UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended: August 31, 2012
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from __________________ to __________________
Commission file number: 000-51736
WESTERN STANDARD ENERGY CORP.
(Exact name of registrant as specified in its charter)
Nevada 20-5854735
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
980 Skeena Drive, Kelowna, BC, Canada V1V 2K7
(Address of principal executive offices and Zip Code)
(Registrant's telephone number, including area code) (250) 258-7481
7 New Road, Second Floor, #6 Belize City, Belize
(Former name or former address, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act
Title of Each Class Name of each Exchange on which registered
------------------- -----------------------------------------
Nil N/A
Securities registered pursuant to Section 12(g) of the Act
Common Stock, par value $0.001 per share
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes [ ] No [X]
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. Yes [X] No [ ]
Note - Checking the box above will not relieve any registrant required to file
reports pursuant to Section 13 or 15(d) of the Exchange Act from their
obligations under those Sections.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (ss.232.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files). Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [X]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act). Yes [X] No [ ]
State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was last sold, or the average bid and asked price of such common equity, as of
the last business day of the registrant's latest practicable date.
33,941,993 shares of common stock at a price of $0.70 per share for an aggregate
market value of $23,759,395.
1. The aggregate market value of the voting stock held by non-affiliates is
computed by reference to the price at which the common equity was last sold as
reported on Stockwatch.
Note.--If a determination as to whether a particular person or entity is an
affiliate cannot be made without involving unreasonable effort and expense, the
aggregate market value of the common stock held by non-affiliates may be
calculated on the basis of assumptions reasonable under the circumstances,
provided that the assumptions are set forth in this Form.
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [ ] No [ ]
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date: 33,941,993 shares of common
stock outstanding as at November 26, 2012.
DOCUMENTS INCORPORATED BY REFERENCE
Not Applicable
TABLE OF CONTENTS
PART I
ITEM 1. BUSINESS 3
ITEM 1A. RISK FACTORS 6
ITEM 1B. UNRESOLVED STAFF COMMENTS 12
ITEM 2. PROPERTIES 13
ITEM 3. LEGAL PROCEEDINGS 13
ITEM 4. MINE SAFETY DISCLOSURES 13
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES 14
ITEM 6. SELECTED FINANCIAL DATA 15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION 15
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 21
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 22
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL MATTERS 30
ITEM 9A(T). CONTROLS AND PROCEDURES 30
ITEM 9B. OTHER INFORMATION 31
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE 32
ITEM 11. EXECUTIVE COMPENSATION 35
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS 36
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE 37
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES 38
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES. 39
SIGNATURES 42
2
PART I
ITEM 1. BUSINESS
FORWARD-LOOKING STATEMENTS
This annual report contains forward-looking statements that relate to future
events or our future financial performance. In some cases, you can identify
forward-looking statements by terminology such as "may", "should", "expects",
"plans", "anticipates", "believes", "estimates", "predicts", "potential" or
"continue" or the negative of these terms or other comparable terminology. These
statements are only predictions and involve known and unknown risks,
uncertainties and other factors, including the risks in the section entitled
"Risk Factors" that may cause our or our industry's actual results, levels of
activity, performance or achievements to be materially different from any future
results, levels of activity, performance or achievements expressed or implied by
these forward-looking statements.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Except as required by applicable law,
including the securities laws of the United States, we do not intend to update
any of the forward-looking statements to conform these statements to actual
results.
Our financial statements are stated in United States Dollars (US$) unless
otherwise stated and are prepared in accordance with United States Generally
Accepted Accounting Principles.
In this annual report, unless otherwise specified, all references to "common
shares" refer to the common shares in our capital stock.
As used in this annual report, the terms "we", "us", "our" and "Western
Standard" mean Western Standard Energy Corp., and our wholly-owned subsidiary,
Western Standard Energy Limited, unless otherwise indicated.
CORPORATE OVERVIEW
We are an exploration stage company engaged in the acquisition, exploration,
and, if warranted, development of prospective oil and gas properties.
We were incorporated in the State of Nevada on February 2, 2005 under the name
Comtrix Inc. From incorporation until June 2005, our operating activities
consisted primarily of developing fingerprint recognition products for
residential buildings in China. Our management investigated opportunities and
challenges in the business of developing fingerprint recognition products and
security for residential buildings in China and determined that the business did
not present the best opportunity for our company to realize value for our
shareholders. Accordingly, we abandoned this business plan and focused on the
identification of other suitable business opportunities and/or business
combinations.
On June 23, 2006, we executed a letter of intent with Lusora Corp. wherein the
existing shareholders of Lusora Corp. agreed to exchange issued and outstanding
shares of its common stock for the same number of shares of our company. Also
effective June 23, 2006, we changed our name from "Comtrix Inc." to "Lusora
Healthcare Systems Inc." In addition, effective June 23, 2006 we effected a 25
for one forward stock split of our authorized, issued and outstanding common
stock. As a result, our authorized capital increased from 75,000,000 shares of
common stock with a par value of $0.001 to 1,857,000,000 shares of common stock
with a par value of $0.001.
Effective September 7, 2007, we changed our name from "Lusora Healthcare Systems
Inc." to "Western Standard Energy Corp" when we decided to change the focus of
our business plan from wireless personal security and monitoring systems to
acquisition and exploration in the oil and gas industry. In addition on
September 7, 2007, we effected a 1.5 for one stock split of our authorized and
issued and outstanding common stock. As a result, our authorized capital
increased from 1,875,000,000 shares of common stock with a par value of $0.001
to 2,812,500,000 shares of common stock with a par value of $0.001
3
On November 7, 2007, the Company merged with its subsidiary, Lusora Inc., to
simplify the administration of its United States operations into one corporate
entity.
On February 3, 2010, the Company affected a one new for 1,000 old reverse stock
split (1000:1) of its authorized, issued and outstanding common stock. As a
result, our authorized capital decreased from 2,812,500,000 shares of common
stock with a par value of $0.00l to 2,812,500 shares of common stock with a par
value of $0.001.
On February 16, 2010, the Company issued 100,000 shares of its common stock to
Monaco Capital Inc., a Belize company, at a price per share of $0.00125 pursuant
to a private placement subscription agreement. Following completion of the
private placement, Monaco now owns 100,000 of the Company's common shares, which
constitutes 52% of the Company's issued and outstanding common stock.
On April 14, 2010 the stockholders approved a resolution to increase the
Company's authorized share capital from 2,812,500 shares of common stock to
200,000,000 shares of common stock.
COMPETITION
The oil and natural gas industry is intensely competitive, and we compete with
numerous other oil and gas exploration and production companies. Many of these
companies have substantially greater resources than we have. Not only do they
explore for and produce oil and natural gas, but many also carry on midstream
and refining operations and market petroleum and other products on a regional,
national or worldwide basis. The operations of other companies may be able to
pay more for exploratory prospects and productive oil and natural gas
properties. They may also have more resources to define, evaluate, bid for and
purchase a greater number of properties and prospects than our financial or
human resources permit. In addition, during periods of low oil and natural gas
market prices, these companies may have a greater ability to continue
exploration activities.
Our larger or integrated competitors may have the resources to be better able to
absorb the burden of existing, and any changes to federal, state, and local laws
and regulations more easily than we can, which would adversely affect our
competitive position. Our ability to discover reserves and acquire additional
properties in the future will be dependent upon our ability and resources to
evaluate and select suitable properties and to consummate transactions in this
highly competitive environment. In addition, we may be at a disadvantage in
producing oil and natural gas properties and bidding for exploratory prospects,
because we have fewer financial and human resources than other companies in our
industry. Should a larger and better financed company decide to directly compete
with us, and be successful in its efforts, our business could be adversely
affected.
PATENTS AND TRADEMARKS
We do not own any patents or trademarks.
MARKETING AND CUSTOMERS
The market for oil and natural gas that we will produce depends on factors
beyond our control, including the extent of domestic production and imports of
oil and natural gas, the proximity and capacity of natural gas pipelines and
other transportation facilities, demand for oil and natural gas, the marketing
of competitive fuels and the effects of state and federal regulation. The oil
and gas industry also competes with other industries in supplying the energy and
fuel requirements of industrial, commercial and individual consumers.
