UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A #2
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report: June 30, 2010
Amended on November 30, 2010
GULFSTAR ENERGY CORPORATION
(Exact name of registrant as specified in its charter)
Colorado 333-151398 02-0511381
- ------------------------------------- ---------------------- ---------------------------------
(State or other jurisdiction of (Commission File (IRS Employer Identification
incorporation) Number) Number)
3410 Embassy Drive, West Palm Beach, FL, 33401
----------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(800) 820-1632
--------------
Registrant's telephone number, including area code
Bedrock Energy, Inc.
8950 Scenic Pine Drive, Ste 100, Parker, CO 80134
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(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17
CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c)
Explanatory Note
Gulfstar Energy Corporation is filing the Amendment #2 to its Current Report on
Form 8-K/A that was filed with the Securities and Exchange Commission on August
5, 2010. This Amendment is filed for the sole purpose of amending Section 9,
Item 9.01(a) to include the Unaudited Condensed Balance Sheet as of March 31,
2010 and the Unaudited Condensed Statement of Operations and Cash Flows for the
quarters ended March 31, 2010 and 2009 and for the Period from inception to
March 31, 2010 for Gulfstar Energy Group, LLC and Talon Energy Corporation and
the Unaudited Proforma Condensed Consolidated Balance Sheet as of March 31, 2010
and the Unaudited Pro Forma Condensed Statement of Operations for the quarter
ended March 31, 2010.
SECTION 2 - FINANCIAL INFORMATION
Item 2.01 - Completion of Acquisition or Disposition of Assets
On May 5, 2010, Gulfstar Energy Corporation ("the Company") entered into Share
Exchange Agreement (Agreement) with Talon Energy Corporation (Talon). Talon is a
Florida Company engaged in management activities in the oil and gas industry.
The closing of the acquisition of Talon was contingent upon the delivery of
audited financial statements of Talon and the issuance and delivery of the
common stock of the Company and Talon. On June 24, 2010, the Agreement was
replaced by a Revised and Amended Share Exchange and Acquisition Agreement
providing essentially the same terms and requiring and contemplating the
delivery of a Share Exchange Agreement for approximately 60% of Gulfstar Energy
Group LLC and closing thereon and delivery of an Acquisition Agreement for
approximately 40% of Gulfstar Energy Group LLC. The Agreement provided for the
Company to issue 3,500,000 restricted shares of its common stock to the
shareholders of Talon in exchange for the issued and outstanding shares of
Talon. After the exchange of such shares the Company owns 100% of the issued and
outstanding stock of Talon.
On June 24, 2010, the Company entered into and completed a Share Exchange
Agreement with Jason Sharp and Timothy Sharp, officers and shareholders of
Gulfstar Energy Group, LLC, a Mississippi Limited Liability Company, for
approximately 60% of Gulfstar Energy Group LLC, for 11,659,659 shares
(restricted) of common stock of the Company.
The Acquisition Agreement with Gulfstar Energy Group LLC, provides for the
Acquisition of the remaining approximately 40% of the outstanding interests of
the LLC, but requires the effectiveness of a Registration Statement filed with
SEC to register shares for offering to the individual interest holders of
8,340,341 shares of common stock.
As a result, the Company now owns 60% of Gulfstar Energy Group LLC and 100% of
Talon Energy Corporation.
The new subsidiary, Gulfstar Energy Group, LLC operates a pipeline in Western
Kentucky and acts as syndicator of financing for wells and as the designated
operator for wells. It has mineral right leases on approximately 9,000 acres,
has acted as syndicator and operator of 24 natural gas wells in Kentucky, has
built and operates a 16 mile gas pipeline and is transporting gas.
Talon will be used to manage and coordinate financing for the pipeline business
expansion and future drilling.
The Company, through its subsidiaries, is currently focusing its operational
efforts, initially, on the operation and continuing construction of its,
pipeline gas system and management of existing oil and gas wells and intends to
be involved in oil and gas operation exploration and development drilling.
Geographically, focused on oil and non-conventional shale gas in the Illinois
Basin of Western Kentucky. The Company's strategic focus will be on lower risk
profile income producing oil and gas assets that have sizable developmental
drilling potential with multiple pay zones. The Company intends to focus its
pipeline development efforts on private producers of constrained and shut-in
natural gas assets in Western Kentucky. The Company intends to provide producers
in its area with a turn key solution of access to an additional developmental
drilling partner, midstream management, and to provide an economical downstream
solution to move existing production towards liquidity.
1
The Company completed the acquisition of Talon Energy Corporation on June 29,
2010 which brings management, transactional experience and cash to the Company.
The Company intends to leverage its assets to develop energy prospects for its
own account or co-venture with other companies which can benefit from an
association with the Company's pipelines and management.
Gulfstar Energy Group, LLC, has constructed 16 miles of pipeline infrastructure
with six additional miles of gathering lines has connected 14 wells and is in
the process of connecting another 24 wells to the lines. At least 50 additional
wells are available to the pipeline from other independent owners for
connection. Gulfstar Energy Group, LLC has pipeline operations in Kentucky which
is shipping gas to a burner tip purchaser. Gulfstar Energy Group, LLC intends to
flow gas to a Bowling Green processing plant by mid to late 2010, and will clean
and flow gas through a hot tap with Midwestern Gas Transmission, the Company's
transcontinental pipeline in late 2010 or early 2011.
Gulfstar Energy Group, LLC Subsidiary: (60%)
Presently, Gulfstar Energy Group, LLC ("Gulfstar Energy") holds interests
overriding royalties of 12.5% on 24 wells. Neither the Company nor Gulfstar
Energy Group, LLC holds interest in any wells. Under a management agreement with
the working interest holders, Gulstar Energy Group, LLC syndicated the financing
of these wells, provides operator services and over sees well operation. In
return for such services, the Company receives a net revenue only interest in
the wells of 12.5%. Gulfstar Energy has 9,000 acres under an 87 1/2% net lease
with 10,000 acres under option. Under its proposed drilling program, the Company
has managed the drilling of 24 wells to date all of which produce high BTU
content gas and 5 wells which produce a total 35 BPD of 45 gravity oil. Based on
initial well production, the Company believes further developmental work on its
existing wells is required to achieve desired gas production rates.
Location Gross Acres Net Acres
- --------- ----------- ---------
Kentucky 9,232 8,078 (87.5%)
*There are approximately 960 acres held by production
Location Gross Producing Wells Net Producing Wells
- -------- --------------------- -------------------
Kentucky 24 3 (12.5% Royalty)
With approximately 300 shut in wells within 3.5 miles of Gulfstar Energy's
pipelines, the Company believes it is positioned to be the only viable gas
gatherer in the area. The Company intends to contract for existing shut in gas
production at 50% of market price, and subsequently sell the gas downstream at
market price for its own account.
Chart Production type of Wells
Oil Gas Total
- --- --- -----
5 24* 24
* 5 wells also produce oil.
2
Plan of Operations
The Company has developed a 12 month budget, as follows in the table below
September 30, December 31, March 31, June 30, 12 Month Total
2010 2010 2011 2011
---------------- ---------------- -------------- ------------- ---- --------------------
Overhead
Salaries $250,000 $340,000 $360,000 $380,000 $1,330,000
General and Administrative 140,000 130,000 160,000 140,000 570,000
---------------- ---------------- -------------- ------------- ---- --------------------
Total Overhead $390,000 $470,000 $520,000 $520,000 $1,900,000
Capital Expenditures
Pipeline/Infrastructure $2,100,000 $1,000,000 $300,000 $900,000 $4,300,000
Drilling Costs 1,000,000 5,250,000 - 6,250,000 12,500,000
---------------- ---------------- -------------- ------------- ---- --------------------
Total Capital Expenditures $3,100,000 $6,250,000 $300,000 $7,150,000 $16,800,000
The Company believes the advanced technologies of lateral drilling and
fracturing costs be used to increase its production. The Company plans to design
a recompletion program for many of the existing wells to drill lateral legs in
the gas zones with subsequent fracturing procedures to provide additional
production flow. The Company intends to start the first recompletion in
September 2010, subject to financing.
