Gulfstar Energy Corporation
3410 Embassy Drive
West Palm Beach, Florida 33401
January 7, 2011
Via Facsimile and U.S. Mail
Karl Hiller
U.S. Securities and Exchange Commission
100 F Street, NE
Washington, DC 20549-7010
Re: Gulfstar Energy Corporation
Form 10-K for the Year Ended December 31, 2009
Filed On March 29, 2010
File No. 333-151398
Dear Mr. Hiller,
On behalf of Gulfstar Energy Corporation, a Colorado corporation (the
"Company"), we are providing the following responses to the comment letter dated
December 14, 2010 from the staff (the "Staff") of the U.S. Securities and
Exchange Commission (the "Commission") regarding the Form 10-K, Form 8-K, and
Form 10-Q referenced above. The responses set forth below are numbered to
correspond to the numbered comments in the Staff's comment letter, which have
been reproduced here for ease of reference.
Form 8-K, filed August 5, 2010
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General
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1. We note that the audit reports that are included with the separate
financial statements of Talon Energy Corporation and Gulfstar Energy
Group, LLC are not signed. Please file amended reports that are signed
by your auditors.
Response Item #1:
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We will file an amended Form 8-K with signed reports included.
Unaudited Pro Forma Consolidated Financial Information
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2. We note your disclosures stating that "the Gulfstar Energy Group LLC
and the Talon Energy Corporation acquisition were accounted for as a
reverse merger acquisition, in which Gulfstar Energy Group LLC was
determined to be the acquirer for accounting purposes". Tell us how
this disclosure is consistent with your subsequent accounting for the
acquisition of Talon Energy Corporation, which appears to have been
recorded at fair value in your June 30, 2010 interim financial
statements.
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Response Item #2:
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In accordance with the SEC Division of Corporate Finance Financial
Reporting Manual, Topic 12, the transaction between Gulfstar Energy
Corporation and Gulfstar Energy Group, LLC has been recorded as a
reverse recapitalization. Gulfstar Energy Corporation was determined to
be the legal parent (accounting acquiree) and Gulfstar Energy Group,
LLC was determined to be the legal acquiree (accounting acquirer) in
the reverse recapitalization. Accordingly, this transaction was
accounted for as a capital transaction with no goodwill or intangible
assets recorded.
The reverse recapitalization above was immediately followed by an
acquisition of Talon Energy Corporation by Gulfstar Energy Corporation.
This transaction was recorded as a business combination at fair value
in accordance with FASB ASC Topic 805-10. Gulfstar Energy Corporation
was determined to be the acquirer of Talon Energy Corporation.
Accordingly, goodwill was recorded based on the purchase price paid for
Talon Energy Corporation in excess of the fair market value of the net
assets acquired.
In our initial 8K filing, the description of the transaction identified
the entire transaction as a reverse merger as opposed to a reverse
recapitalization followed by an acquisition. In the subsequent filing
of the Form 10-Q for the Fiscal Quarter Ended September 30, 2010 we
have amended our disclosure of the reverse recapitalization between
Gulfstar Energy Corporation and Gulfstar Energy Group, LLC and
subsequent acquisition of Talon Energy Corporation.
3. Submit details about the mergers between Talon Energy Corporation,
Gulfstar Energy Corporation and Gulfstar Energy Group, LLC, specifying
the dates that each of the transactions were completed, the amount and
form of consideration exchanges in each instance, also identifying the
parties involved, indicating their ownership interest in each entity
before and after the exchange and describing the motivation of these
parties in electing to participate.
Response Item #3:
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In a share exchange agreement dated June 24, 2010, effective date June
30, 2010, between Gulfstar Energy Corporation, Jason Sharp, Timothy
Sharp, and Gulfstar Energy Group, LLC, 11,659,659 shares of restricted
common stock of Gulfstar Energy Corporation were issued as
consideration to Jason Sharp and Timothy Sharp in exchange for the
11,659,659 interests in Gulfstar Energy Group, LLC.