PRINCIPAL AGREEMENTS AFFECTING OUR ORDINARY BUSINESS
We do not own any real estate. Our interests are comprised of leaseholds subject
to the terms and provisions of lease agreements that provide us with the right
to drill and maintain wells in specific geographic areas. However, at this time
we have no lease arrangements.
RESEARCH AND DEVELOPMENT
We did not incur expenditures in research and development over the last two
fiscal years.
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GOVERNMENTAL REGULATION AND ENVIRONMENTAL MATTERS
Our operations are subject to various rules, regulations and limitations
impacting the oil and natural gas exploration and production industry as a
whole.
REGULATION OF OIL AND NATURAL GAS PRODUCTION
Our oil and natural gas exploration, production and related operations, if and
when developed, are subject to extensive rules and regulations promulgated by
federal, state, tribal and local authorities and agencies. For example, some
states in which we may operate require permits for drilling operations, drilling
bonds and reports concerning operations and impose other requirements relating
to the exploration and production of oil and natural gas. Such states may also
have statutes or regulations addressing conservation matters, including
provisions for the unitization or pooling of oil and natural gas properties, the
establishment of maximum rates of production from wells, and the regulation of
spacing, plugging and abandonment of such wells. Failure to comply with any such
rules and regulations can result in substantial penalties. The regulatory burden
on the oil and gas industry will most likely increase our cost of doing business
and may affect our profitability. Although we believe we are currently in
substantial compliance with all applicable laws and regulations, because such
rules and regulations are frequently amended or reinterpreted, we are unable to
predict the future cost or impact of complying with such laws. Significant
expenditures may be required to comply with governmental laws and regulations
and may have a material adverse effect on our financial condition and results of
operations.
ENVIRONMENTAL MATTERS
Our operations and properties are subject to extensive and changing federal,
state and local laws and regulations relating to environmental protection,
including the generation, storage, handling, emission, transportation and
discharge of materials into the environment, and relating to safety and health.
The recent trend in environmental legislation and regulation generally is toward
stricter standards, and this trend will likely continue. These laws and
regulations may:
* require the acquisition of a permit or other authorization before construction
or drilling commences and for certain other activities; * limit or prohibit
construction, drilling and other activities on certain lands lying within
wilderness and other protected areas; and * impose substantial liabilities for
pollution resulting from its operations.
The permits required for our operations may be subject to revocation,
modification and renewal by issuing authorities. Governmental authorities have
the power to enforce their regulations, and violations are subject to fines or
injunctions, or both. In the opinion of management, we are in substantial
compliance with current applicable environmental laws and regulations, and have
no material commitments for capital expenditures to comply with existing
environmental requirements. Nevertheless, changes in existing environmental laws
and regulations or in interpretations thereof could have a significant impact on
the Company, as well as the oil and natural gas industry in general.
The COMPREHENSIVE ENVIRONMENTAL, RESPONSE, COMPENSATION, AND LIABILITY ACT OF
1980 (CERCLA) and comparable state statutes impose strict, joint and several
liability on owners and operators of sites and on persons who disposed of or
arranged for the disposal of "hazardous substances" found at such sites. It is
not uncommon for the neighboring landowners and other third parties to file
claims for personal injury and property damage allegedly caused by the hazardous
substances released into the environment. The FEDERAL RESOURCE CONSERVATION AND
RECOVERY ACT (RCRA) and comparable state statutes govern the disposal of "solid
waste" and "hazardous waste" and authorize the imposition of substantial fines
and penalties for noncompliance. Although CERCLA currently excludes petroleum
from its definition of "hazardous substance," state laws affecting our
operations may impose clean-up liability relating to petroleum and petroleum
related products. In addition, although RCRA classifies certain oil field wastes
as "non-hazardous," such exploration and production wastes could be reclassified
as hazardous wastes thereby making such wastes subject to more stringent
handling and disposal requirements.
5
The ENDANGERED SPECIES ACT (ESA) seeks to ensure that activities do not
jeopardize endangered or threatened animal, fish and plant species, nor destroy
or modify the critical habitat of such species. Under ESA, exploration and
production operations, as well as actions by federal agencies, may not
significantly impair or jeopardize the species or its habitat. ESA provides for
criminal penalties for wilful violations of the Act. Other statutes that provide
protection to animal and plant species and that may apply to our operations
include, but are not necessarily limited to, the FISH AND WILDLIFE COORDINATION
ACT, the FISHERY CONSERVATION AND MANAGEMENT ACT, the MIGRATORY BIRD TREATY ACT
and the NATIONAL HISTORIC PRESERVATION ACT. Although we believe that our
operations will be in substantial compliance with such statutes, any change in
these statutes or any reclassification of a species as endangered could subject
the Company to significant expenses to modify our operations or could force the
Company to discontinue certain operations altogether.
EMPLOYEES
We currently have one employee, our Chief Executive Officer, Dallas Gray. Mr.
Gray is responsible for all significant policy-making decisions and has been
assisted in the implementation of the Company's business by counsel and
consultants. We do not expect a significant change in the number of full time
employees over the next 12 months and will continue using the services of
independent consultants and contractors to perform various professional
services, particularly in the area of land services and drilling. We believe
that this use of third-party service providers will enhance our ability to
contain general and administrative expenses during this stage of our
development.
REPORTS TO SECURITY HOLDERS
We file reports and other information with the SEC. This annual report on Form
10-K, historical information about our Company and other information can be
inspected and copied at the Public Reference Room of the SEC located at Room
1580, 100 F Street, N.E., Washington D.C. 20549. Copies of such materials,
including copies of any portion of this annual report on Form 10-K, can be
obtained from the Public Reference Room of the SEC at prescribed rates. You can
call the SEC at 1-800-SEC-0330 to obtain information on the operation of the
Public Reference Room. Such materials may also be accessed electronically by
means of the SEC's home page on the Internet (http://www.sec.gov).
ITEM 1A. RISK FACTORS
In addition to other information in this current report, the following risk
factors should be carefully considered in evaluating our business because such
factors may have a significant impact on our business, operating results,
liquidity and financial condition. As a result of the risk factors set forth
below, actual results could differ materially from those projected in any
forward-looking statements. Additional risks and uncertainties not presently
known to us, or that we currently consider to be immaterial, may also impact our
business, operating results, liquidity and financial condition. If any such
risks occur, our business, operating results, liquidity and financial condition
could be materially affected in an adverse manner. Under such circumstances, the
trading price of our securities could decline, and you may lose all or part of
your investment.
RISKS ASSOCIATED WITH OUR COMPANY
BECAUSE WE MAY NEVER EARN REVENUES FROM OUR OPERATIONS, OUR BUSINESS MAY FAIL
AND THEN INVESTORS MAY LOSE ALL OF THEIR INVESTMENT IN OUR COMPANY.
We have no history of revenues from operations. We have yet to generate positive
earnings and there can be no assurance that we will ever operate profitably. Our
company has a limited operating history and is in the exploration stage. The
success of our company is significantly dependent on the uncertain events of the
acquisition, discovery and exploitation of mineral reserves. If our business
plan is not successful and we are not able to operate profitably, then our stock
may become worthless and investors may lose all of their investment in our
Company.
Prior to completion of any exploration stage of our business plan, we anticipate
that we will incur increased operating expenses without realizing any revenues.
We therefore expect to incur significant losses into the foreseeable future. We
6
recognize that if we are unable to generate significant revenues from the
exploration of our mineral claims in the future, we will not be able to earn
profits or continue operations. There is no history upon which to base any
assumption as to the likelihood that we will prove successful, and we can
provide no assurance that we will generate any revenues or ever achieve
profitability. If we are unsuccessful in addressing these risks, our business
will fail and investors may lose all of their investment in our Company.
WE HAVE HAD A HISTORY OF LOSSES AND NO REVENUE, WHICH RAISE SUBSTANTIAL DOUBT
ABOUT OUR ABILITY TO CONTINUE AS A GOING CONCERN.
Since inception, we have incurred aggregate net losses of $4,932,900 from
operations. We can offer no assurance that we will ever operate profitably or
that we will generate positive cash flow in the future. To date, we have not
generated any revenues from our operations. Our history of losses and no
revenues raise substantial doubt about our ability to continue as a going
concern. We will not be able to generate significant revenues in the future. As
a result, our management expects the business to continue to experience negative
cash flow for the foreseeable future and cannot predict when, if ever, our
business might become profitable. We will need to raise additional funds, and
such funds may not be available on commercially acceptable terms, if at all. If
we are unable to raise funds on acceptable terms, we may not be able to execute
our business plan, take advantage of future opportunities, or respond to
competitive pressures or unanticipated requirements. This may seriously harm our
business, financial condition and results of operations.
