwise. The methods by which the shares may be
sold include:
* a block trade (which may involve crosses) in which the broker
or dealer so engaged will attempt to sell the securities as
agent but may position and resell a portion of the block as
principal to facilitate the transaction;
* purchases by a broker or dealer as principal and resale by
such broker or dealer for its own account pursuant to this
prospectus;
* exchange distributions and/or secondary distributions;
* sales in the over-the-counter market;
* underwritten transactions;
* ordinary brokerage transactions and transactions in which the
broker solicits purchasers; and
* privately negotiated transactions.
Such transactions may be effected by the selling stockholders at market
prices prevailing at the time of sale or at negotiated prices. The selling
stockholders may effect such transactions by selling the common stock to
underwriters or to or through broker-dealers, and such underwriters or
broker-dealers may receive compensations in the form of discounts or commissions
from the selling stockholders and may receive commissions from the purchasers of
the common stock for whom they may act as agent. The selling stockholders may
agree to indemnify any underwriter, broker-dealer or agent that participates in
transactions involving sales of the shares against certain liabilities,
including liabilities arising under the Securities Act. We have agreed to
register the shares for sale under the Securities Act and to indemnify the
selling stockholders, certain representatives of the selling stockholders and
each person who participates as an underwriter in the offering of the shares
against certain civil liabilities, including certain liabilities under the
Securities Act.
In connection with sales of the common stock under this prospectus, the
selling stockholders may enter into hedging transactions with broker-dealers,
who may in turn engage in short sales of the common stock in the course of
hedging the positions they assume. After the Registration Statement of which
this prospectus is a part is declared effective, the selling stockholders also
may sell shares of common stock short and deliver them to close out the short
positions, or loan or pledge the shares of common stock to broker-dealers that
in turn may sell them.
The selling stockholders and any underwriters, dealers or agents that
participate in distribution of the shares may be deemed to be underwriters, and
any profit on sale of the shares by them and any discounts, commissions or
concessions received by any underwriter, dealer or agent may be deemed to be
underwriting discounts and commissions under the Securities Act. Of the selling
stockholders, Sterne, Agee & Leach, Inc. and Kellogg Capital Group, LLC are
registered broker-dealers. As such, these selling stockholders are
"underwriters" within the meaning of Section 2(11) of the Securities Act with
respect to the shares offered by them pursuant to this prospectus.
There can be no assurances that the selling stockholders will sell any
or all of the shares offered under this prospectus.
EXPERTS
The financial statements of the Company included herein and in the
registration statement have been audited by Malone & Bailey, PLLC, independent
certified public accountants, and have been included herein in reliance upon
their report upon the authority of said firm as experts in accounting and
auditing.
36
WESTSIDE ENERGY CORPORATION
INDEX TO FINANCIAL STATEMENTS
Page
Independent Auditors' Report...............................................F-1
Consolidated Balance Sheets as of December 31, 2003 and
December 31, 2002.......................................................F-2
Consolidated Statements of Expenses for the years ended
December 31, 2003 and December 31, 2002.................................F-3
Consolidated Statements of Stockholder Equity for the years
ended December 31, 2003 and December 31, 2002 ..........................F-4
Consolidated Statements of Cash Flows for years ended
December 31, 2003 and December 31, 2002 ................................F-5
Notes to Consolidated Financial Statements ................................F-6
Nine Months Ended September 30, 2004 (unaudited):
Consolidated Balance Sheets (unaudited) as of September 30,
2004 and September 30, 2003.............................................G-1
Consolidated Statements of Expenses (unaudited) for the nine
months ended September 30, 2004 and September 30, 2003..................G-2
Consolidated Statements of Cash Flows for the nine months
ended September 30, 2004 and September 30, 2003 ........................G-3
Notes to Condensed Consolidated Financial Statements.......................G-4
37
INDEPENDENT AUDITORS' REPORT
Board of Directors
Westside Energy Corporation (formerly EvenTemp Corporation)
Houston, Texas
We have audited the accompanying balance sheet of Westside Energy Corporation as
of December 31, 2003, and the related statements of expenses, changes in
stockholders' deficit, and cash flows for each of the two years then ended.
These financial statements are the responsibility of Westside's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Westside Energy Corporation as
of December 31, 2003, and the results of its operations and its cash flows for
each of the two years then ended, in conformity with accounting principles
generally accepted in the United States of America.
MALONE & BAILEY, PLLC
www.malone-bailey.com
Houston, Texas
April 5, 2004
F-1
See summary of significant accounting policies
and notes to financial statements.