The Company may change any or all of the budget categories in the execution of
its business plan.
Q3 2010
The Company intends to connect the 24 wells it manages and a number of third
party wells to its pipeline. The associated gas will be sold to Aleris
International, its burner tip purchaser. Sales to Aleris International commenced
in late May.
Q4 2010 through Q1 2011
The Company intends to complete its gas plant and pipeline infrastructure
including liquid processing equipment. The pipeline will be connected to both
the processing plant in Bowling Green, KY and the Midwestern Gas hot tap. The
associated costs are as follows:
$750,000 Natural Gas Plant Site
$1,000,000 Additional Pipeline Construction
$325,000 Transmission Lines to Midwestern Gas
$860,000 for tap into Midwestern Gas
3
The Company intends to commence a 50 well developmental drilling program in the
late summer of 2010 using Tennessee Rotary Drilling and Talent Drilling for down
hole services and Universal Well Services, Inc. for nitrogen fracing and well
completion. The Company also plans to attempt horizontal drilling and completion
methods that have been successful in similar shale plays throughout Kentucky,
West Virginia and Pennsylvania. The Company intends to reinvest net cash flow
back into future drilling programs. The drilling program for 2010 is subject to
funding which is not committed, at this time.
SECTION 3 - SECURITIES AND TRADING MARKETS
Item 3.02 Unregistered Sales of Equity Securities.
Issuances of Common Stock
To settle debt and compensate officers, a total of 879,310 shares of common
stock were issued on June 25, 2010. The Company agreed to compensate Messers,
Nichols and Sears for their services as officers and directors of the Company
during the first three months of 2010 by issuing 40,000 shares of the Company's
restricted common stock each (pre-reverse split.) During the three months ended
June 30, 2010, the Company issued Messers, Nichols and Sears each 52,500 shares
of common stock for services during that period.
As a result of the Revised and Amended Share Exchange and Acquisition Agreement
with Talon Energy shareholders, executed on June 24, 2010, the Company agreed to
issue 3,500,000 shares of its restricted common stock to the shareholders of
Talon, pursuant to exemption from registration afforded by Section 4(2) of the
Securities Act of 1933 and Regulation D, Rule 506.
In the transaction for the acquisition of 60% of Gulfstar Energy Group, LLC, the
Company issued 11,659,659 shares of its restricted common stock, pursuant to
exemption from registration in Section 4(2) of the Securities Act of 1933.
As a result of the combined issuance transactions 16,569,659 shares are issued
and outstanding as of date hereof.
SECTION 4 - MATTERS RELATED TO ACCOUNTANTS & FINANCIAL STATEMENTS
Item 4.01 - Changes in Registrant's Certifying Accountant.
Larry O'Donnell, CPA, PC formerly the independent registered public accountant
for Gulfstar Energy Corporation was dismissed as the Company's independent
registered public accountant on July 8, 2010.
On July 9, 2010, the Board of Directors of the Company approved the engagement
of new auditors, UHY LLP, of Sterling Heights, Michigan to be the Company's
independent registered public accountant. No audit committee exists, other than
the members of the Board of Directors.
The action to engage new auditors was approved by the Board of Directors. No
audit committee exists, other than the members of the Board of Directors.
4
In connection with audit of fiscal years ended December 31, 2009 and 2008 and
the cumulative period of January 1, 2010 through March 31, 2010 and through the
date of termination of the accountants, no disagreements exist with the former
independent registered public accountant on any matter of accounting principles
or practices, financial statement disclosure, internal control assessment, or
auditing scope of procedure, which disagreements if not resolved to the
satisfaction of the former accountant would have caused them to make reference
in connection with their report to the subject of the disagreement(s).
The Independent Auditor Report by Larry O'Donnell, CPA, PC for the fiscal years
ended December 31, 2009 and 2008, contained an opinion which included a
paragraph discussing uncertainties related to continuation of the Company as a
going concern.
SECTION 5 - CORPORATE GOVERNANCE AND MANAGEMENT
Item 5.01 - Changes In Control of Registrant
As a result of the Revised and Amended Share Exchange and Acquisition Agreement,
and the Share Exchange Agreement, executed on June 24, 2010, the Company issued
a total of 15,159,659 shares of its restricted common stock to the shareholders
of Talon and to the equity interest holders of Gulfstar Energy Group, LLC. As a
result of the issuance of the shares, the Company will have approximately
16,569,659 shares of common stock issued and outstanding.
Item 5.02 - Departure of Directors or Certain Officers; Election of Directors;
Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
Appointment of Officers and Directors
On June 24, 2010, Mr. Jason Sharp was appointed Vice President, Treasurer and
Chief Operating Officer and William F. Young is appointed as a Director of the
Company.
Jason Sharp, Director and Chief Operating Officer
Jason Sharp, age 37, holds a Masters degree in Statistics from the University of
Tennessee and a Masters degree in Business Administration from Mississippi State
University since 2007. Jason has served as Chief Financial Officer for Gulfstar
Energy Group, where Jason helped develop the business plan and all financial
budgets and projections for a natural gas pipeline gathering system in Butler
County, KY. Jason conducted one-off financial analysis on the project, created a
private placement vehicle for raising start-up capital, created and reviewed key
gas purchase and sales contracts, while serving on the board of this natural gas
Company.
For the period of 2001 to 2005 he worked as a Professor in the Business
Department at Mississippi State University, Meridian, Mississippi Campus where
he specialized in business planning and forecasting. Jason also recently served
as Vice President - Chief Management Accountant with Indymac Bank, Pasadena,
California, where he was responsible for financial control of certain expenses
for this 10,000 employee financial services Company.
5
William F. Young, Director
William Young, age 61, served four years in the U.S. Navy 1968-72, and spent 12
Years in Transportation Management with Roadway Express 1972-1983. For the past
27 Years he has been a Wholesale Oil Distributor and is currently the President
of Georgia Energy and Engineering Incorporated which concentrates on wholesale
lubricants, gasoline, jet fuel, diesel and propane.
Key Employee
Mr. Timothy Sharp, founder of Gulfstar Energy Group, LLC, received 9,659,659
shares as a result of the Gulfstar Energy Group LLC 60% interest acquisition. He
will mange day to day operations of the wells as Gulfstar is the designated
operator for 24 wells owned by working interest holders. He has an Employment
Agreement as a key employee - CEO of Gulfstar Energy Group LLC and has a 2 year
contract at $ 300,000 per year, plus participation in any Employee Stock Option
Plans and any Bonus Plans. His salary will increase to $360,000 per year once
the Company achieves financing of at least $2,000,000.
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid to officers and board
members during the fiscal years ended December 31, 2009 and 2008 and the period
of January 1, 2010 through May 31, 2010. The table sets forth this information
for the Company, including salary, bonus, and certain other compensation to the
Board members and named executive officers. All share information has been
adjusted to reflect the 1 for 8 reverse split.
