Gulfstar Energy
Corporation
600 17th St., Suite 2800
Denver, CO 80202
(303) 860-1632
March 8, 2011
Mr. 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 Fiscal Year Ended December 31, 2009
Filed March 29, 2010
Form 8-K Filed August 5, 2010
Form 10-Q for the Fiscal Quarter Ended June 30, 2010
Filed October 6, 2010
Filed No. 333-151398
Dear Mr. Hiller:
We are in receipt of your correspondence dated February 10, 2011, regarding the
above referenced Securities and Exchange Commission Filings of Gulfstar Energy
Corporation ("the Company"). We are providing the following responses to such
comment letter. 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.
General
1. We understand that you intend to file an amended Form 8-K in response
to prior comments 1 and 4. Please file your amendment without further
delay.
Response to Comment 1
---------------------
We will file the appropriate amended Form 8-K without further delay in
response to prior comments 1 and 4.
Form 10-Q for the Quarter Ended June 30, 2010
Note 1 - Organization and Summary of Significant Accounting Policies, page 8
2. We note your disclosures indicating that "Goodwill of $368,369
consists of the assumption by the Company of Talon's negative equity
of $263,083 and the purchase of Talon's 3,509,530 common shares valued
at $.03 each which totaled $105,286." We understand from your response
to prior comment 2 that you recorded the acquisition of Talon as a
business combination at fair value in accordance with FASB ASC Topic
805-10. Please address the following points:
a. Please explain why the amount of goodwill you recorded is
inconsistent with amounts previously disclosed in the Form 8-K
you filed on August 5, 2010 indicating goodwill of $441,656 and
the Form 8-K you filed on December 1, 2010 indicating goodwill of
$285,190.
1
Response to Comment 2a
----------------------
The Company's method of reporting goodwill, as noted below in the
response under comment 2b of this comment 2, was consistent in both
the original Form 8-K filed on August 5, 2010 and the amended Form 8-K
filed on December 1, 2010, as well as the Company's response filed
with the SEC dated January 7, 2011. The Company fully recognizes that
this method used to determine the fair value of Talon's equity vs. its
negative book value of equity at the time of purchase by Gulfstar
Energy Corporation ("Gulfstar") would in fact generate a different
amount of goodwill as noted in the Staff's above comment 2a.
Subsequent to the purchase of Talon by Gulfstar and the initial
inclusion of the pro forma information in the original Form 8-K filed
on August 5, 2010, the accounting records of Talon were adjusted based
upon analysis by Talon of its assets and liabilities as of June 30,
2010 and as such the negative book value was accordingly adjusted for
such findings. These adjustments affected both the cash account and
the Deferred tax benefit asset in the amount of $203,600 as well as
the accrued liabilities which had been included in balance sheets
filed in the original and amended Form 8-Ks' filed on August 5, 2010
and December 1, 2010 respectively. The deferred tax benefit was not
recorded as an asset on the balance sheet at June 30, 2010, since it
was determined subsequently but prior to the filing of the Form 10Q
for the Quarter Ended June 30, 2010 not to have any value. Thus, the
original Form 8-K filed on August 5, 2010 and the amended Form 8-K
filed on December 1, 2010 recording goodwill in the amounts of
$441,586 and $285,190, respectively, as well as the Form 10Q for the
Quarter Ended June 30, 2010 filed on October 6, 2010 recording
goodwill in the amount of $368,369 were the result of these additional
adjustments to the books and records of Talon as of June 30, 2010.
Further analysis of the accounting records subsequent to the original
Form 8-K filed on August 5, 2010 and the amended Form 8-K filed on
December 1, 2010 and the SEC comment letter dated February 10, 2011
has determined that 739,310 restricted shares of the Company's common
stock was not recorded as an acquisition cost relative to the
acquisition of Talon by the Company. These 739,310 shares have been
recorded at fair value of $22,179 or $.03 per share and included as
part of the goodwill and therefore the amount of goodwill has been
adjusted from $368,369 to $390,548. Such goodwill in the amount of
$390,548 has been reported in the pro forma information and such
information will be provided within the filing of the amended Form 8-K
under comment 1 above.