Gulfstar Energy Group, LLC was formed in 2006 and has constructed 16
miles of pipeline infrastructure in western Kentucky. In addition,
Gulfstar Energy Group has mineral leases and wells on approximately
9,000 acres. Prior to the share exchange agreement noted above, Jason
and Timothy Sharp owned approximately 60% of the interest of Gulfstar
Energy Group, LLC. The remaining interests prior to the above mentioned
agreement were owned by over 150 investors. Gulfstar Energy Group, LLC
signed the share exchange agreement in order to gain access to
additional capital and obtain financial and management expertise to
develop their leases, connect to an interstate pipeline, and
essentially provide liquidity to the owners of the Company. Subsequent
to the exchange, Jason and Timothy Sharp owned approximately 74% of the
15,811,130 shares of Gulfstar Energy Corporation common stock issued
and outstanding as of June 30, 2010.
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In an acquisition agreement dated June 24, 2010, effective June 30,
2010, between Gulfstar Energy Corporation, Talon Energy Corporation,
and the shareholders of Talon Energy Corporation approximately
3,500,000 shares of restricted common stock of Gulfstar Energy
Corporation, valued at 3 cents a share, were issued to the shareholders
of Talon Energy Corporation in exchange for 100% of Talon Energy
Corporation's outstanding common stock. Each 1% ownership shares in
Talon Energy Corporation were entitled to receive 1/100th of the
approximately 3,5000,000 (post reverse split) shares of Gulfstar Energy
Corporation in exchange for their shares in Talon Energy Corporation.
Talon Energy Corporation was formed in 2008 for the purpose of
acquiring oil and gas properties. The principal founder has had
experience in the energy sector. Prior to the acquisition agreement
noted above, Talon Energy Corporation had 12,978,200 shares of common
stock issued and outstanding. Robert McCann owned approximately 60%,
Stephen Warner owned approximately 23%, and Marc Pindus owned
approximately 8% of the common stock shares of Talon Energy Corporation
issued and outstanding. Talon Energy Corporation signed the acquisition
agreement in order to execute their business plan to create value for
the founders and investors through a public entity operating in the oil
and gas arena. Subsequent to the acquisition and reserve stock split,
Robert McCann owned approximately 12%, Stephen Warner owned
approximately 5%, and Marc Pindus owned approximately 2% of the
15,811,130 shares of Gulfstar Energy Corporation common stock issued
and outstanding as of June 30, 2010.
Gulfstar Energy Corporation (formerly Bedrock Energy, Inc.) was formed
in 2004. Prior to the share exchange and acquisition agreements noted
above and subsequent to a reverse stock split on a 1 for 8 basis,
Gulfstar Energy Corporation had 641,941 shares of common stock issued
and outstanding. Edward Nichols owned approximately 29% and Herbert
Sears owned approximately 25% of the common stock shares of Gulfstar
Energy Corporation issued an outstanding. Gulfstar Energy Corporation
signed the above noted agreements as a means to merge with an operating
company to create shareholder value and acquire a company with the
resources to obtain additional capital. Subsequent to the merger and
acquisition, Edward Nichols owned approximately 1.2% and Herbert Sears
owned approximately 1% of the 15,811,130 shares of Gulfstar Energy
Corporation common stock issued and outstanding as of June 30, 2010.
4. Please label each of the pro forma adjustments included in your
Unaudited Condensed Consolidated Balance Sheet and Condensed
Consolidated Statement of Operations as necessary to correspond with
the narrative disclosures included in your pro forma footnotes.
Response Item #4:
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We will file an amended Form 8-K, which will include labels for all pro
forma adjustments that are included in the Unaudited Condensed
Consolidated Balance Sheet and in the Condensed Consolidated Statement
of Operations to correspond to the narrative disclosures that are
included in the pro forma footnotes.
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5. We note your disclosures under caption (d) indicating that you have
valued the shares issued in connection with the acquisition of Talon
Energy Corporation and Gulfstar Energy Group, LLC at $0.03 per share.
We also note that under caption (c), you disclose that you paid off
debt of $5,000 by issuing 5,000 shares, indicating settlement at $1 per
share. Please explain the apparent inconsistency in these valuations,
and provide details to support the valuations of the common shares used
in calculating the purchase price ascribed.