The current ongoing global economic crisis could lead to an extended recession
in the U.S. and around the world. An extended slowdown in economic activity
caused by a recession would reduce national and worldwide demand for oil and
natural gas and result in lower commodity prices for long periods of time. We
have no exploration programs or revenue producing assets, which is having a
material adverse impact on our business, financial condition and results of
operations which puts our investors at risk.
Capital and credit markets continue to be unpredictable and the availability of
funds from those markets is extremely uncertain. Further, arising from concerns
about the stability of financial markets generally and the solvency of borrowers
specifically, the cost of accessing the credit markets has increased as many
lenders have raised interest rates, enacted tighter lending standards or
altogether ceased to provide funding to borrowers.
Due to these capital and credit market conditions, we cannot be certain that
funding will be available to us in amounts or on terms that we believe are
acceptable.
RISKS RELATING TO OUR BUSINESS AND THE OIL AND GAS INDUSTRY
WE ARE A NEW ENTRANT INTO THE OIL AND GAS INDUSTRY WITHOUT A PROFITABLE OR LONG
OPERATING HISTORY. WE DO NOT HAVE ANY INCOME PRODUCING OIL AND GAS PROPERTIES
AND WE HAVE LIMITED FINANCIAL RESOURCES. THERE IS NO MEANS BY WHICH INVESTORS
CAN EVALUATE OUR POTENTIAL FOR SUCCESS AND THERE IS NO ASSURANCE THAT WE WILL
EVER OPERATE PROFITABLY.
We are an exploration stage company with only a limited operating history upon
which to base an evaluation of our current business and future prospects. And,
currently we have no interest in mineral rights to conduct exploration
activities. Further, we do not have an established history of locating and
developing properties that have oil and gas reserves. As a result, the revenue
7
and income potential of our business is unproven. In addition, because of our
limited operating history, we have limited insight into trends that may emerge
and affect our business. Errors may be made in predicting and reacting to
relevant business trends and we will be subject to the risks, uncertainties and
difficulties frequently encountered by early-stage companies in evolving
markets. We may not be able to successfully address any or all of these risks
and uncertainties. Failure to adequately do so could cause our business, results
of operations and financial condition to suffer.
OUR PROPOSED OPERATIONS WILL REQUIRE SIGNIFICANT CAPITAL EXPENDITURES FOR WHICH
WE MAY NOT HAVE SUFFICIENT FUNDING AND IF WE DO OBTAIN ADDITIONAL FINANCING, OUR
EXISTING SHAREHOLDERS MAY SUFFER SUBSTANTIAL DILUTION.
We intend to rely on external sources of financing to meet our capital
requirements to continue acquiring, exploring and developing oil and gas
properties and to otherwise implement our business plan. We plan to obtain such
funding through the debt and equity markets, but we cannot assure that we will
be able to obtain additional funding when it is required or that it will be
available to us on commercially acceptable terms, if at all. In addition, any
additional equity financing may involve substantial dilution to our then
existing shareholders. Furthermore, additional debt financing could lead to:
* a substantial portion of operating cash flow being dedicated to the payment of
principal and interest; * being more vulnerable to competitive pressures and
economic downturns; and * restrictions on our operations.
If sufficient capital resources are not available, we might be forced to curtail
our drilling and other activities or be forced to sell some assets on an
untimely or unfavorable basis, which would have an adverse effect on our
business, financial condition and results of operations.
OUR MINERAL RIGHT ACQUISITION, EXPLORATION AND DRILLING OPERATIONS LIKELY WILL
NOT BE SUCCESSFUL, OUR BUSINESS MAY FAIL AND INVESTORS MAY LOSE THEIR ENTIRE
INVESTMENT IN OUR COMPANY.
There can be no assurance that we can acquire interests in mineral rights in
order to conduct exploration activities and no assurance that any future
exploration and drilling activities will be successful. We may not recover all
or any portion of our capital investment in such activities. Unsuccessful
acquisition, exploration and drilling activities would have a material adverse
effect upon our results of operations and financial condition and would likely
result in the ultimate failure of our business operations. Further, the cost of
drilling, completing, and operating wells is often uncertain, and a number of
factors can delay or prevent drilling operations including: (i) unexpected
drilling conditions; (ii) pressure or irregularities in formation; (iii)
equipment failures or accidents; (iv) adverse weather conditions; and (v)
shortages or delays in availability of drilling rigs and delivery of equipment.
It is unlikely that we will find commercially viable reserves of oil or gas on
any properties that we acquire rights to in the future. If we do not discover
commercially viable reserves of oil and gas, our business would fail and
investors would lose all of their investment in our Company.
EXPLORATORY DRILLING INVOLVES MANY RISKS AND WE MAY BECOME LIABLE FOR POLLUTION
OR OTHER LIABILITIES, WHICH MAY HAVE AN ADVERSE EFFECT ON OUR FINANCIAL
POSITION.
Drilling operations generally involve a high degree of risk. Hazards such as
unusual or unexpected geological formations, power outages, labor disruptions,
blow-outs, sour gas leakage, fire, inability to obtain suitable or adequate
machinery, equipment or labor, and other risks are involved. We may become
subject to liability for pollution or hazards against which we cannot adequately
insure or which we may elect not to insure. Incurring any such liability may
have a material adverse effect on our financial position and operations.
SHORTAGES OF RIGS, EQUIPMENT, SUPPLIES AND PERSONNEL COULD DELAY OR OTHERWISE
ADVERSELY AFFECT OUR COST OF OPERATIONS OR OUR ABILITY TO OPERATE ACCORDING TO
OUR BUSINESS PLANS.
8
If drilling activity increases in the regions in which we acquire future
property rights, a shortage of drilling and completion rigs, field equipment and
qualified personnel could develop. These costs have recently increased sharply
and could continue to do so. The demand for and wage rates of qualified drilling
rig crews generally rise in response to the increasing number of active rigs in
service and could increase sharply in the event of a shortage. Shortages of
drilling and completion rigs, field equipment or qualified personnel could
delay, restrict or curtail our exploration and development operations, which
could in turn harm our operating results.
OUR FUTURE PERFORMANCE IS DEPENDENT UPON OUR ABILITY TO IDENTIFY, ACQUIRE AND
DEVELOP OIL AND GAS PROPERTIES. IF WE FAIL TO DO THIS WELL, OUR BUSINESS MAY
FAIL.
Our future performance depends upon our ability to identify, acquire and develop
oil and gas reserves that are economically recoverable. Our success will depend
upon our ability to acquire working and revenue interests in properties upon
which oil and gas reserves are ultimately discovered in commercial quantities,
and our ability to develop prospects that contain proven oil and gas reserves to
the point of production. Without successful acquisition and exploration
activities, we will not be able to develop oil and gas reserves or generate
revenues. We cannot provide you with any assurance that we will be able to
identify and acquire oil and gas reserves on acceptable terms or that oil and
gas deposits will be discovered in sufficient quantities to enable us to recover
our exploration and development costs or sustain our business.
The successful acquisition and development of oil and gas properties requires an
assessment of recoverable reserves, future oil and gas prices and operating
costs, potential environmental and other liabilities, and other factors. Such
assessments are necessarily inexact and their accuracy inherently uncertain. In
addition, no assurance can be given that our exploitation and development
activities will result in the discovery of any reserves. Our operations may be
curtailed, delayed or cancelled as a result of lack of adequate capital and
other factors, such as lack of availability of rigs and other equipment, title
problems, weather, compliance with governmental regulations or price controls,
mechanical difficulties, unusual or unexpected formations or pressures or work
interruptions. In addition, the costs of exploitation and development may
materially exceed our initial estimates.
OUR BUSINESS MAY SUFFER IF WE DO NOT ATTRACT AND RETAIN TALENTED PERSONNEL.
Our success will depend in large measure on the abilities, expertise, judgment,
discretion, integrity and good faith of our management and other personnel in
conducting the business of our company. We have a small management team, and the
loss of a key individual or inability attract suitably qualified staff could
materially adversely impact our business.