2
In addition, the Company has reviewed the original Form 10Qs' for the
Quarters Ended June 30, 2010 and September 30, 2010 filed on October
2, 2010 and November 15, 2010 respectively and determined based upon
FASB ASC Topic 805-10-25 that any change to these Form 10Qs would be
considered immaterial. There would be a change of approximately .5% to
total assets and .6% to total equity for each quarterly report, no
change to either net loss or basic and diluted net loss per common
share for either quarterly report and total shares of common stock
outstanding would change by approximately 4.5% for either quarterly
report. Thus, the recording of 739,310 shares of the Company's
restricted common stock and related disclosures will be included
within the filing of the Form 10-K for the year ended December 31,
2010.
Therefore, the Company references FASB ASC Topic 805-10-25 in that the
above information recognizes that the Measurement Period for
accounting was not complete as of the end of the reporting period June
30, 2010 and thus the need to file the original Form 8-K on August 5,
2010, the amended Form 8-K on December 1, 2010 and the amended Form
8-K in response to comment 1 above. As such, the amounts to be
included in the amended 8-K referenced in comment 1 above include the
final accounting for goodwill.
b. Please describe the fair value methods and techniques that you
used to determine the "negative equity" of Talon Energy
Corporation was $263,083.
Response to Comment 2b
----------------------
At the time of the purchase of Talon by Gulfstar, Talon was a
privately-held development stage company. In light of Talon having no
operating history, no comparable market, no tangible assets other than
cash, and no recognizable intangible assets, management determined
that the Net Asset Valuation method was the most appropriate for
determining the fair value of Talon's net assets. Therefore, in
applying the Net Asset Valuation method, management determined that
the fair value of the liabilities [accrued liabilities] in the amount
of $340,061 was in excess of the fair value of the assets [cash] in
the amount of $76,978 by $263,083.
c. Please provide the pro forma information required by Rule
8-03(b)4 of Regulation S-X or tell us why you believe these
requirements do not apply to you.
Response to Comment 2c
----------------------
The pro forma information should have been included within the filing
of the Form 10Q for the Quarter Ended June 30, 2010 but the pro forma
information was not available at the time. The pro forma information
will be provided within the filing of the amended Form 8-K under
comment 1 above. Though, we have attached a draft version of such
items for your review, at this time.
3
d. Submit the disclosures required by FASB ASC Section 805-10-50
which you intend to include in your next set of annual financial
statements to report the acquisition of Talon Energy Corporation.
Response to Comment 2d
----------------------
The disclosures required by FASB ASC Section 805-10-50 will be
submitted within the filing of the Form 10-K for the year ended
December 31, 2010. Though, we have attached a draft version of such
items for your review, at this time.
We would request that after you have had a chance to review the enclosed
responses and attachments that we be able to convene a conference call to
discuss any further concerns that you may have based upon these responses, prior
to filing the amended Current Report on Form 8-K. Please contact Kristi J.
Kampmann of our corporate counsel's office at 303-422-8127 to coordinate such
call.
In connection with the Staff's comments, we hereby acknowledge that:
a) The Company is responsible for the adequacy and accuracy of the
disclosure in the filing;
b) 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
c) 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
----------------------
Stephen Warner, CFO
Gulfstar Energy Corporation
3410 Embassy Drive
West Palm Beach, FL 33401
Cc: Michael A. Littman
Attorney At Law
Scott Miller
UHY, LLP
Enclosures
4
GULFSTAR ENERGY, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
March 31, 2010
(Unaudited)
Historical
--------------------------
Gulfstar Energy Talon Energy, Gulfstar Energy Pro forma
Corporation Inc. Group, LLC adjustments
-------------- ------------- --------------- ------------------
ASSETS
Cash and cash equivalents $ 470 $ 144,784 $ 616,386 $ -
Note receivable - - 10,000 -
Deferred tax benefit - 203,600 - -
-------------- ------------- --------------- ------------------
Total current assets 470 348,384 626,386 -
-------------- ------------- --------------- ------------------
Property and equipment, net 1,122 - 4,064,493 -
-------------- ------------- --------------- ------------------
Note receivable, related party - - 82,325 -
Intangible assets - - 169,374 -
Goodwill - - - e 390,548
-------------- ------------- --------------- ------------------
Total other assets - - 251,699 390,548