SUMMARY EXECUTIVES COMPENSATION TABLE
Non-equity Non-qualified
incentive deferred
Stock Option plan compensation All other
Salary Bonus awards awards compensation earnings compensation Total
Name & Position Year ($) ($) ($) ($) ($) ($) ($) (2) ($)
- ------------------- -------- ---------- ------- -------- -------- --------------- -------------- -------------- ------------
Robert McCann
CEO/President 2010 0 0 0 0 0 0 0 0
W. Edward
Nichols, former
President,
Secretary and 2010 0 0 5,575 0 0 0 0 $5,575
CEO(1) 2009 0 0 12,500 0 0 0 0 $12,500
2008 0 0 3,000 0 0 0 0 $3,000
Jason Sharp,
COO/VP 2010 0 0 0 0 0 0 0 0
Herbert T. Sears, 2010 0 0 5,575 0 0 0 0 $5,575
CFO(2) 2009 0 0 5,000 0 0 0 0 $5,000
2008 0 0 3,000 0 0 0 0 $3,000
Stephen Warner,
CFO, VP,
Secretary-Treasurer 2010 0 0 0 0 0 0 0 0
Ronald Blekicki,
Vice President (3)
(resigned) 2009 0 0 15,000 0 0 0 0 $15,000
2008 0 0 3,000 0 0 0 0 $3,000
6
(1)During the year ended December 31, 2009, the Company issued Mr. Nichols
31,250 shares of its restricted common stock for services totaling $12,500
($0.40 per share). During the year ended December 31, 2008, the Company issued
Mr. Nichols 3,750 shares of its restricted common stock for services totaling
$3,000 ($0.80 per share). During the period of January 1, 2010 through March 31,
2010, Mr. Nichols was issued 5,000 shares of common stock ($0.80 per share) for
services. During the period of April 1, 2010 through May 31, 2010, Mr. Nichols
was issued 52,500 ($0.03 per share) for services. The price per share was set by
the Company based on the price, the Company sells it shares to the public and on
the value of the shares that were issued in its recent acquisitions. (2) During
the year ended December 31, 2009, the Company issued Mr. Sears 12,500 shares of
its restricted common stock for services totaling $5,000 ($0.40 per share).
During the year ended December 31, 2008, the Company issued Mr. Sears 3,750
shares of its restricted common stock for services totaling $3,000 ($0.80 per
share). During the period of January 1, 2010 through March 31, 2010, Mr. Sears
was issued 5,000 shares ($0.80 per share) for services. During the period of
April 1, 2010 through May 31, 2010, Mr. Sears was issued 52,500 shares of the
Company's common stock ($0.03 per share) for services The price per share was
set by the Company based on the price the Company sells it shares to the public
and on the value of the shares that were issued in its recent acquisitions.
(3) Mr. Blekicki was President/CEO from January 1, 2008 until March 12, 2008 and
became Vice President effective March 1, 2009 through December 1, 2009. During
the year ended December 31, 2009, the Company issued Mr. Blekicki 37,500 shares
of its restricted common stock for services totaling $15,000 ($0.40 per share).
During the year ended December 31, 2008, the Company issued Mr. Blekicki 3,750
shares of its restricted common stock for services totaling $3,000 ($0.80 per
share). The price per share was set by the Company based on the price the
Company sells it shares to the public and on the value of the shares that were
issued in its recent acquisitions.
Employment Agreements and Termination of Employment and Change-In-Control
Arrangements
The Employment Agreements provided for termination by Company for cause and in
the case of a change of control. A change in control means: (a) the consummation
of a merger or consolidation of the Company with or into another entity or any
other transaction, in which the stockholders of the Company immediately after
such merger, consolidation or other transaction own or beneficially own
immediately after such merger, consolidation or other transaction less than 50
percent or more of the voting power of the outstanding securities (i) in the
continuing or surviving entity and (ii) any direct or indirect parent entity of
such continuing or surviving entity (b) the sale, transfer or other disposition
of all or substantially all of the Company's assets to a Person which is not
owned or controlled by the Company or its stockholders immediately prior to such
sale, transfer or other dispositions.
The Company has no pension, annuity, bonus, insurance, stock options, profit
sharing or similar benefit plans; however, the Company may adopt such plans in
the future. There are presently no personal benefits available for directors,
officers, or employees of the Company.
As of March 1, 2009, the Company entered into an Employment Agreement with W.
Edward Nichols for services as President, Chief Executive Officer and Secretary
for $1,250 per month. The Employment Agreement provided for the fees to be
pre-paid by the issuance of 31,250 shares of the Company's restricted common
stock. Such Agreement was cancelled as of December 31, 2009 and Mr. Nichols has
been issued 5,000 shares of common stock as final payment for services under the
Agreement.
7
Also as of March 1, 2009, the Company entered into an Employment Agreement with
Herbert T. Sears for services as Chief Financial Officer and Treasurer for $500
per month. The Employment Agreement provided for the fees to be pre-paid by the
issuance of 12,500 shares of the Company's restricted common stock. Such
Agreement was cancelled as December 31, 2009 and Mr. Sears has been issued 5,000
shares of common stock as final payment for services under the Agreement.
Effective July 1, 2010, Mr. Robert McCann is employed under a 2 year contract at
$120,000 per year, plus participation in Employee Stock Option Plans and any
Bonus Plans. His salary will increase to $264,000 after the completion of at
least $2,000,000 in financing.
Effective July 1, 2010, Mr. Stephen Warner is employed under a 2 year contract
at $72,000 per year, plus participation in Employee Stock Option Plans and any
Bonus Plans. His salary will increase to $120,000 per year after the completion
of at least $2,000,000 in financing.
Effective July 1, 2010, Mr. Jason Sharp is employed under a 2 year contract at
$180,000 per year, plus participation in Employee Stock Option Plans and any
Bonus Plans. His salary will increase to $216,000 per year after the completion
of at least $2,000,000 in financing.
Effective July 1, 2010, Mr. Timothy Sharp is employed under a 2 year contract at
$300,000 per year, plus participation in Employee Stock Option Plans and any
Bonus Plans for the 60% Subsidiary Gulfstar Energy Group LLC. His salary will
increase to $360,000 per year after the completion at least $2,000,000 in
financing.
Compensation Committee Interlocks and Insider Participation
The Company board of directors in its entirety acts as the compensation
committee for the Company. Mr. McCann is the Chief Executive Officer and
Chairman of the Company.
Director Compensation
The following table sets forth certain information concerning compensation paid
to our directors for services as directors, but not including compensation for
services as officers reported in the "Summary Executives Compensation Table"
during the year ended December 31, 2009 and period ended June 30, 2010. All
references to common shares have been adjusted for the 1 for 8 reverse split.
8
Non-qualified
Non-equity deferred
Fees incentive compensation All other
earned Stock Option plan earnings compensation Total
Name or paid awards ($) awards ($) compensation ($) ($) ($)
in cash ($)
($)
- -------------- ---------- ----------- ----------- --------------- --------------- ---------------- ----------
W. Edward $ -0- $ -0- $ -0- $ -0- $ -0- $18,075 $18,075
Nichols(1)
William F. $ -0- $ -0- $ -0- $ -0- $ -0- $ -0- $ -0-
Young
Herbert T. $ -0- $ -0- $ -0- $ -0- $ -0- $ 10,575 $10,575
Sears (2)
Ronald J. $ -0- $ -0- $ -0- $ -0- $ -0- $15,000 $15,000
Bleckiki (3)
Jason Sharp $ -0- $ -0- $ -0- $ -0- $ -0- $ -0- $ -0-
Robert McCann $ -0- $ -0- $ -0- $ -0- $ -0- $ -0- $ -0-
Stephen $ -0- $ -0- $ -0- $ -0- $ -0- $ -0- $ -0-
Warner
(1)During the year ended December 31, 2009, the Company issued Mr. Nichols
31,250 shares of its restricted common stock for services as an officer totaling
$12,500 ($0.40 per share). During the period of January 1, 2010 through June 30,
2010, Mr. Nichols was issued 57,500 shares of the Company's common stock valued
at $5,575 ($0.80 and $0.03 per share) for services. The price per share was set
by the Company based on the price, the Company sells it shares to the public and
on the value of the shares that were issued in its recent acquisitions.