Our success depends on the ability of our management and employees to interpret
market and geological data correctly and to interpret and respond to economic
market and other conditions in order to locate and adopt appropriate investment
opportunities, monitor such investments, and ultimately, if required, to
successfully divest such investments. Further, no assurance can be given that
our key personnel will continue their association or employment with us or that
replacement personnel with comparable skills can be found. We have sought to and
will continue to ensure that management and any key employees are appropriately
compensated; however, their services cannot be guaranteed. If we are unable to
attract and retain key personnel, our business may be adversely affected.
OUR MANAGEMENT TEAM DOES NOT HAVE EXTENSIVE EXPERIENCE IN PUBLIC COMPANY
MATTERS, WHICH COULD IMPAIR OUR ABILITY TO COMPLY WITH LEGAL AND REGULATORY
REQUIREMENTS.
Our management team has had limited public company management experience or
responsibilities, which could impair our ability to comply with legal and
regulatory requirements such as the SARBANES-OXLEY ACT OF 2002 and applicable
federal securities laws, including filing required reports and other information
required on a timely basis. It may be expensive to implement and effect programs
and policies in an effective and timely manner that adequately respond to
increased legal, regulatory compliance and reporting requirements imposed by
such laws and regulations, and we may not have the resources to do so. Our
failure to comply with such laws and regulations could lead to the imposition of
fines and penalties and further result in the deterioration of our business.
9
THE OIL AND GAS INDUSTRY IS HIGHLY COMPETITIVE, AND WE MAY NOT HAVE SUFFICIENT
RESOURCES TO COMPETE EFFECTIVELY.
The oil and gas industry is highly competitive. We compete with oil and gas
companies and other individual producers and operators, many of which have
longer operating histories and substantially greater financial and other
resources than we do, as well as companies in other industries supplying energy,
fuel and other needs to consumers. Our larger competitors, by reason of their
size and relative financial strength, can more easily access capital markets
than we can and may enjoy a competitive advantage in the recruitment of
qualified personnel. They may be able to absorb the burden of any changes in
laws and regulation in the jurisdictions in which we do business and handle
longer periods of reduced prices for oil and gas more easily than we can. Our
competitors may be able to pay more for oil and gas leases and properties and
may be able to define, evaluate, bid for and purchase a greater number of leases
and properties than we can. Further, these companies may enjoy technological
advantages and may be able to implement new technologies more rapidly than we
can. Our ability to acquire properties in the future will depend upon our
ability to conduct efficient operations, evaluate and select suitable
properties, implement advanced technologies and consummate transactions in a
highly competitive environment.
COMPLYING WITH ENVIRONMENTAL AND OTHER GOVERNMENT REGULATIONS COULD BE COSTLY
AND COULD NEGATIVELY IMPACT OUR PRODUCTION.
Our business is governed by numerous laws and regulations at various levels of
government. These laws and regulations govern the operation and maintenance of
our facilities, the discharge of materials into the environment and other
environmental protection issues. Such laws and regulations may, among other
potential consequences, require that we acquire permits before commencing
drilling and restrict the substances that can be released into the environment
with drilling and production activities. Under these laws and regulations, we
could be liable for personal injury, clean-up costs and other environmental and
property damages, as well as administrative, civil and criminal penalties.
Accordingly, we could be liable, or could be required to cease production on
properties, if environmental damage occurs.
The costs of complying with environmental laws and regulations in the future may
harm our business. Furthermore, future changes in environmental laws and
regulations could occur that result in stricter standards and enforcement,
larger fines and liability, and increased capital expenditures and operating
costs, any of which could have a material adverse effect on our financial
condition or results of operations.
THE OIL AND GAS EXPLORATION AND PRODUCTION INDUSTRY HISTORICALLY IS A CYCLICAL
INDUSTRY AND MARKET FLUCTUATIONS IN THE PRICES OF OIL AND GAS COULD ADVERSELY
AFFECT OUR BUSINESS. THE RECENT DECREASES IN OIL AND GAS PRICES HAVE MADE OUR
EXPLORATION PROGRAM LESS VIABLE AND WE HAVE TEMPORARILY PUT OUR EXPLORATION
PROGRAM ON HOLD. IF THE SITUATION DOES NOT IMPROVE BEFORE WE RUN OUT OF MONEY,
WE WILL LIKELY GO OUT OF BUSINESS AND INVESTORS WILL LOSE THEIR ENTIRE
INVESTMENT IN OUR COMPANY.
Prices for oil and gas tend to fluctuate significantly in response to factors
beyond our control. These factors include:
* weather conditions in the United States and wherever our property
interests are located;
* economic conditions, including demand for petroleum-based products, in
the United States wherever our property interests are located;
* actions by OPEC, the Organization of Petroleum Exporting Countries;
* political instability in the Middle East and other major oil and gas
producing regions;
* governmental regulations, both domestic and foreign;
* domestic and foreign tax policy;
* the pace adopted by foreign governments for the exploration,
development, and production of their national reserves;
* the price of foreign imports of oil and gas;
* the cost of exploring for, producing and delivering oil and gas;
* the discovery rate of new oil and gas reserves;
* the rate of decline of existing and new oil and gas reserves;
10
* available pipeline and other oil and gas transportation capacity;
* the ability of oil and gas companies to raise capital;
* the overall supply and demand for oil and gas; and
* the availability of alternate fuel sources.
Changes in commodity prices may significantly affect our capital resources,
liquidity and expected operating results. Price changes will directly affect
revenues and can indirectly impact expected production by changing the amount of
funds available to reinvest in exploration and development activities.
Reductions in oil and gas prices not only reduce revenues and profits, but could
also reduce the quantities of reserves that are commercially recoverable.
Significant declines in prices could result in non-cash charges to earnings due
to impairment.
Changes in commodity prices may also significantly affect our ability to
estimate the value of producing properties for acquisition and divestiture and
often cause disruption in the market for oil and gas producing properties, as
buyers and sellers have difficulty agreeing on the value of the properties.
Price volatility also makes it difficult to budget for and project the return on
acquisitions and the development and exploitation of projects. We expect that
commodity prices will continue to fluctuate significantly in the future.
WE MAY NOT IDENTIFY ALL OF LIABILITIES ASSOCIATED WITH OUR PROPERTY INTERESTS OR
OBTAIN PROTECTION FROM SELLERS AGAINST THEM, WHICH COULD CAUSE US TO INCUR
LOSSES.
Our review and evaluation of future property interests we acquire might not
necessarily reveal all existing or potential problems. Inspections may not
always be performed on every well, and environmental problems, such as
groundwater contamination, are not necessarily observable even when an
inspection is undertaken. Even when problems are identified, a seller may be
unwilling or unable to provide effective contractual protection against all or
part of those problems, and we may assume environmental and other risks and
liabilities in connection with the acquired properties.
TITLE DEFICIENCIES COULD RENDER THE LEASES THAT WE MAY ACQUIRE IN THE FUTURE
WORTHLESS WHICH COULD HAVE ADVERSE EFFECTS ON OUR FINANCIAL CONDITION OR RESULTS
OF OPERATIONS.
The existence of a material title deficiency can render a lease worthless and
can result in a large expense to our business. It is our practice in acquiring
oil and gas leases or undivided interests in oil and gas leases to forgo the
expense of retaining lawyers to examine the title to the oil or gas interest to
be placed under lease or already placed under lease. Instead, we rely upon the
judgment of oil and gas landmen who perform the field work in examining records
in the appropriate governmental office before attempting to place under lease a
specific oil or gas interest. We do not anticipate that we, or the person or
company acting as operator of the wells located on the properties that we may
lease in the future, will obtain counsel to examine title to the lease until the
well is about to be drilled. As a result, we may be unaware of deficiencies in
the marketability of the title to the lease. Such deficiencies may render the
lease worthless.
RISKS ASSOCIATED WITH OUR COMMON STOCK
IF WE ISSUE ADDITIONAL SHARES IN THE FUTURE, IT WILL RESULT IN THE DILUTION OF
OUR EXISTING SHAREHOLDERS.
Our certificate of incorporation authorizes the issuance of up to 200,000,000
shares of common stock with a par value of $0.001. Our board of directors may
choose to issue some or all of such shares to acquire one or more businesses or
to provide additional financing in the future. The issuance of any such shares
will result in a reduction of the book value and market price of the outstanding
shares of our common stock. If we issue any such additional shares, such
issuance will cause a reduction in the proportionate ownership and voting power
of all current shareholders. Further, such issuance may result in a change of
control of our corporation.