-------------- ------------- --------------- ------------------
Total assets $ 1,592 $ 348,384 $ 4,942,578 $ 390,548
============== ============= =============== ==================
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
Accounts payable $ 6,162 $ - $ 727,035 $ -
Litigation settlement payment - - 70,000 -
Deposits - - 441,465 -
Accrued expenses and liabilities - 320,058 - -
Loans from shareholders - - - -
-------------- ------------- --------------- ------------------
Total current liabilities 6,162 320,058 1,238,500 -
-------------- ------------- --------------- ------------------
Non-controlling interest - - - f 1,481,631
Common stock 4,255 1,298 - g 10,148
Additional paid in capital 476,818 546,394 - g 4,609,837
Equity membership - 6,716,077 g (6,716,077)
Accumulated deficit (485,643) (519,366) (3,011,999)g 1,005,009
-------------- ------------- --------------- ------------------
Total stockholders' (deficit) equity (4,570) 28,326 3,704,078 390,548
-------------- ------------- --------------- ------------------
Total liabilities and stockholders' (deficit) equity $ 1,592 $ 348,384 $ 4,942,578 $ 390,548
============== ============= =============== ==================
GULFSTAR ENERGY, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
March 31, 2010
(Unaudited)
(continued)
Pro forma
consolidated
ASSETS -----------
Cash and cash equivalents $ 761,640
Note receivable 10,000
Deferred tax benefit 203,600
-----------
Total current assets 975,240
-----------
Property and equipment, net 4,065,615
-----------
Note receivable, related party 82,325
Intangible assets 169,374
Goodwill 390,548
-----------
Total other assets 642,247
-----------
Total assets $5,683,102
===========
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
Accounts payable $ 733,197
Litigation settlement payment 70,000
Deposits 441,465
Accrued expenses and liabilities 320,058
Loans from shareholders -
-----------
Total current liabilities 1,564,720
-----------
Non-controlling interest 1,481,631
Common stock 15,701
Additional paid in capital 5,633,049
Equity membership -
Accumulated deficit (3,011,999)
-----------
Total stockholders' (deficit) equity 4,118,382
-----------
Total liabilities and stockholders' (deficit) equity $5,683,102
===========
GULFSTAR ENERGY, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE QUARTER ENDED MARCH 31, 2010
(Unaudited)
Historical
-----------------------------------
Gulfstar Energy Talon Energy Gulfstar Energy Pro forma
Corporation Corporation Group LLC adjustment
------------------ ----------------- -------------- --------------
Revenues $ - $ - $ 4,169 $ -
Direct Costs - - - -
------------------ ----------------- -------------- --------------
Gross profit - - 4,169 -
------------------ ----------------- -------------- --------------
Operating expenses:
General and Administrative expense 17,685 101,529 201,632 -
------------------ ----------------- -------------- --------------
Total operating expenses 17,685 101,529 201,632 -
------------------ ----------------- -------------- --------------
Loss from operations (17,685) (101,529) (197,463) -
------------------ ----------------- -------------- --------------
Other income:
Non controlling interest - - - f (15,078)
Other income - 37 231,365 -
Other expense - - - -
------------------ ----------------- -------------- --------------
- 37 231,365 (15,078)
------------------ ----------------- -------------- --------------
Deferred income taxes - - - -
------------------ ----------------- -------------- --------------
Net loss $ (17,685) $ (101,492) $ 33,902 $ (15,078)
================== ================= ============== ==============
Basic and diluted net loss per common share $ (0.00)
==================
Weighted average number of common
shares outstanding 4,105,524 a (3,723,583)
==================
b 145,000
c 5,000
d 15,908,499
GULFSTAR ENERGY, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE QUARTER ENDED MARCH 31, 2010
(Unaudited)
(continued)
Pro forma
consolidated
--------------
Revenues $ 4,169
Direct Costs -
--------------
Gross profit 4,169
--------------
Operating expenses:
General and Administrative expense 320,846
--------------
Total operating expenses 320,846
--------------
Loss from operations (316,677)
--------------
Other income:
Non controlling interest (15,078)
Other income 231,402
Other expense -
--------------
216,324
--------------
Deferred income taxes -
--------------
Net loss $ (100,353)
==============
Basic and diluted net loss per common share $ (0.01)
==============
Weighted average number of common
shares outstanding 16,440,440
==============
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
On May 5, 2010, Gulfstar Energy Corporation (the "Company") entered into a 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 (the "LLC") and closing thereon and delivery of an Acquisition
Agreement for approximately 40% of the 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.