(2) During the year ended December 31, 2009, the Company issued Mr. Sears 12,500
shares of its restricted common stock for services as an officer totaling $5,000
($0.40 per share) During the period of January 1, 2010 through June 30, 2010,
Mr. Sears was issued 57,500 shares of the Company's common stock valued at
$5,575 ($0.80 and $0.03 per share) for services. The price per share was set by
the Company based on the price the Company sells it shares to the public and on
the value of the shares that were issued in its recent acquisitions.
(3)Mr. Blekicki was Vice President effective March 1, 2009 through December 1,
2009. During the year ended December 31, 2009, the Company issued Mr. Blekicki
37,500 shares of its restricted common stock for services as an officer totaling
$15,000 ($0.40 per share). The price per share was set by the Company based on
the price the Company sells it shares to the public and on the value of the
shares that were issued in its recent acquisitions.
All of our officers and/or directors will continue to be active in other
companies. All officers and directors have retained the right to conduct their
own independent business interests.
It is possible that situations may arise in the future where the personal
interests of the officers and directors may conflict with our interests. Such
conflicts could include determining what portion of their working time will be
spent on our business and what portion on other business interest. To the best
ability and in the best judgment of our officers and directors, any conflicts of
interest between us and the personal interests of our officers and directors
will be resolved in a fair manner which will protect our interests. Any
transactions between us and entities affiliated with our officers and directors
will be on terms which are fair and equitable to us. Our Board of Directors
intends to continually review all corporate opportunities to further attempt to
safeguard against conflicts of interest between their business interests and our
interests.
9
At this time, directors do not receive a set compensation for their services.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS.
The following table sets forth information with respect to the beneficial
ownership of the Company's outstanding common stock by:
o each person who is known by the Company to be the beneficial owner of five
percent (5%) or more of Gulfstar's common stock;
o the Company's chief executive officer, its other executive officers, and
each director as identified in the "Management-- Executive Compensation"
section; and
o all of the Company's directors and executive officers as a group.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. Shares of common stock and options, warrants
and convertible securities that are currently exercisable or convertible within
60 days of the date of this document into shares of the Company's common stock
are deemed to be outstanding and to be beneficially owned by the person holding
the options, warrants or convertible securities for the purpose of computing the
percentage ownership of the person, but are not treated as outstanding for the
purpose of computing the percentage ownership of any other person.
The information below is based on the number of shares of the Company's common
stock that it believes was beneficially owned by each person or entity as of
June 30, 2010. All shares have been adjusted for the 1 for 8 reverse split.
Title of Class Name and Address of Beneficial Amount and Percent of Class(2)
Owner Nature of
Beneficial Owner
- -------------------- -------------------------------- ------------------ ---------------------
Common shares Jason Sharp 2,000,000 12.1%
Common shares Timothy Sharp 9,659,659 58.3%
Common shares Robert McCann 1,943,750 11.7%
Common shares Steve Warner 750,000 4.5%
Common shares W. Edward Nichols 183,573 1.03%
Common shares Herbert T. Sears 157,052 0.95%
Common shares William F. Young 0 0%
CURRENT TOTAL 14,694,034 88.68%
10
(1) Address is c/o Gulfstar Energy Group, Inc., 3410 Embassy Drive, West Palm
Beach, FL, 33401
(2) Based on 16,569,659 shares of common stock issued and outstanding on June
30, 2010.
(3) Mr. Nichols owns 169,002 shares of common stock directly, 2,199 shares of
common stock jointly with his wife and 12,372 shares indirectly though his
wife.
(4) Mr. Sears owns 149,413 shares of common stock directly, 7,473 shares
indirectly through his wife and 166 shares indirectly through family
trusts.
Rule 13d-3 under the Securities Exchange Act of 1934 governs the determination
of beneficial ownership of securities. That rule provides that a beneficial
owner of a security includes any person who directly or indirectly has or shares
voting power and/or investment power with respect to such security. Rule 13d-3
also provides that a beneficial owner of a security includes any person who has
the right to acquire beneficial ownership of such security within sixty days,
including through the exercise of any option, warrant or conversion of a
security. Any securities not outstanding which are subject to such options,
warrants or conversion privileges are deemed to be outstanding for the purpose
of computing the percentage of outstanding securities of the class owned by such
person. Those securities are not deemed to be outstanding for the purpose of
computing the percentage of the class owned by any other person. Included in
this table are only those derivative securities with exercise prices that
Gulfstar believes have a reasonable likelihood of being "in the money" within
the next sixty days.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On January 24, 2009, the Company entered into an Advisory and Consulting
Agreement with Hanover Financial Services, Inc. (Hanover.) The Advisory and
Consulting Agreement has a term of 6 months and will renew with notice from the
Company. The Agreement was cancelled in June 2010. The Agreement provided for
Hanover to provide business development consulting services to the Company in
the following areas: mineral interest acquisitions for exploration and
development, and in the implementation of debt and equity funding programs. Mr.
Bleckiki was an officer of the Company and is the Chief Executive Officer of
Hanover.
During the years ended December 31, 2008 and December 31, 2009, and to date June
30, 2010, the following directors of the Company received shares in the amounts
set forth below:
Number of Shares $ Value of Shares
---------------- -----------------
December 31, 2008
W. Edward Nichols 3,750 $3,000
Herbert T. Sears 3,750 $3,000
Ron Blekicki 3,750 $3,000
Number of Shares $ Value of Shares
---------------- -----------------
December 31, 2009
W. Edward Nichols 31,250 $12,500
Herbert T. Sears 12,500 $ 5,000
Ron Blekicki 37,500 $15,000
11
June 30, 2010 Number of Shares $ Value of Shares
----------------------------------------------------------------------------------------
Herbert T. Sears 57,500 $ 5,575
W. Edward Nichols 57,500 $ 5,575
Herbert T. Sears 2,500 $ 2,000
W. Edward Nichols 2,500 $ 2,000
On December 29, 2008, an officer loaned the Company $2,500 and the Company
issued an unsecured seven (7%) percent promissory note with principal and all
accrued and unpaid interest due and payable on December 29, 2009. Therefore, as
of December 31, 2009 and 2008, the Company owes the officers a total of $9,298
and $6,930 respectively.
As a result of the Share Exchange for Talon Energy, Inc., Mr. McCann
(CEO/President) received 1,943,750 shares of common stock of the Company and Mr.
Warner (CFO) received 750,000 shares of the common stock of the Company. As a
result of the Gulfstar Energy Group LLC acquisition, Jason Sharp (COO) received
2,000,000 shares of the common stock of the Company.
As of March 1, 2009, the Company entered into an Employment Agreement
("Employment Agreement") with W. Edward Nichols for services as President, Chief
Executive Officer and Secretary for $1,250 per month. The Employment Agreement
provided for the fees to be pre-paid by the issuance of 31,250 shares of the
Company's restricted common stock. Such Agreement was cancelled as of December
31, 2009 and Mr. Nichols has been issued 5,000 shares of common stock as final
payment for services under the Agreement.
Also as of March 1, 2009, the Company entered into an Employment Agreement with
Herbert T. Sears for services as Chief Financial Officer and Treasurer for $500
per month. The Employment Agreement provided for the fees to be pre-paid by the
issuance of 12,500 shares of the Company's restricted common stock. Such
Agreement was cancelled as December 31, 2009 and Mr. Sears has been issued 5,000
shares of common stock as final payment for services under the Agreement.