WESTSIDE ENERGY CORPORATION
(formerly EvenTemp Corporation)
BALANCE SHEET
December 31, 2003
ASSETS
Current Assets
Cash $ 388
===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Accounts payable and accrued expenses $ 51,265
Due to stockholders 17,720
-----------
68,985
-----------
STOCKHOLDERS' DEFICIT
Common stock, $.10 par value, 30,000,000 shares
authorized, 1,157,831 shares issued and outstanding 115,783
Additional paid in capital 2,240,206
Retained deficit (2,424,586)
-----------
Total Stockholders' Deficit ( 68,597)
-----------
TOTAL LIABILITIES AND STOCKHOLDERS DEFICIT $ 388
===========
F-2
WESTSIDE ENERGY CORPORATION
(formerly EvenTemp Corporation)
STATEMENTS OF EXPENSES
Years Ended December 31, 2003 and 2002
2003 2002
---------- ----------
General and administrative expense $ 3,686 $ 16,206
Interest expense 1,341 938
---------- ----------
NET LOSS $ (5,027) $ (17,144)
========== ==========
Basic and diluted loss per common share $ (.00) $ (.01)
Weighted average common shares outstanding 1,156,998 1,153,970
F-3
WESTSIDE ENERGY CORPORATION
(formerly EvenTemp Corporation)
STATEMENTS OF CHANGES IN STOCKHOLDERS DEFICIT
Years Ended December 31, 2002 and 2003
Common Stock Retained
Shares Amount Deficit Totals
-------- ---------- ---------- ---------
Balances at December 31, 2001 1,153,970 $2,351,800 $(2,402,415) (50,615)
Imputed interest 948 948
Net loss ( 17,144) (17,144)
--------- ---------- ----------- ---------
Balances at December 31, 2002 1,153,970 2,352,748 (2,419,559) (66,811)
Stock issued for services 5,000 1,900 1,900
Imputed interest 1,341 1,341
Share adjustment (1,139)
Net loss ( 5,027) ( 5,027)
----------- ---------- ----------- ---------
Balances at December 31, 2003 1,157,831 2,355,989 $(2,424,586) $ (68,597)
=========== =========== =========
Less: par 115,783
----------
Additional paid in capital $2,424,586
==========
F-4
WESTSIDE ENERGY CORPORATION
STATEMENTS OF CASH FLOWS
(formerly EvenTemp Corporation)
Years Ended December 31, 2003 and 2002
2003 2002
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (5,027) $ (17,144)
Adjustments to reconcile net loss to net
cash used in by operating activities:
Imputed interest 1,341 948
Stock issued for services 1,900 -
Changes in:
Accounts payable and accrued expenses (2,000) ( 1,272)
-------- --------
NET CASH USED IN OPERATING ACTIVITIES (3,786) (17,468)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Advances by a founding stockholder 3,750 13,970
-------- --------
NET CHANGE IN CASH ( 36) ( 3,498)
CASH BALANCES
-Beginning of period 424 3,922
-------- --------
-End of period $ 388 $ 424
======== ========
SUPPLEMENTAL DISCLOSURES
Interest paid in cash $ 0 $ 0
F-5
WESTSIDE ENERGY CORPORATION
(formerly EvenTemp Corporation)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of operations and organization. EvenTemp Corporation ("EvenTemp") was
incorporated in Nevada on November 30, 1995 and was authorized to do business in
Arizona in September 1996. EvenTemp purchased its wholly-owned subsidiary, Polar
Air Corporation in February 1998 to operate an auto repair and accessory
business. This business ceased operating in August 1999. The name was changed to
Westside Energy Corporation ("Westside") in March 2004.
Cash and cash equivalents. For purposes of the statements of cash flows, cash
equivalents include all highly liquid investments with original maturities of
three months or less.
Accounts payable and accrued expenses consist of trade payables of $38,285 and
state sales tax payable of $12,980.
Use of Estimates. The preparation of these financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amount of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Income taxes. Westside recognizes deferred tax assets and liabilities based on
differences between the financial reporting and tax bases of assets and
liabilities using the enacted tax rates and laws that are expected to be in
effect when the differences are expected to be recovered. Westside provides a
valuation allowance for deferred tax assets for which it does not consider
realization of such assets to be more likely than not.
Basic and diluted net loss per share calculations are presented in accordance
with Financial Accounting Standards Statement 128, and are calculated on the
basis of the weighted average number of common shares outstanding during the
year. They include the dilutive effect of common stock equivalents in years with
net income. Basic and diluted loss per share is the same due to the absence of
common stock equivalents.
Recently issued accounting pronouncements. Westside does not expect the adoption
of recently issued accounting pronouncements to have a significant impact on
Westside's results of operations, financial position or cash flow.