11
TRADING ON THE OTC BULLETIN BOARD MAY BE VOLATILE AND SPORADIC, WHICH COULD
DEPRESS THE MARKET PRICE OF OUR COMMON STOCK AND MAKE IT DIFFICULT FOR OUR
STOCKHOLDERS TO RESELL THEIR SHARES.
Our common stock is quoted on the OTC Bulletin Board service of the Financial
Industry Regulatory Authority ("FINRA"). Trading in stock quoted on the OTC
Bulletin Board is often thin and characterized by wide fluctuations in trading
prices due to many factors that may have little to do with our operations or
business prospects. This volatility could depress the market price of our common
stock for reasons unrelated to operating performance. Moreover, the OTC Bulletin
Board is not a stock exchange, and trading of securities on the OTC Bulletin
Board is often more sporadic than the trading of securities listed on a
quotation system like Nasdaq or a stock exchange like the American Stock
Exchange. Accordingly, our shareholders may have difficulty reselling any of
their shares.
OUR STOCK IS A PENNY STOCK. TRADING OF OUR STOCK MAY BE RESTRICTED BY THE SEC'S
PENNY STOCK REGULATIONS AND FINRA'S SALES PRACTICE REQUIREMENTS, WHICH MAY LIMIT
A STOCKHOLDER'S ABILITY TO BUY AND SELL OUR STOCK.
Our stock is a penny stock. The Securities and Exchange Commission has adopted
Rule 15g-9 which generally defines "penny stock" to be any equity security that
has a market price (as defined) less than $5.00 per share or an exercise price
of less than $5.00 per share, subject to certain exceptions. Our securities are
covered by the penny stock rules, which impose additional sales practice
requirements on broker-dealers who sell to persons other than established
customers and "accredited investors". The term "accredited investor" refers
generally to institutions with assets in excess of $5,000,000 or individuals
with a net worth in excess of $1,000,000 or annual income exceeding $200,000 or
$300,000 jointly with their spouse. The penny stock rules require a
broker-dealer, prior to a transaction in a penny stock not otherwise exempt from
the rules, to deliver a standardized risk disclosure document in a form prepared
by the SEC which provides information about penny stocks and the nature and
level of risks in the penny stock market. The broker-dealer also must provide
the customer with current bid and offer quotations for the penny stock, the
compensation of the broker-dealer and its salesperson in the transaction and
monthly account statements showing the market value of each penny stock held in
the customer's account. The bid and offer quotations, and the broker-dealer and
salesperson compensation information, must be given to the customer orally or in
writing prior to effecting the transaction and must be given to the customer in
writing before or with the customer's confirmation. In addition, the penny stock
rules require that prior to a transaction in a penny stock not otherwise exempt
from these rules, the broker-dealer must make a special written determination
that the penny stock is a suitable investment for the purchaser and receive the
purchaser's written agreement to the transaction. These disclosure requirements
may have the effect of reducing the level of trading activity in the secondary
market for the stock that is subject to these penny stock rules. Consequently,
these penny stock rules may affect the ability of broker-dealers to trade our
securities. We believe that the penny stock rules discourage investor interest
in, and limit the marketability of, our common stock.
FINRA SALES PRACTICE REQUIREMENTS MAY ALSO LIMIT A STOCKHOLDER'S ABILITY TO BUY
AND SELL OUR STOCK.
In addition to the "penny stock" rules promulgated by the Securities and
Exchange Commission (see above for a discussion of penny stock rules), FINRA
rules require that in recommending an investment to a customer, a broker-dealer
must have reasonable grounds for believing that the investment is suitable for
that customer. Prior to recommending speculative low priced securities to their
non-institutional customers, broker-dealers must make reasonable efforts to
obtain information about the customer's financial status, tax status, investment
objectives and other information. Under interpretations of these rules, FINRA
believes that there is a high probability that speculative low priced securities
will not be suitable for at least some customers. FINRA requirements make it
more difficult for broker-dealers to recommend that their customers buy our
common stock, which may limit your ability to buy and sell our stock and have an
adverse effect on the market for our shares.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not Applicable
12
ITEM 2. PROPERTIES
EXECUTIVE OFFICES AND RESIDENT AGENT
Effective October 15, 2012, we use an office at 925 Skeena Drive, Kelowna, BC,
Canada.
Our resident agent for service of process is Nevada Agency and Transfer Company,
50 West Liberty Street, Suite 880, Reno NV 89501.
At August 31, 2012, the Company had no oil and gas interests.
We intend to acquire oil and gas interests in the future. Management believes
that future growth of our Company will primarily occur through the acquisition
of oil and gas properties following extensive due diligence by our Company.
However, we may elect to proceed through collaborative agreements, joint venture
agreements or other agreements with other experts in the oil and gas industry in
order to share expertise and reduce operating costs. The analysis of new
property interests will be undertaken by or under the supervision of our
management, advisory board and board of directors. Although the oil and gas
industry is currently very competitive, management believes that many
undervalued prospective properties are available for acquisition and exploration
purposes.
Since we are an exploration stage company, there is no assurance that a
commercially viable oil and gas reserve exists on any of our property interests,
and a great deal of additional exploration will be required before a final
evaluation of the economic and legal feasibility for our future expansion is
determined. To date, we have not discovered an economically viable oil and gas
reserve on any of our property interests, and there is no assurance that we will
discover one.
ITEM 3. LEGAL PROCEEDINGS
We know of no material, existing or pending legal proceedings against our
Company, nor are we involved as a plaintiff in any material proceeding or
pending litigation. There are no proceedings in which any of our directors,
officers or affiliates, or any registered or beneficial stockholder, is an
adverse party or has a material interest adverse to our interest.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable
13
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
MARKET INFORMATION
Our common stock is quoted on the OTC Bulletin Board under the symbol "WSEG".
The following table shows the quarterly range of high and low bid information
for our common stock over the fiscal quarters for the last two fiscal years as
quoted on the OTC Bulletin Board. The bid prices represent quotations by dealers
without adjustments for retail mark-ups, mark-downs or commissions and may not
represent actual transactions. Investors should not rely on historical prices of
our common stock as an indication of its future price performance.
The last sale price of our common stock as reported on Yahoo! Finance on
November 21, 2012, was $0.70 per share.
Quarter Ended Bid High Bid Low
------------- -------- -------
08/31/2012 $ 1.60 $ 1.60
05/31/2012 $ 1.75 $ 1.75
02/29/2012 $ 1.00 $ 1.00
11/30/2011 $ 1.60 $ 1.60
08/31/2011 $ 1.50 $ 1.50
TRANSFER AGENT
Our shares of common stock are in registered form. Our transfer agent for our
common stock is the Nevada Agency and Trust Company at 50 West Liberty Street,
Suite 880, Reno, NV 89501, Tel: 775-322-0626 Fax: 775-322-5623
HOLDERS OF COMMON STOCK
As of November 26, 2012, we have 39 registered shareholders holding 33,941,993
shares of our common stock.
DIVIDENDS
We have never declared or paid any cash dividends or distributions on our
capital stock. We currently intend to retain our future earnings, if any, to
support operations and to finance expansion and therefore we do not anticipate
paying any cash dividends on our common stock in the foreseeable future.
RECENT SALES OF UNREGISTERED SECURITIES; USE OF PROCEEDS FROM REGISTERED
SECURITIES
On November 9, 2012, we closed a private placement in an aggregate of 33,269,857
shares of our common stock to 18 investors at a price of $0.00125 per share for
gross proceeds of $41,587.32.
We issued all the securities to non-U.S. persons (as that term is defined in
Regulation S of the SECURITIES ACT OF 1933, AS amended) in an offshore
transaction in which we relied on the registration exemption provided for in
Regulation S and/or Section 4(2) of the Securities Act of 1933, as amended. A
copy of the form of subscription agreement is attached as exhibit 10.3 to this
current report on Form 8-K.
CHANGES IN CONTROL OF REGISTRANT
Pursuant to the terms of a private placement subscription agreement dated
October 20, 2012 between our company and Dallas Gray, the investor purchased a
total of 15,000,000 shares of common stock from us on November 9, 2012. The
purchase price of the shares was US $18,750, which was paid in cash and by the
personal funds of Mr. Gray. Dallas Gray owns 15,000,000 shares of our company or
44.8% of our issued and outstanding stock.