Effective July 1, 2010, Mr. Robert McCann is employed under a 2 year contract at
$ 120,000 per year, plus participation in Employee Stock Option Plans and any
Bonus Plans. His salary will increase to $264,000 after the completion of at
least $2,000,000 in financing.
Effective July 1, 2010, Mr. Stephen Warner is employed under a 2 year contract
at $ 72,000 per year, plus participation in Employee Stock Option Plans and any
Bonus Plans. His salary will increase to $120,000 per year after the completion
of at least $2,000,000 in financing
Effective July 1, 2010, Mr. Jason Sharp is employed under a 2 year contract at $
180,000 per year, plus participation in Employee Stock Option Plans and any
Bonus Plans. His salary will increase to $216,000 per year after the completion
of at least $2,000,000 in financing.
12
Effective July 1, 2010, Mr. Timothy Sharp is employed under a 2 year contract at
$ 300,000 per year, plus participation in Employee Stock Option Plans and any
Bonus Plans for the 60% Subsidiary Gulfstar Energy Group LLC. His salary will
increase to $360,000 per year after the completion at least $2,000,000 in
financing.
SECTION 9 FINANCIAL STATEMENTS AND EXHIBITS
Item 9.01 Financial Statements and Exhibits
(a) Financial Statements of Business Acquired. The following is a complete list
of financial statements filed as part of this Report.
Gulfstar Energy Group, LLC
Audited Financial Statements for the Years Ended December 31,
2009 and 2008, previously filed as part of the Current Report
on Form 8-K/A filed with the Securities and Exchange
Commission on August 5, 2010.
Unaudited Condensed Balance Sheet as of March 31, 2010 and
Unaudited Condensed Statements of Operations and Cash Flows
for the quarters ended March 31, 2010 and 2009 and for the
period from May 19, 2006 (Inception) to March 31, 2010.
Talon Energy Corporation
Audited Financial Statements for the Year Ended December 31,
2009 and for the period from July 14, 2008 (Inception) to
December 31, 2008, previously filed as part of the Current
Report on Form 8-K/A with the Securities and Exchange
Commission on August 5, 2010.
Unaudited Condensed Balance Sheet as of March 31, 2010 and
Unaudited Condensed Statements of Operations and Cash Flows
for the quarters ended March 31, 2010 and 2009 and for the
period from July 14, 2008 (Inception) to March 31, 2010.
(b) Pro Forma Financial Information. The following is a complete list of the
pro forma financial statements filed as a part of this Report.
Unaudited Pro Forma Condensed Consolidated Balance Sheet at
December 31, 2009, previously filed as part of the Current
Report on Form 8-K/A with the Securities and Exchange
Commission on August 5, 2010.
Unaudited Pro Forma Condensed Consolidated Balance Sheet at
March 31, 2010, filed herewith.
Unaudited Pro Forma Condensed Consolidated Statement of
Operations for the Year Ended December 31, 2009, previously
filed as part of the Current Report on Form 8-K/A with the
Securities and Exchange Commission on August 5, 2010.
Unaudited Pro Forma Condensed Consolidated Statement of
Operations for the Quarter Ended March 31, 2010, filed
herewith.
(d) Exhibits. The following is a complete list of exhibits filed as part of
this Report. Exhibit numbers correspond to the numbers in the exhibit table
of Item 601 of Regulation S-K.
13
GULFSTAR ENERGY GROUP, LLC
(A DEVELOPMENT STAGE COMPANY)
CONDENSED BALANCE SHEET
March 31, 2010
(Unaudited)
-----------
ASSETS
Cash and cash equivalents $ 556,386
Certificate of deposit 60,000
Note receivable 10,000
-------
Total current assets 626,386
Property and equipment, net 4,064,493
Note receivable, related party 82,325
Intangible assets 169,374
--------
Total other assets 251,699
--------
Total assets 4,942,578
==========
LIABILITIES AND MEMBERS' EQUITY
Accounts payable 727,035
Accrued expenses -
Litigation settlement payable 70,000
Deposits 441,465
--------
Total liabilities (all current) 1,238,500
Additional paid in capital
Equity membership 6,716,077
Accumulated deficit during
the development stage (3,011,999)
-----------
Total members' equity 3,704,078
----------
Members' equity $ 4,942,578
==========
See accompanying notes to unaudited condensed financial statements.
GULFSTAR ENERGY GROUP, LLC
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENTS OF OPERATIONS AND MEMBERS' EQUITY
Period May 19, 2006
Quarter Ended Quarter Ended (date of inception) to
March 31, 2010 March 31, 2009 March 31, 2010
(Unaudited) (Unaudited) (Unaudited)
------------------- -------------------- -----------------------
Operating Revenue $ 4,169 - 4,169
General and administrative
expense 201,632 123,954 3,037,604
-------- -------- ---------
(197,463) (123,954) (3,033,435)
Other income 231,365 - 6,935
-------- -------- -----
Net income (loss) $ 33,902 $(123,954) $(3,026,500)
======= ========= ===========
Members' equity, beginning 3,131,385 1,064,131 -
Contributions 534,999 469,386 6,868,421
Members' redemptions - (50,000) (141,636)
-------- -------- ---------
Members' equity, ending $3,700,286 $1,359,563 $3,700,285
========== ========== =========
See accompanying notes to unaudited condensed financial statements.
GULFSTAR ENERGY GROUP, LLC
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENTS OF CASH FLOWS
Period From
(Inception) May
Quarter Ended Quarter Ended 19, 2006 to
March 31, 2010 March 31, 2009 March 31, 2010
(Unaudited) (Unaudited) (Unaudited)
-------------------- ----------------- ----------------
OPERATING ACTIVITIES
Net (loss) $ 33,902 $ (123,954) $ (3,026,499)
Adjustments to reconcile net loss to net
cash flows provided by (used in)
operating activities:
Depreciation 4,386 - 33,159
Changes in:
Litigation settlement payable - - 70,000
Other receivables - -
Accounts payable and
accrued expenses (145,769) 677,362 727,039
Services paid-for with stock - - -
Deposits (61,759) 4,353 441,465
-------- ------ -------
Net cash provided by (used in)
operating activities (169,240) 557,761 (1,754,836)
INVESTING ACTIVITIES:
Expenditures for property and equipment - (106,904)
Expenditures for construction in progress (458,787) (1,145,837) (3,990,748)
Issuance of note receivable - - (10,000)
Net activity under officer note receivable - - (82,325)
Investment in certificate of deposit - - (60,000)
Expenditures for intangible assets - (89,602) (169,374)
--------- -------- ---------
Net cash used in
investing activities (458,787) (1,235,439) (4,419,351)
FINANCING ACTIVITIES:
Stockholder redemptions (19,000) (50,000) (160,640)
Stockholder contributions 557,791 469,876 6,891,213
-------- -------- ---------
Net cash provided
by financing activities 538,791 419,876 6,730,573
NET CHANGE IN CASH (89,236) (257,802) 556,386
CASH, Beginning 645,622 582,749 -
-------- -------- ----------
CASH, Ending $ 556,386 $ 324,947 $ 556,386
======== ======== ========
See accompanying notes to unaudited condensed financial statements.
GULFSTAR ENERGY GROUP, LLC
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
March 31, 2010
(Unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies is presented to assist in
understanding the Company's financial statements. The policies conform to
accounting principles generally accepted in the United States of America and
have been consistently applied in the preparation of these financial statements.
Company Operations
Gulfstar Energy Company, LLC (the "Company") is in the process of constructing a
pipeline and filtration system to gather natural gas from various gas wells
located throughout Kentucky, and deliver that gas to a local customer.