As part of the Talon transaction, the Company issued 739,310 restricted shares
of its common stock for professional fees and closing costs including 729,310
restricted shares of its common stock issued to an affiliate of an officer and
director of the Company.
On June 24, 2010, the Company entered into and completed a Share Exchange
Agreement with Jason Sharp and Timothy Sharp, officers and members of the LLC, a
Mississippi Limited Liability Company, for approximately 60% of the LLC, for
11,659,659 shares (restricted) of common stock of the Company.
The Acquisition Agreement with the 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 Securities and
Exchange Commission to register the remaining shares of common stock offered to
the individual interest holders of the LLC.
The LLC transaction was accounted for as a reverse recapitalization in which the
LLC was determined to be the acquirer for accounting purposes. The Talon
acquisition was accounted for as a purchase for accounting purposes. On May 5,
2010, the Company affected a reverse split of the common stock of Gulfstar
Energy Corporation in conjunction with the transactions with Talon and the 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 Statement 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 and the 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 the 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 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
the Company in conjunction with the transactions with Talon and the
LLC. The reverse split was on a 1 for 8 basis.
(b) This entry is recorded to reflect the issuance of 145,000 post -
reverse split shares of the Company's restricted common stock for
services valued at $4,350 or $.03 per 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 recapitalization between
Gulfstar Energy Corporation and the LLC and the subsequent acquisition
of Talon including related acquisition costs. In order to effect these
transactions, Gulfstar Energy Corporation issued 3,509,530 shares of
its common stock to the shareholders of Talon, 11,659,659 shares of its
common stock to the equity holders of approximately 60% of the equity
of the LLC and 739,310 shares of its common stock for acquisition
costs.
NOTE 2 - GOODWILL
(e) This entry is recorded to report the amount of goodwill as a result of
the acquisition of Talon by the Company which is represented by the
combination of: (1) the fair value of consideration paid by the Company
to 100% of Talon outstanding shareholders of the Company's 3,509,350
shares of its restricted common stock at $.03 per share or $105,286
plus, (2) the fair value of consideration paid by the Company for
professional fees and closing costs of 739,310 shares of its common
stock at $.03 per share or $22,179 and (3) the fair value of the net
assets of Talon at this time of purchase.
NOTE 3 - NON CONTROLLING INTEREST
(f) This entry is recorded to represent the approximate 40% non controlling
interest of the LLC not owned by the Company.
NOTE 4 - EQUITY
(g) These entries are recorded to reflect the recapitalization of the
Company from a limited liability company to a corporation as well as
the reporting of goodwill in excess of the book value of Talon along
with the elimination of accumulated deficit of the Gulfstar Energy
Corporation.
GULFSTAR ENERGY CORPORATION AND SUBSIDIARIES
COMMENT LETTER DATED FEBRUARY 10, 2011
RESPONSE TO ITEM #2D OF COMMENT 2
DISCLOSURES REQUIRED BY FASB ASC SECTION 805-10-50
--------------------------------------------------
BUSINESS COMBINATION
(h) Effective June 30, 2010, the Company acquired 100% of the issued and
outstanding stock of Talon. Talon provides management services in the
oil and gas industry and the ability to obtain capital. As a result of
the acquisition, the Company has been able to use this management
experience as well as the ability to obtain capital for the
acquisitions and development of oil and gas properties.
The following table presents the allocation of acquisition costs,
including professional fees and other related costs, to the assets
acquired and liabilities assumed, based on their fair values at June
30, 2010:
Purchase price
Accrued liabilities in excess of cash $263,089
739,310 shares of the Company common
Stock valued at $.03 per share $22,179
3,509,350 shares of the Company common
Stock valued at $.03 per share $105,280
--------
Total consideration $390,548
========
Allocation of purchase price
Goodwill $390,548
--------
Total assets acquired $390,548
========
The total amount of goodwill is expected to be amortized for income
tax purposes at the corporate level.
The amount of revenue and earnings of Talon since the date of the
acquisition through December 31, 2010 is $0 and $0 respectively.
The amount of revenue and (losses) of the combined entity for the year
ended December 31, 2009 is $0 and $(907,001) respectively which was
reported as supplemental pro forma information in the Form 8-K filed
on August 5, 2010.