NOTE 2 - DUE TO SHAREHOLDERS
In 2003 and 2002, Westside's shareholders paid $3,750 and $13,970, respectively,
of Westside's expenses. The amounts are due on demand. Interest of 8 percent is
imputed and charged as interest expense.
F-6
NOTE 3 - INCOME TAXES
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31, 2003,
are as follows:
Deferred tax asset $ 11,774
Less: valuation allowance ( 11,774)
--------
Net current deferred tax assets $ 0
========
Westside had prior net operating loss carryforwards of approximately $2,308,000.
Internal Revenue Code Section 382 restricts or eliminates the use of net
operating losses when more than 50% of Westside ownership change occurs, as
defined, within any 36-month period. Such an ownership change occurred in 2000
when 1,060,000 new shares were issued. As a result of this change, net operating
loss carryforwards prior to this date of $2,294,000 may not be available.
Available carryforwards expire 15 to 20 years from when incurred.
NOTE 4 - SUBSEQUENT EVENT
The following events occurred in February and March 2004:
o Westside purchased rights to four oil and gas leases from Westside
Energy, L.P. ("Westside LP") for 700,000 shares of common stock
and Westside LP agreed to reimburse Westside up to $10,000 of out
of pocket expenses.
o Westside borrowed $280,000 from an entity controlled by a director
and an officer. The note matures in February 2005, bears interest
of 10% and is collateralized by the recently purchased oil and gas
leases and future property acquisitions purchased with the
$280,000.
o Westside granted 560,000 warrants with an exercise price of $.50
that expire in February 2009 and vest immediately to an officer, a
director and a company controlled by a director.
o Westside sold 4,080,000 shares of common stock to an officer and a
director for $.01 per share for total proceeds of $40,800.
o Westside entered into a month to month office lease for $1,425 per
month.
F-7
WESTSIDE ENERGY CORPORATION
BALANCE SHEET
September 30, 2004
ASSETS
Current Assets
Cash $ 158,086
Unproved Oil and Gas properties,
using Full Cost Method of Accounting 1,390,323
-----------
Total Assets $ 1,548,409
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued expenses $ 75,054
Due to stockholders 17,720
Advances from joint venture partners 36,499
Note payable to related parties, net of unamortized
discount of $65,384 544,616
Note Payable 300,000
-----------
Total Current Liabilities 973,889
-----------
Commitments
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value, 10,000,000 shares
authorized, none issued and outstanding -
Common stock, $.01 par value, 50,000,000 shares
authorized, 6,898,331 shares issued and outstanding 68,983
Additional paid in capital 3,517,314
Accumulated deficit (3,011,777)
-----------
Total Stockholders' Equity 574,520
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,548,409
===========
G-1
WESTSIDE ENERGY CORPORATION
STATEMENTS OF EXPENSES
Three and Nine Months Ended September 30, 2004 and 2003
Three Months Nine Months
2004 2003 2004 2003
---------- --------- --------- ----------
General and
administrative expense $ 361,129 $ 650 $ 516,376 $ 2,886
Interest income (524) - (2,024) -
Interest expense 45,390 - 72,838 1,238
---------- ---------- ---------- ----------
NET LOSS $ (405,995) $ (650) $ (587,190) $ (4,124)
========== ========== ========== ==========
Basic and diluted loss
per common share $ (.06) $ (.00) $ (.11) $ (.00)
Weighted average common
shares outstanding 6,898,331 1,158,970 5,254,667 1,157,303
G-2
WESTSIDE ENERGY CORPORATION
STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 2004 and 2003
2004 2003
---------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (587,190) $ (4,124)
Adjustments to reconcile net loss to net
cash used in operating activities:
Stock issued for services 234,275 1,900
Imputed interest 1,063 1,238
Amortization of discount on note payable 53,667 -
Changes in:
Accounts payable and accrued expenses 23,789 (2,000)
Advances from joint venture partners 36,499 -
---------- --------
NET CASH USED IN OPERATING ACTIVITIES (237,897) (2,986)
---------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Oil & Gas interests (1,326,204) -
---------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable to related parties 610,000 2,950
Proceeds from notes payable 300,000 -
Stock sold for cash 811,799 -
---------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,721,799 2,950
---------- --------
NET CHANGE IN CASH 157,698 ( 36)
CASH BALANCES
-Beginning of period 388 424
---------- --------
-End of period $ 158,086 $ 388
========== ========
NON-CASH DISCLOSURES:
Stock issued for Oil & Gas Interests $ 64,119 $ -
Discount on note payable 119,051 -
G-3
WESTSIDE ENERGY CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited interim financial statements of Westside Energy
Corporation ("Westside"), have been prepared in accordance with accounting
principles generally accepted in the United States of America and the rules of
the Securities and Exchange Commission ("SEC"), and should be read in
conjunction with the audited financial statements and notes thereto contained in
Westside's latest annual report filed with the SEC on Form 10KSB. In the opinion
of management, all adjustments, consisting of normal recurring adjustments,
necessary for a fair presentation of financial position and the results of
operations for the interim periods presented have been reflected herein. The
results of operations for interim periods are not necessarily indicative of the
results to be expected for the full year. Notes to the financial statements
which would substantially duplicate the disclosure contained in the audited
financial statements for fiscal year 2003, as reported in the 10KSB, have been
omitted.