Development Stage Company
The Company was formed on May 19, 2006, in Mississippi. As of March 31, 2010,
principal operations have not yet commenced, and the Company has not generated
operating revenues. Current operations are devoted to the raising of capital to
construct and complete a gas pipeline supply system designed to gather natural
gas from surrounding gas wells located in the state of Kentucky and deliver this
gas to a single manufacturing customer. The Company is therefore considered a
development stage company under generally accepted accounting principles.
Accordingly, cumulative amounts from the Company's inception through March 31,
2010, are shown on the statements of operations and members' equity and cash
flows.
Use of Estimates
The preparation of 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 amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Concentration of Credit Risk
The Company, from time to time during the periods covered by these financial
statements, may have bank balances in excess of its insured limits. Management
has deemed this a normal business risk.
Cash Equivalents
For purposes of the statements of cash flows, the Company considers all highly
liquid debt instruments with a maturity of three months or less to be cash
equivalents.
Construction in Progress
Construction in progress consists of costs incurred by the Company to construct
its natural gas pipeline. Amounts are being capitalized as incurred and will
begin depreciating once the pipeline is operational.
Property and Equipment
Management capitalizes additions to property and equipment. Expenditures for
repairs and maintenance are charged to expense. Property and equipment are
carried at cost. Adjustment of the asset and the related accumulated
depreciation accounts are made for property and equipment retirements and
disposals, with the resulting gain or loss included in the statements of
operations and members' equity.
Intangible Assets
Intangible assets consist of right of way deposits, which are contracts allowing
the Company to install pipeline on private land. The rights exist indefinitely;
accordingly, no amortization has been recorded. The Company evaluates these
assets for impairment on an annual basis.
Revenue Recognition
The Company recognizes investment income from drilling partnerships upon the
partnerships' receipt of payment from customers.
Significant Customer
The Company's pipeline in process is currently designed to deliver natural gas
to one manufacturing customer located in Kentucky.
Depreciation
For financial reporting purposes, depreciation of property and equipment is
computed using the straight-line method over the estimated useful lives of
assets at acquisition. For tax reporting purposes, depreciation of property and
equipment is computed using the straight-line and accelerated methods over the
estimated useful lives of assets at acquisition.
Income Taxes
The Company is a limited liability company and is not a tax paying entity for
federal tax purposes. It's pro rata shares of income, losses, and tax credits
are reported by its partners on their individual income tax returns. Therefore,
no provision for federal income taxes is made in the accompanying financial
statements.
Effective January 1, 2009, the Limited Liability Company adopted ASC guidance
regarding accounting for uncertainty in income taxes. This guidance clarifies
the accounting for income taxes by prescribing the minimum recognition threshold
an income tax position is required to meet before being recognized in the
financial statements and applies to all income tax positions. Each income tax
position is assessed using a two step process. A determination is first made as
to whether it is more likely than not that the income tax position will be
sustained, based upon technical merits, upon examination by the taxing
authorities. If the income tax position is expected to meet the more likely than
not criteria, the benefit recorded in the financial statements equals the
largest amount that is greater than 50% likely to be realized upon its ultimate
settlement. At March 31, 2010, there were no uncertain tax positions that
require accrual.
None of the or Limited Liability Company's federal or state income tax returns
are currently under examination by the Internal Revenue Service ("IRS") or state
authorities. However fiscal years 2006 and later remain subject to examination
by the IRS and respective states.
NOTE 2 - RELATED PARTY TRANSACTIONS
Note Receivable
At March 31, 2010, the Company was owed $82,325 from an officer of the Company.
The note is non-interest bearing, unsecured, and due no later than two years
after the completion of the pipeline, which was still under construction as of
March 31, 2010. The note is shown as long-term on the balance sheet, as
management does not anticipate repayment within one year.
Deposits
At March 31, 2010, the Company had deposits of $441,465 due to the drilling
partnerships described in Note 5.
NOTE 3 - NOTE RECEIVABLE
At March 31, 2010, the Company was owed $10,000 from an unrelated third party.
The note bears interest at 10%, is unsecured, and is due November 2010.
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following at:
March 31,
2010
--------------------
Furniture $ 13,214
Vehicles 94,095
Pipeline Supply System 3,990,343
--------------------
4,097,652
Less: Accumulated Depreciation 33,159
--------------------
$ 4,064,493
====================
Depreciation expense was $4,386 for the quarter ended March 31, 2010.
NOTE 5 - DRILLING VENTURES
As of March 31, 2010, the Company holds net revenue interests of 12.5% in
various wells in Kentucky. The Company syndicates the financing of these wells
through working interest holders and provides management and operator services.
In return for these services, the Company receives net royalty revenue, only, in
the wells, of typically 12.5%.
As part of its services provided to the drilling partnerships, the Company
collects the contributions of the drilling partnerships' investors. Using these
funds, the Company pays for the expenses incurred by the partnerships. The
Company records no expenses of the partnerships on its own statements of
operations. The excess of contributions collected over partnership expenses paid
are shown as deposits on the balance sheet. As of March, 2010, the Company had
deposits due to the drilling partnerships in the amounts of $441,465.
NOTE 6 - LITIGATION SETTLEMENT PAYMENT
In March 2010, the Company settled certain environmental litigation. As a result
of the settlement, the Company is required to pay $70,000 during the year ended
December 31, 2010. This amount is included in Current Liabilities as of March
31, 2010. Additionally, the Company received $230,000 from a consultant
contracted by the Company for services provided which led to the environmental
litigation. The income from the settlement with the consultant is recognized as
Other Income on the Condensed Statement of Operations, for the quarter ended
March 31, 2010.
NOTE 7 - OPERATING LEASES
During April 2009, the Company entered into a lease agreement with an unrelated
third party for a second building. The lease agreement requires monthly payments
of $750 and expires April 2012. Total rent expense under this lease was $2,250
for the quarter ended March 31, 2010.
The following is a schedule of minimum future rental payments under the
operating leases described above:
Year ending December 31, Amount
- ------------------------ ------
2010 $ 9,000
2011 9,000
2012 3,000
--------
$21,000
========
TALON ENERGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONDENSED BALANCE SHEET
March 31, 2010
(Unaudited)
ASSETS
Cash and cash equivalents $ 144,784
Deferred tax benefit 203,600
--------
Total assets (all current) 348,384
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued expenses 320,058
--------
Total liabilities (all current) 320,058
--------
Stockholders' equity 28,326
-------
Total liabilities and
stockholders' equity $ 348,384
=======
See accompanying notes to the unaudited condensed financial statements.
TALON ENERGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENTS OF OPERATIONS
Quarter Period From
Quarter Ended Ended March (Inception) July 14,
March 31, 2010 31, 2009 2008 to March 31,
(Unaudited) (Unaudited) 2010 (Unaudited)
------------------- --------------- --------------------
Operating revenue $ - $ - $ -
General and
administrative expense 101,529 130,343 731,413
-------- -------- -------
(101,529) (130,343) (731,413)
Other income 37 254 447
-------- --------- --------
Total other income 37 254 447
-------- --------- --------
Income before
income taxes (101,492) (130,089) (730,966)
Deferred income taxes - - (203,600)
--------- --------- ---------
Net loss $ (101,492) $ (130,089) $ (527,366)
========= ========= =========
See accompanying notes to unaudited condensed financial statements.