14
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
The following table is a summary of purchases made by or on behalf of our
Company or any "affiliated purchaser," of shares or other units of any class of
the our equity securities that is registered by the issuer pursuant to section
12 of the Exchange Act.
Maximum Number
(or Approximate
Dollar Value) of
Total Number of Shares (or Units)
Shares (or Units) that May Yet Be
Total Number of Purchased as Part of Purchased Under
Shares (or Units) Average Price Paid Publicly Announced the Plans or
Period Purchased per Share (or Unit) Plans or Programs Programs
------ --------- ------------------- ----------------- --------
Nil Nil Nil Nil Nil
ITEM 6. SELECTED FINANCIAL DATA
Not applicable.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
The following discussion should be read in conjunction with our financial
statements and the related notes that appear elsewhere in this annual report.
The following discussion contains forward-looking statements that reflect our
plans, estimates and beliefs. Our actual results could differ materially from
those discussed in the forward looking statements. Factors that could cause or
contribute to such differences include those discussed below and elsewhere in
this annual report on Form 10-K.
Our audited financial statements are stated in United States Dollars and are
prepared in accordance with United States Generally Accepted Accounting
Principles.
In addition to the prospective properties described above, we intend to acquire
additional oil and gas interests in the future pending recovery of the North
American economy. Management believes that future growth of our company will
primarily occur through the acquisition of oil and gas properties following
extensive due diligence. However, we may elect to proceed through collaborative
agreements, joint venture agreements or other agreements with other experts in
the oil and gas industry in order to share expertise and reduce operating costs.
The analysis of new property interests will be undertaken by or under the
supervision of our management, advisory board and board of directors. Although
the oil and gas industry is currently very competitive, management believes that
many undervalued prospective properties are available for acquisition and
exploration purposes.
Since we are an exploration stage company, there is no assurance that a
commercially viable oil and gas reserve exists on any of our property interests,
and a great deal of additional exploration will be required before a final
evaluation of the economic and legal feasibility for our future expansion is
determined. To date, we have not discovered an economically viable oil and gas
reserve on any of our property interests, and there is no assurance that we will
discover one.
Our plan of operation is to conduct exploration work on each of our property
interests in order to ascertain whether any possess commercially exploitable oil
and gas reserves. There can be no assurance that such oil and gas reserves exist
on any of our property interests.
Even if we complete our proposed exploration programs on our property interests
and we are successful in identifying an oil and gas reserve, we will have to
spend substantial funds on further drilling and engineering studies before we
will know whether we have a commercially viable oil and gas reserve.
15
LIQUIDITY
ANTICIPATED CASH REQUIREMENTS
Over the next 12 months, we have estimated our minimum cash requirements as
follows:
Operating Expenses
Management and consulting fees $120,000
Professional fees 50,000
General, administration and all other expenses 120,000
--------
290,000
Oil and gas acquisition and exploration expenditures 500,000
--------
TOTAL $790,000
========
For the 12 months ended August 31, 2012, we recorded a net operating loss of
$121,798 and have an accumulated deficit of $4,932,900 since inception. As at
August 31, 2012, we had cash of Nil and for the next 12 months, management
estimates minimum cash requirements of $790,000 to fund our on-going operations
and planned oil and gas acquisition and exploration activities. Accordingly, we
do not have sufficient funds to meet our plan of operation over the next 12
months and will need to obtain further financing.
Our financial condition for the years ended August 31, 2012 and 2011 and the
changes between those periods for the respective items are summarized as
follows:
WORKING CAPITAL
Our working capital position as at August 31, 2012 compared to August 31, 2011
and the cash flows for the years then ended are summarized below:
12 months Ended August 31,
2012 2011
---------- ----------
Current Assets $ -- $ --
Current Liabilities (262,800) (141,002)
Working Capital (Deficiency) $(262,800) $(141,002)
The increase in our working capital deficiency was primarily due to an increase
for interest accrual and consulting fees.
CASH FLOWS
12 months Ended August 31,
2012 2011
---------- ----------
Net cash used in Operating Activities $ -- $ --
Net cash provided by (used in) Investing Activities $ -- $ --
Net cash provided by Financing Activities $ -- $ --
Increase (Decrease) in Cash during the Year $ -- $ --
Cash, Beginning of Year $ -- $ --
Cash, End of Year $ -- $ --
During the years ended August 31, 2012 and 2011:
(i) Net cash used in operating activities was $Nil for our years ended August
31, 2012 and 2011.
(ii) Net cash provided by/used in investing activities was $Nil for our years
ended August 31, 2012 and 2011.
(iii) Net cash from financing activities was $Nil for our years ended August 31,
2012 and 2011.
16
RESULTS OF OPERATIONS
The following summary of our results of operations should be read in conjunction
with our audited financial statements for the year ended August 31, 2012 and
2011 which are included herein.
12 months Ended August 31,
2012 2011
---------- ----------
Revenue $ Nil $ Nil
--------- ---------
Expenses
Management and consulting fees $ 82,723 $ --
Professional fees 11,785 21,680
General and office administration 17,205 12,623
Investor relations, transfer agent and media 10,085 660
--------- ---------
Total expenses $ 121,798 $ 34,963
Net Loss (121,798) (34,963)
--------- ---------
Oil and gas acquisition and exploration expenditures $ -- $ --
--------- ---------
REVENUE
We have not earned any revenues since our inception and we do not anticipate
earning revenues until such time as we have begun commercial production from our
oil and gas prospects. We are currently in the exploration stage of our business
and we can provide no assurances that we will discover commercially exploitable
resources on our properties, or if such resources are discovered, that we will
be able to begin commercial production.
EXPENSES
Our operating expenses for the year ended August 31, 2012 compared to the same
period in 2011 increased by the net amount of $86,835 was primarily due to
consulting fees incurred during the year.
GOING CONCERN
The audited financial statements accompanying this report have been prepared on
a going concern basis, which implies that our Company will continue to realize
its assets and discharge its liabilities and commitments in the normal course of
business. Our Company has not generated revenues since inception, has never paid
any dividends and is unlikely to pay dividends or generate earnings in the
immediate or foreseeable future. The continuation of our Company as a going
concern is dependent upon: (i) the continued financial support from our
shareholders; (ii) the ability of our Company to continue raising necessary
equity financing to achieve its operating objectives; (iii) confirmation of the
resource value of our oil and gas prospects; and (iv) the eventual attainment of
profitable operations. As at August 31, 2012, our Company has a negative working
capital of $262,800 and has accumulated losses of $4,932,900 since inception.
Our independent auditors included an explanatory paragraph in their annual
report on our financial statements for the year ended August 31, 2012 regarding
concerns about our ability to continue as a going concern. In addition, our
financial statements contain further note disclosures in this regard. The
continuation of our business plan is dependent upon our ability to continue
raising sufficient new capital from equity or debt markets in order to fund our
on-going operating losses and oil and gas acquisition and exploration
activities. The issuance of additional equity securities could result in a
significant dilution in the equity interests of our current stockholders.
17
APPLICATION OF CRITICAL ACCOUNTING POLICIES
BASIS OF PRESENTATION
These financial statements and related notes are presented in accordance with
generally accepted accounting principles in the United States of America ("US")
and are expressed in US dollars. The Company is an exploration stage company as
defined by Statement of Financial Accounting Standard ("SFAS") No. 7,
"Accounting and Reporting by Development Stage Enterprises" and has not realized
any revenues from its planned operations to date.
USE OF ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in conformity with generally accepted
accounting principles 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. The
Company bases its estimates and assumptions on current facts, historical
experience and various other factors that it believes to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities and the accrual of costs and
expenses that are readily apparent from other sources. The actual results
experienced by the Company may differ materially from the Company's estimates.
To the extent there are material differences, future results may be affected.
Estimates used in preparing these financial statements include the carrying
value of oil and gas properties, and the fair value of stock-based compensation.
FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash, other receivables, accounts
payable and amounts due to related parties. It is management's opinion that the
Company is not exposed to significant interest, currency or credit risks arising
from these financial instruments. The fair value of these financial instruments
approximates their carrying values due to the relatively short maturity of these
instruments.