Response Item #5:
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As detailed in response Item # 2 above, the transaction between
Gulfstar Energy Corporation and Gulfstar Energy Group, LLC was treated
as a reverse recapitalization with Gulfstar Energy Group, LLC being
treated as the accounting acquirer and therefore was accounted for as a
capital transaction. The value of the shares issued in connection with
the acquisition of Talon Energy Corporation, was based on negotiations
between the parties involved and took into consideration the start up
nature of the entities, the lack of historical cash flow, and the
uncertainty of future cash flow. As such, the estimated book value per
share of approximately 20 cents was discounted to a more appropriate
value of 3 cents per share. As noted in your question above, the
company paid off debt in the amount of $5,000 by issuing 5,000 shares
of stock. It should be noted that this transaction was separately
negated and accordingly would not necessarily be consistent to the
purchase price valuation.
Form 10-Q for the Nine Months Ended September 30, 2010
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Note 1 - Organization and Summary of Significant Accounting Policies, page 7
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6. We note your disclosures indicating that your non-controlling interest
related to the forty percent equity interest in Gulfstar Energy Group,
LLC that were not purchased as part of the acquisition. However, we
also note that you have disclosure indicating that you intended to
account for the acquisition of Gulfstar Energy Group, LLC as a reverse
merger, identifying Gulfstar Energy Group, LLC as the surviving entity.
Please address the following points:
a) Explain how your characterization and accounting for
your non-controlling interest is consistent with its definition in
FASB ASC Section 810-10-20.
Response Item #6 (a):
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As described in FASB ASC Section 810-10-20, a non-controlling
interest is the portion of equity in a subsidiary not
attributable, directly or indirectly, to a parent. A
non-controlling interest is sometimes called a minority interest.
In addition, as described in FASB ASC Section 805-40-25, in a
reverse acquisition or recapitalization, some of the owners of the
legal acquiree (the accounting acquirer) might not exchange their
equity interests for equity interests of the legal parent (the
accounting acquiree). Those owners are treated as a
non-controlling interest in the consolidated financial statements
after the reverse recapitalization. This is because the owners of
the legal acquiree that do not exchange their equity interests for
the equity interest of the legal acquirer have an interest in only
the results and net assets of the legal acquiree - not the results
and net assets of the combined entity.
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In the reverse recapitalization that occurred on June 24, 2010,
Gulfstar Energy Corporation was determined to be the legal parent
(accounting acquiree) and Gulfstar Energy Group, LLC was
determined to be the legal acquiree (accounting acquirer) in the
reverse recapitalization. Approximately 40% of the interest
holders of Gulfstar Energy Group, LLC did not exchange their
equity interests for the equity interests of Gulfstar Energy
Corporation. As a result, these owners have been treated as a
non-controlling interest in the consolidated financial statements
for the nine months ended September 30, 2010.
b) Describe any obligations you may have to the shareholders that
comprise the 40 percent interest that you did not acquire.
Response Item #6 (b):
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In an acquisition agreement dated June 24, 2010, effective June
30, 2010, between Gulfstar Energy Corporation and Gulfstar Energy
Group, LLC on Behalf of Certain Interest Holders, Gulfstar Energy
Corporation has agreed to issue up to 8,340,341 shares of
restricted common of Gulfstar Energy Corporation, on a pro-rata
basis, as consideration to the remaining approximately 40%
interest holders of Gulfstar Energy Group, LLC to acquire their
interests in Gulfstar Energy Group, LLC. The acquisition is
subject to the filing of a registration with the SEC for the
shares of Gulfstar Energy Corporation. Gulfstar Energy Corporation
shall have filed a registration statement for the common shares to
be offered to the approximately 40% interest holders of Gulfstar
Energy Group, LLC on or before December 1, 2010. The registration
statement with the SEC shall be made effective on or before March
31, 2011.
In connection with the Staff's comments, we hereby acknowledge that:
c) The Company is responsible for the adequacy and accuracy of the
disclosure in the filing;
d) Staff comments or changes to disclosure in response to Staff
comments do not foreclose the Commission from taking any action
with respect to the filing; and
e) The Company may not assert Staff comments as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
Sincerely,
/s/Stephen Warner, CFO
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Stephen Warner, CFO
Gulfstar Energy Corporation
3410 Embassy Drive
West Palm Beach, FL 33401
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