TALON ENERGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENTS OF CASH FLOWS
Period From
Quarter Ended (Inception) July
March 31, Quarter Ended 14, 2008 to March
2010 March 31, 2009 31, 2010
(Unaudited) (Unaudited) (Unaudited)
---------------- ------------------ -------------------
OPERATING ACTIVITIES
Net loss $ (101,492) $ (130,089) $ (519,366)
Adjustments to reconcile
net loss to net cash used
in operating activities:
Deferred income taxes - - (203,600)
Services paid with stock - - 16,000
Changes in:
Accounts payable and
accrued expenses 41,354 (93,230) 320,058
------- -------- -------
Net cash used in
operating activities (60,138) (223,319) (386,908)
FINANCING ACTIVITIES
Stockholder Contributions 102,500 42,775 531,692
-------- ------- -------
NET CHANGE IN CASH 42,362 (180,544) 144,784
CASH, beginning 102,422 313,918 -
-------- -------- -
CASH, ending $ 144,784 $ 133,374 $ 144,784
======== ======== =======
See accompanying notes to unaudited condensed financial statements.
TALON ENERGY CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
March 31, 2010
(Unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of certain accounting policies followed in the
preparation of these financial statements. The policies conform to accounting
principles generally accepted in the United States of America and have been
consistently applied in the preparation of the financial statements.
Company Operations
Talon Energy Corporation is a C-corporation, which was incorporated on July 14,
2008, in the state of Florida. The Company is engaged in oil and gas
exploration, development drilling, and oil and gas production. The Company's
operations are focused in western Kentucky.
Development Stage Company
As of March 31, 2010, the Company has yet to generate operating revenue. Current
operations are devoted to attracting new investors and incurring expenses for
gas exploration and general business administration. The Company therefore is
considered a development stage company under generally accepted accounting
principles. Accordingly, cumulative amounts from the Company's inception through
March 31, 2010, are shown on the statements of operations and cash flows.
Use of Estimates
The preparation of 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 amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Cash Equivalents
For purposes of the statements of cash flows, the Company considers all highly
liquid debt instruments with a maturity of three months or less to be cash
equivalents.
Income Taxes
Income tax expense includes federal deferred taxes arising from temporary
differences between income for financial reporting and income tax purposes.
Income taxes are provided at the applicable rates on the basis of items included
in the determination of income for income tax purposes. The Company's effective
income tax rate may be different than what would be expected if the Federal
statutory rate was applied to income from continuing operations primarily
because of expenses included in financial reporting income that are not
deductible for income tax purposes. The significant permanent difference is
meals and entertainment expense.
Deferred income taxes are provided for timing differences between financial
statement income and tax return income under the provisions of Accounting for
Income Taxes, which requires deferred income taxes be computed on the liability
method and deferred tax assets are recognized only when realization is certain.
The primary temporary differences arise from accrued expenses and net operating
loss carryforwards. The tax effect of such differences is included on the
statements of operations and balance sheet as an adjustment to deferred income
taxes.
Deferred income taxes totaled $203,600 at March 31, 2010 and have been recorded
as a short term asset.
Effective January 1, 2009, the Company adopted ASC guidance regarding accounting
for uncertainty in income taxes. This guidance clarifies the accounting for
income taxes by prescribing the minimum recognition threshold an income tax
position is required to meet before being recognized in the financial statements
and applies to all income tax positions. Each income tax position is assessed
using a two step process. A determination is first made as to whether it is more
likely than not that the income tax position will be sustained, based upon
technical merits, upon examination by the taxing authorities. If the income tax
position is expected to meet the more likely than not criteria, the benefit
recorded in the financial statements equals the largest amount that is greater
than 50% likely to be realized upon its ultimate settlement. At March 31, 2010,
there were no uncertain tax positions that require accrual.
Unused Net Operating Loss
The Company has available at March 31, 2010, unused net operating losses of
approximately $494,723, which may provide future tax benefits expiring in the
years 2028 through 2030.
NOTE 2 - RELATED PARTY TRANSACTIONS
Accrued Expenses
At March 31, 2010, the Company owed $58,435 of accrued expenses to officers of
the Company. These expenses are related to unreimbursed general business
expenditures.
Accrued Payroll
At March 31, 2010, the Company owed $261,623 of accrued payroll to officers of
the Company.
NOTE 3 - CAPITAL STOCK
At March 31, 2010, the capital stock authorized, issued and outstanding was as
follows:
Shares
Par Shares Issued and
Type Value Authorized Outstanding Amount
---- ----- ---------- ------------ -------
Common $0.0001 200,000,000 12,980,000 $1,298
Preferred $ - 5,000,000 - $ -
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
On May 5, 2010, Gulfstar Energy Corporation ("the Company") entered into Share
Exchange Agreement (Agreement) with Talon Energy Corporation (Talon). Talon is a
Florida Company engaged in management activities in the oil and gas industry.
The closing of the acquisition of Talon was contingent upon the delivery of
audited financial statements of Talon and the issuance and delivery of the
common stock of the Company and Talon. On June 24, 2010, the Agreement was
replaced by a Revised and Amended Share Exchange and Acquisition Agreement
providing essentially the same terms and requiring and contemplating the
delivery of a Share Exchange Agreement for approximately 60% of Gulfstar Energy
Group LLC and closing thereon and delivery of an Acquisition Agreement for
approximately 40% of Gulfstar Energy Group LLC. The Agreement provided for the
Company to issue 3,509,530 restricted shares of its common stock to the
shareholders of Talon in exchange for the issued and outstanding shares of
Talon. After the exchange of such shares the Company owns 100% of the issued and
outstanding stock of Talon.
On June 24, 2010, the Company entered into and completed a Share Exchange
Agreement with Jason Sharp and Timothy Sharp, officers and shareholders of
Gulfstar Energy Group, LLC, a Mississippi Limited Liability Company, for
approximately 60% of Gulfstar Energy Group LLC, for 11,659,659 shares
(restricted) of common stock of the Company.
The Acquisition Agreement with Gulfstar Energy Group LLC, provides for the
Acquisition of the remaining approximately 40% of the outstanding interests of
the LLC, but requires the effectiveness of a Registration Statement filed with
the Securities Exchange Commission to register the remaining shares of common
stock offered to the individual interest holders of Gulfstar Energy Group, LLC.
The Gulfstar Energy Group, LLC and the Talon Energy acquisition were accounted
for as a reverse merger acquisition, in which Gulfstar Energy Group, LLC was
determined to be the acquirer for accounting purposes. On May 5, 2010, the
Company effected a reverse split of the common stock of Gulfstar Energy
Corporation in conjunction with the transactions with Talon Energy Corporation
and Gulfstar Energy Group, LLC. The reverse split was on a 1 for 8 basis.
The accompanying Unaudited Pro Forma Condensed Consolidated Balance Sheet gives
effect to the acquisition as if it had been consummated on March 31, 2010.
The accompanying Unaudited Pro Forma Condensed Consolidated Statements of
Operations for the quarter ended March 31, 2010, gives effect to the acquisition
as if it had been consummated on January 1, 2010.
The Unaudited Pro Forma Consolidated Financial Statements should be read in
conjunction with the historical financial statements of Talon Energy Corporation
and Gulfstar Energy Group, LLC, as well as with those of the Registrant. The
Unaudited Pro Forma Consolidated Financial Statements do not purport to be
indicative of the financial position or results of operations that would have
actually been obtained had such transactions been completed as of the assumed
dates and for period presented, or which may be obtained in the future. The pro
forma adjustments are described in the accompanying notes and are based upon
available information and certain assumptions that the Registrant believes are
reasonable.