OIL AND GAS PROPERTIES
The Company utilizes the full cost method to account for its investment in oil
and gas properties. Accordingly, all costs associated with acquisition,
exploration and development of oil and gas reserves, including such costs as
leasehold acquisition costs, capitalized interest costs relating to unproven
properties, geological expenditures, tangible and intangible development costs
(including direct internal costs), are capitalized into the full cost pool. When
the Company commences production from established proven oil and gas reserves,
capitalized costs, including estimated future costs to develop the reserves and
estimated abandonment costs, will be depleted on the units-of-production method
using estimates of proven reserves. Investments in unproved properties and major
development projects, including capitalized interest if any, are not depleted
until proven reserves associated with the projects can be determined. If the
future, exploration of unproven properties are determined to be uneconomical,
the amount of such properties is added to the capital costs to be depleted. As
of August 31, 2012, the Company had no investments in oil and gas properties.
The capitalized costs included in the full cost pool are subject to a "ceiling
test", which limits such costs to the aggregate of the estimated present value,
using a 10% discount rate, of the future net revenues from the proven reserves,
based on current economic and operating conditions plus the lower of cost and
estimated net realizable value of unproven properties.
Sales of proven and unproven properties are accounted for as adjustments of
capitalized costs with no gain or loss recognized, unless such adjustments would
significantly alter the relationship between capitalized costs and proven
reserves of oil and gas, in which case the gain or loss is recognized in the
statement of operations.
18
FOREIGN CURRENCY TRANSLATION
The functional and reporting currency of the Company is the United States
dollar. The Company accounts for foreign currency transactions in accordance
with SFAS No. 52, "Foreign Currency Translation" (ASC 830). Monetary assets and
liabilities denominated in foreign currencies are translated into United States
Dollars at the period-end exchange rates. Non-monetary assets and liabilities
are translated at the historical rates in effect when the assets were acquired
or obligations incurred. Transactions occurring during the period are translated
at rates in effect at the time of the transaction. The resulting foreign
exchange gains and losses are included in operations.
INCOME TAXES
Income taxes are provided for in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"), as
interpreted by FASB Interpretation No. 48, "Accounting for Uncertainty in Income
Taxes - an interpretation of FASB Statement No. 109" ("FIN 48"). Deferred tax
assets and liabilities are recorded for temporary differences between the tax
basis of assets and liabilities, computed pursuant to FIN 48 and the reported
amounts in the consolidated financial statements using the statutory tax rates
in effect for the year when the reported amount of the asset or liability is
recovered or settled, respectively. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in the results of operations
in the period that includes the enactment date. A valuation allowance is
recorded to reduce the carrying amounts of deferred tax assets to the amount
that is more likely than not to be realized. For each tax position taken or
expected to be taken in a tax return, the Company determine whether it is more
likely than not that the position will be sustained upon examination based on
the technical merits of the position, including resolution of any related
appeals or litigation. A tax position that meets the more likely than not
recognition threshold is measured to determine the amount of benefit to
recognize. The tax position is measured at the largest amount of benefit that is
greater than 50% likely of being realized upon settlement.
LOSS PER SHARE
The Company computes net loss per share in accordance with SFAS No. 128,
"Earnings per Share", which requires presentation of both basic and diluted loss
per share ("LPS") on the face of the statement of operations. Basic LPS is
computed by dividing the net loss available to common shareholders by the
weighted average number of outstanding common shares during the period. Diluted
LPS gives effect to all potentially dilutive common shares outstanding during
the period, including convertible debt, stock options and warrants, using the
treasury stock method. The computation of diluted LPS does not assume
conversion, exercise or contingent exercise of securities that would have an
anti-dilutive effect on LPS.
COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) is defined as the change in equity of a business
enterprise during a period from transactions and other events and circumstances
from non-owner sources. Other than reported net income (loss), comprehensive
income (loss) includes foreign currency translation adjustments and unrealized
gains and losses on available-for-sale investments, which are disclosed in the
accompanying consolidated statements of stockholders' deficit as comprehensive
income (loss).
LONG-LIVED ASSETS
In accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets", the carrying value of intangible assets and other long-lived
assets is reviewed on a regular basis for the existence of facts or
circumstances that may suggest impairment. The Company recognizes impairment
when the sum of the expected undiscounted future cash flows is less than the
carrying amount of the asset. Impairment losses, if any, are measured as the
excess of the carrying amount of the asset over its estimated fair value.
19
ASSET RETIREMENT OBLIGATIONS
The Company accounts for asset retirement obligations in accordance with the
provisions of Statement of Financial Accounting Standard (SFAS) No. 143
"Accounting for Asset Retirement Obligations". SFAS No. 143 requires the Company
to record the fair value of an asset retirement obligation as a liability in the
period in which it incurs an obligation associated with the retirement of
tangible long-lived assets resulting from the acquisition, construction,
development and/or normal use of these assets. At August 31, 2012, the Company
has not recognized any amount for asset retirement obligations.
STOCK-BASED COMPENSATION
The Company has adopted the fair value recognition provisions of SFAS No. 123R,
"Share Based Payments", whereby compensation expense is recognized for all
share-based payments based on the fair value at monthly vesting dates, estimated
in accordance with the provisions of SFAS 123R.
All transactions in which goods and services are the consideration received for
the issuance of equity instruments are accounted for based on fair value of the
consideration received or the fair value of the equity instrument issued,
whichever is more reliably measurable. Equity instruments issued to Advisory
Board members and the cost of the services received as consideration are
measured and recognized based on the fair value of the equity instruments
issued.
On April 14, 2010, our shareholders approved our 2010 Equity Compensation Plan.
Under the 2010 Plan, options may be granted to our directors, officers,
employees and consultants as determined by our board of directors. Pursuant to
the 2010 Plan, we reserved for issuance up to 5,000,000 shares of our
outstanding common stock under the 2010 plan. However no options have been
granted as at August 31, 2012 and therefore no stock-based compensation has been
recorded to date for stock options.
RECENT ACCOUNTING PRONOUNCEMENTS
The FASB established the FASB Accounting Standards Codification ("Codification")
as the source of authoritative U.S. generally accepted accounting principles
("GAAP") recognized by the FASB to be applied by nongovernmental entities in the
preparation of financial statements issued for interim and annual periods ending
after September 15, 2009. The codification has changed the manner in which U.S.
GAAP guidance is referenced, but did not have an impact on our consolidated
financial position, results of operations or cash flows.
In January 2010, the Financial Accounting Standards Board ("FASB") issued
Accounting Standards Update ("ASU") 2010-06, "Fair Value Measurements and
Disclosures (Topic 820) -- Improving Disclosures about Fair Value Measurements."
This ASU requires some new disclosures and clarifies some existing disclosure
requirements about fair value measurement as set forth in Accounting Standards
Codification ("ASC") 820. ASU 2010-06 amends ASC 820 to now require: (1) a
reporting entity should disclose separately the amounts of significant transfers
in and out of Level 1 and Level 2 fair value measurements and describe the
reasons for the transfers; and (2) in the reconciliation for fair value
measurements using significant unobservable inputs, a reporting entity should
present separately information about purchases, sales, issuances, and
settlements. In addition, ASU 2010-06 clarifies the requirements of existing
disclosures. ASU 2010-06 is effective for interim and annual reporting periods
beginning after December 15, 2009, except for the disclosures about purchases,
sales, issuances, and settlements in the roll forward of activity in Level 3
fair value measurements. Those disclosures are effective for fiscal years
beginning after December 15, 2010, and for interim periods within those fiscal
years. Early application is permitted. The Company will comply with the
additional disclosures required by this guidance upon its adoption in January
2010.
Also in January 2010, the FASB issued Accounting Standards Update No. 2010-03,
"Extractive Activities--Oil and Gas--Oil and Gas Reserve Estimation and
Disclosures." This ASU amends the "Extractive Industries--Oil and Gas" Topic of
the Codification to align the oil and gas reserve estimation and disclosure
20
requirements in this Topic with the SEC's Release No. 33-8995, "Modernization of
Oil and Gas Reporting Requirements (Final Rule)," discussed below. The
amendments are effective for annual reporting periods ending on or after
December 31, 2009, and the adoption of these provisions on December 31, 2009 did
not have a material impact on our consolidated financial statements.