NOTE 2 - OIL AND GAS PROPERTIES
In February 2004, Westside purchased several oil and gas interests from an
entity now named Westside Resources L.P., a company controlled by Westside's
president. Westside issued 700,000 shares of common stock for 20% interest in
each property. The properties were put on Westside's books at the cost of
Westside Resources L.P., which totaled $20,619. The properties are undeveloped
and unproved.
During the second quarter, Westside purchased additional oil and gas interests
from third parties totaling $361,633 and spent $368,452 on intangible drilling
costs associated with one lease.
During the third quarter, Westside purchased additional oil and gas interests
from third parties totaling $396,119 and spent $200,000 on intangible drilling
costs associated with one lease. Westside issued 30,000 shares of common stock
for costs related to purchasing the Oil and Properties valued at $43,500.
NOTE 3 - NOTES PAYABLE TO RELATED PARTIES
In February 2004 and April 2004, Westside borrowed $280,000 and $130,000,
respectively, from an entity controlled by Westside's two directors. The notes
mature in February 2005 and April 2005, respectively, and each note bears
interest of 10% and is collateralized by all oil and gas interests now owned or
hereafter acquired by Westside. Warrants to purchase up to an aggregate of
820,000 shares of Westside's common stock for a per-share exercise price of $.50
were attached to the debt. The notes were discounted by $119,051 for the
relative fair value of the warrants. The discount will be amortized over the
term of the notes.
G-4
In September 2004, Westside borrowed $200,000 from an officer and an affiliate
company. The notes are convertible into Westside's common stock, mature in
January 2005, and each note bears interest of 10% per annum. The conversion
price will be based on the offering price in a future equity offering. The
offering occurred in October 2004 for $2 per share. See note 7 for details.
NOTE 4 - NOTE PAYABLE
In September 2004, Westside borrowed $300,000 from a third party. The note is
convertible into Westside's common stock, matures in January 2005, and bears
interest of 10% per annum. The conversion price will be based on the offering
price in a future equity offering. The offering occurred in October 2004 for $2
per share. See note 7 for details.
NOTE 5 - COMMON STOCK
During the first quarter of 2004, Westside sold an aggregate of 4,080,000 shares
of common stock to one of its directors and to an entity under the control of
its other director for $.01 per share for total proceeds of $40,800.
During the second quarter of 2004, Westside sold 385,500 units consisting of two
shares of common stock and one warrant to purchase common stock with a per share
exercise price of $2.50, for cash of $2.00 per unit for total proceeds of
$771,000.
During the third quarter of 2004, Westside issued 149,500 shares of common stock
for services valued at $234,275. Westside issued 30,000 shares of common stock
valued at $43,500 for costs related to purchasing the Oil and Gas Properties.
NOTE 6 - COMMITMENT
Westside has committed to drill an exploratory well on one of the leases. The
expected cost associated with the well approximates $849,350. Westside will be
responsible for 75% of the costs which approximates $637,013. To date, Westside
has spent approximately $525,000 leaving a commitment of approximately $148,013
if the drilling partners agree to complete the well. If the partners elect not
to complete the well, Westside will be committed to refund approximately $36,000
to its drilling partners.
No other leases have commitments to drill to date.
NOTE 7 - SUBSEQUENT EVENTS
In October 2004, Westside borrowed $100,000 from an officer and an affiliate
company for aggregate borrowings of $200,000. The notes are unsecured and bear
interest of 10% per annum. The notes are due and payable in full on or before
February 13, 2005. The indebtedness is convertible into shares of Westside's
common stock if Westside raises certain additional private equity. The
conversion rate would be set at the offering price at which the additional
private equity is raised.
During November 2004, Westside completed an equity offering consisting of
10,000,000 shares of common stock with an offer price of $2.00 per share. The
cash offering resulted $20,000,000 in gross proceeds. Westside's placement agent
received $1,400,000 and 300,000 warrants with a purchase price of $2.00 per
share and a term of 5 years.
In November 2004, a holder of a convertible note have an outstanding principal
balance of $300,000 has converted the principal balance into common stock at
$2.00 per share for a total of 150,000 shares of common stock.
G-5