GULFSTAR ENERGY, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
March 31, 2010
(Unaudited)
Historical
------------
ASSETS Gulfstar Talon Energy Gulfstar
Energy Corporation Energy Group, Pro Forma Pro Forma
Corporation LLC adjustments Consolidated
-------------- -------------- --------------- --------------- ----------------
Cash and cash equivalents $ 470 $ 144,784 $ 616,386 $ - $ 761,640
Note receivable - - 10,000 - 10,000
Deferred tax benefit - 203,600 - - 203,600
-------------- -------------- --------------- --------------- ----------------
Total current assets 470 348,384 626,386 - 975,240
-------------- -------------- --------------- --------------- ----------------
Property and equipment, net 1,122 - 4,064,493 - 4,065,615
-------------- -------------- --------------- --------------- ----------------
Note receivable, related party - - 82,325 - 82,325
Intangible assets - - 169,374 - 169,374
Goodwill - - - 285,190 285,190
-------------- -------------- --------------- --------------- ----------------
Total other assets - - 251,699 285,190 536,889
-------------- -------------- --------------- --------------- ----------------
Total assets $ 1,592 $ 348,384 $ 4,942,578 $ 285,190 $ 5,577,744
============== ============== =============== =============== ================
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
Accounts payable $ 6,162 $ - $ 727,035 $ - $ 733,197
Litigation settlement payment - - 70,000 - 70,000
Deposits - - 441,465 - 441,465
Accrued expenses and liabilities - 320,058 - - 320,058
Loans from shareholders - - - - -
-------------- -------------- --------------- --------------- ----------------
Total liabilities (all current) 6,162 320,058 1,238,500 - 1,564,720
-------------- -------------- --------------- --------------- ----------------
Non-controlling interest - - - 1,481,631 1,481,631
Common stock 4,255 1,298 - 10,148 15,701
Additional paid in capital 476,818 546,394 - 4,504,479 5,527,691
Equity membership - - 6,716,077 (6,716,077) -
Accumulated deficit (485,643) (519,366) (3,011,999) 1,005,009 (3,011,999)
-------------- -------------- --------------- --------------- ----------------
Total stockholders' (deficit) equity (4,570) 28,326 3,704,078 285,190 4,013,024
-------------- -------------- --------------- --------------- ----------------
Total liabilities and
and stockholders' (deficit) equity $ 1,592 $ 348,384 $ 4,942,578 $ 285,190 $ 5,577,744
============== ============== =============== =============== ================
See accompanying notes to unaudited pro forma condensed consolidated financial
statements.
GULFSTAR ENERGY CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE QUARTER ENDED MARCH 31, 2010
(Unaudited)
Historical
-----------------------
Gulfstar Talon Energy Gulfstar
Energy Corporation Energy Group, Pro Forma Pro Forma
Corporation LLC adjustments Consolidated
--------------- --------------- ------------- ------------------- ----------------
Revenues $ - $ - $ 4,169 $ - $ 4,169
Direct costs - - - - -
--------------- --------------- ------------- ------------------- ----------------
Gross profit - - 4,169 - 4,169
--------------- --------------- ------------- ------------------- ----------------
Operating expenses:
General and
administrative expense 17,685 101,529 201,632 - 320,846
--------------- --------------- ------------- ------------------- ----------------
Total operating expenses 17,685 101,529 201,632 - 320,846
--------------- --------------- ------------- ------------------- ----------------
Loss from operations (17,685) (101,529) (197,463) - (316,677)
--------------- --------------- ------------- ------------------- ----------------
Other income:
Noncontrolling interest - - - (15,078) (15,078)
Other income - 37 231,365 - 231,402
Other expense - - - - -
--------------- --------------- ------------- ------------------- ----------------
- 37 231,365 (15,078) 216,324
--------------- --------------- ------------- ------------------- ----------------
Deferred income taxes - - - - -
--------------- --------------- ------------- ------------------- ----------------
Net loss $ (17,685)$ (101,492) $ 33,902 $ (15,078)$ (100,353)
=============== =============== ============= =================== ================
Basic and diluted net
loss per share $ (0.01) $ (0.01)
=============== ================
Weighted average number of common
shares outstanding 4,105,524 a (3,723,583) 15,701,130
=============== ================
b 145,000
c 5,000
d 15,169,189
See accompanying notes to the unaudited pro forma condensed consolidated
financial statements.
GULFSTAR ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED PRO FORMA FINANCIAL STATEMENTS
MARCH 31, 2010
(Unaudited)
NOTE 1 - RECONCILIATION OF OUTSTANDING SHARES
(a) This entry is recorded to reflect the reverse split of the common stock of
Gulfstar Energy Corporation in conjunction with the transactions with Talon
Energy Corporation and Gulfstar Energy Group, LLC. The reverse split was on a 1
for 8 basis.
(b) This entry is recorded to reflect the issuance of 145,000 post - split
shares of the Company's restricted common stock for services valued at $4,350 or
$0.03 / share. (c) This entry is recorded to reflect the issuance of 5,000
post-split shares of the Company's restricted common stock as payment of
outstanding debt of $5,000.
(d) This entry is recorded to reflect the reverse merger accounting of the
acquisitions of Gulfstar Energy Group, LLC, and of Talon Energy Corporation.
In order to effect the acquisition, Gulfstar Energy Corporation issued 3,509,530
shares of its own common stock to the shareholders of Talon Energy Corporation
for all of the issued and outstanding stock of Talon Energy and 11,659,659
shares of its common stock to the equity holders of approximately 60% of the
equity of Gulfstar Energy Group, LLC.
The company has accounted for the purchase as a reverse merger with Gulfstar
Energy Group, LLC, being considered the acquirer for accounting purposes.
In determining the valuation of goodwill, the Company is applying ASC 805,
"Business Combinations" ("ASC 805"). The acquisition method of accounting is
used for all business combinations where the acquirer is identified for each
business combination. ASC 805 defines the acquirer as the entity that obtains
control of one or more businesses in the business combination and established
the acquisition date as the date that the acquirer achieves control.
Common stock shares totaling
3,509,530 shares at $.03 per share $105,286
Liabilities assumed in excess of assets acquired 179,904
----------
Goodwill $285,190
14
Exhibit No. Description
----------- -----------
2.1 Revised and Amended Share Exchange And
Acquisition for Talon Energy Corporation*
2.2 Acquisition Agreement, Dated as of June
23, 2010, By and Among Gulfstar Energy
Corporation and Gulfstar Energy Group,
LLC on behalf of certain Interest
Holder(s)*
2.3 Share Exchange Agreement, Dated as of
June 23, 2010, By and Among Gulfstar
Energy Corporation and Jason Sharp and
Timothy Sharp and Gulfstar Energy, LLC *
2.4 Assignment of Interest in Gulfstar Energy
Group, LLC, Consent of Manager, Amendment
to Operating Agreement and Acceptance by
Assignee *
3.3(ii) Operating Agreement of Gulfstar Energy
Group, LLC *
10.1 Employment Agreement - Robert McCann,
dated June 23, 2010*
10.2 Employment Agreement - Stephen Warner,
dated June 23, 2010*
10.3 Employment Agreement - Jason Sharp,
dated June 23, 2010*
10.4 Employment Agreement - Timothy Sharp,
dated June 23, 2010*
16.1 Letter of Change in Certifying
Accountant, dated July 8, 2010*
23.1 Resignation of Larry O'Donnell, CPA,
PC dated July 8, 2010*
23.2 Letter of UHY, LLP, dated August 3,
2010*
23.3 Consent of UHY, LLP, dated August 4,
2010*
- --------------------
*Filed as an exhibit to the Current Report on Form 8K/A, filed with the
Securities and Exchange Commission on August 5, 2010.
**Filed
15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned, hereunto duly authorized.
GULFSTAR ENERGY, CORPORATION
By: /s/Robert McCann
----------------
Robert McCann,
Chief Executive Officer
Date: November 30, 2010
16