SEC'S FINAL RULE ON OIL AND GAS DISCLOSURE REQUIREMENTS
On December 31, 2008, the Securities and Exchange Commission, referred to in
this report as the SEC, issued Release No. 33-8995, "Modernization of Oil and
Gas Reporting Requirements (Final Rule)," which revises the disclosures required
by oil and gas companies. The SEC disclosure requirements for oil and gas
companies have been updated to include expanded disclosure for oil and gas
activities, and certain definitions have also been changed that will impact the
determination of oil and gas reserve quantities. The provisions of this final
rule are effective for registration statements filed on or after January 1,
2010, and for annual reports for fiscal years ending on or after December 31,
2011.
OFF-BALANCE SHEET ARRANGEMENTS
We have no significant off-balance sheet arrangements that have or are
reasonably likely to have a current or future effect on our financial condition,
changes in financial position, revenues and expenses, results of operations,
liquidity, capital expenditures or capital resources that are material to
stockholders.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable
21
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
D M C L
DALE MATHESON CARR-HILTON LABONTE LLP
CHARTERED ACCOUNTANTS & BUSINESS ADVISORS
WWW.DMCL.CA
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors of Western Standard Energy Corp.
We have audited the accompanying balance sheets of Western Standard Energy Corp.
(an exploration stage company) as of August 31, 2012 and 2011 and the related
statements of operations, stockholders' deficit and cash flows for the years
then ended and the period from October 16, 2003 (inception) to August 31, 2012.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform an audit to obtain reasonable assurance whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of Western Standard Energy Corp. as of August
31, 2012 and 2011 and the results of its operations and its cash flows for the
years then ended and the period from October 16, 2003 (inception) through August
31, 2012 in conformity with accounting principles generally accepted in the
United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has not generated revenues since inception,
has incurred losses in developing its business, and further losses are
anticipated. The Company requires additional funds to meet its obligations and
the costs of its operations. These factors raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans in this
regard are described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ Dale Matheson Carr-Hilton Labonte LLP
-----------------------------------------
CHARTERED ACCOUNTANTS
Vancouver, Canada
November 26, 2012
22
Western Standard Energy Corp.
(An Exploration Stage Company)
BALANCE SHEETS
August 31, August 31,
2012 2011
------------ ------------
ASSETS
$ -- $ --
============ ============
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 202,800 $ 81,002
Notes payable 60,000 60,000
------------ ------------
262,800 141,002
------------ ------------
STOCKHOLDERS' DEFICIT
COMMON STOCK
Authorized:
200,000,000 common shares with par value of $0.001
Issued and outstanding:
192,136 common shares 192 192
ADDITIONAL PAID IN CAPITAL 4,670,033 4,670,033
SUBSCRIPTION RECEIVABLE (125) (125)
DEFICIT ACCUMULATED DURING EXPLORATION STAGE (4,932,900) (4,811,102)
------------ ------------
(262,800) (141,002)
------------ ------------
$ -- $ --
============ ============
The accompanying notes are an integral part of these financial statements
23
Western Standard Energy Corp.
(An Exploration Stage Company)
STATEMENTS OF OPERATIONS
Cumulative from
October 16, 2003
Year ended Year ended (Inception) to
August 31, August 31, August 31,
2012 2011 2012
------------ ------------ ------------
EXPENSES
Advertising and promotion $ -- $ -- $ 48,670
Audit and accounting fees 10,833 20,000 292,201
Depreciation -- -- 12,280
Consulting fees and expenses 82,723 -- 100,639
Foreign exchange loss -- -- 23,786
Gain on disposal of oil and gas properties -- -- (5,810)
Gain on settlement of debt -- -- (104,992)
Interest expense 17,205 12,623 71,569
Interest income -- -- (3,716)
Investor communications and transfer agent 10,085 660 512,878
Legal fees 952 1,680 235,649
Office and general administration -- -- 196,422
Product development -- -- 876,451
Salaries and management fees -- -- 1,283,083
Stock-based compensation -- -- 104,366
Travel and entertainment -- -- 193,807
Web and graphic design -- -- 129,716
Write-down of assets -- -- (34,650)
Write-down of oil and gas property -- -- 1,000,551
------------ ------------ ------------
121,798 34,963 4,932,900
------------ ------------ ------------
NET LOSS $ (121,798) $ (34,963) $ (4,932,900)
============ ============ ============
LOSS PER SHARE - BASIC AND DILUTED $ (0.63) $ (0.18)
============ ============
WEIGHTED AVERAGE NUMBER OF COMMON STOCK
OUTSTANDING - BASIC AND DILUTED 192,136 192,136
============ ============
The accompanying notes are an integral part of these financial statements
24
Western Standard Energy Corp.
(An Exploration Stage Company)
STATEMENTS OF CASH FLOWS
Cumulative from
October 16, 2003
Year ended Year ended (Inception) to
August 31, August 31, August 31,
2012 2011 2012
------------ ------------ ------------
CASH FLOW FROM OPERATING ACTIVITIES
Net loss $ (121,798) $ (34,963) $ (4,932,900)
Non-cash items included in net loss
Impairment of oil and gas properties -- -- 960,551
Gain on disposal of oil and gas properties -- -- (5,809)
Interest 17,205 12,623 23,101
Write-down of accounts payable -- -- 30,374
Write-down of assets -- -- (4,276)
Write-down of oil and gas properties -- -- 40,000
Depreciation -- -- 12,280
Gain on settlement of debt -- -- (104,992)
Stock issued for service -- -- 104,366
Changes in non-cash working capital
Receivables -- -- (1,070)
Prepaid expenses -- -- 31,650
Accounts payable and accrued liabilities 104,593 22,340 127,347
------------ ------------ ------------
NET CASH USED IN OPERATING ACTIVITIES -- -- (3,719,378)
------------ ------------ ------------
INVESTING ACTIVITIES
Purchase of equipment -- -- (20,287)
Expenditures on oil and gas properties -- -- (703,242)
Proceeds on sale of oil and gas properties -- -- 38,500
------------ ------------ ------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES -- -- (685,029)
------------ ------------ ------------
FINANCING ACTIVITIES
Decrease in bank indebtedness -- -- --
Due to related parties -- -- 1,307,771
Note payable -- -- 60,000
Issuance of common shares for cash -- -- 2,685,000
Net cash acquired on recapitalization -- -- 351,636
------------ ------------ ------------
NET CASH FROM FINANCING ACTIVITIES -- -- 4,404,407
------------ ------------ ------------
INCREASE IN CASH -- -- --
Cash, beginning -- -- --
------------ ------------ ------------
CASH, ENDING $ -- $ -- $ --
============ ============ ============
SUPPLEMENTARY INFORMATION CASH PAID FOR:
Interest $ -- $ -- $ 34,382
Income tax $ -- $ -- $ --
============ ============ ============
NON-CASH FINANCING AND INVESTING ACTIVITIES
Forgiveness of debt $ -- $ -- $ 24,000
Loans settled with oil and gas property interest $ -- $ -- $ 214,138
Loans converted to common shares $ -- $ -- $ 879,842
Oil and gas property purchased for common shares $ -- $ -- $ 450,000
============ ============ ============
The accompanying notes are an integral part of these financial statements
25
Western Standard Energy Corp.
(An Exploration Stage Company )
STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE PERIOD FROM OCTOBER 16, 2003 TO AUGUST 31, 2012
Common stock Additional Obligation Total
---------------- paid in to Issue Subscription Accumulated Stockholders'
Shares Amount capital Shares Receivable Deficit Deficit
------ ------ ------- ------ ---------- ------- -------
BALANCE - OCTOBER 16, 2003
(DATE OF INCEPTION) -- $ -- $ -- $ -- $ -- $ -- $ --
Issuance of stock at $0.001
per share 2 -- -- -- -- -- --
Net loss -- -- -- -- -- (150,261) (150,261)
------- ----- ---------- --------- ------ ----------- -----------
BALANCE - AUGUST 31, 2004 2 -- -- -- -- (150,261) (150,261)
Issuance of stock for services
at $0.001 per share 27,000 27 17,973 -- -- -- 18,000
Issuance of stock for services
at $0.001 per share 562 1 374 -- -- -- 375
Net loss -- -- -- -- -- (491,574) (491,574)
------- ----- ---------- --------- ------ ----------- -----------
BALANCE AUGUST 31, 2005 27,564 28 18,348 -- -- (641,835) (623,460)
Issuance of stock for services
at $0.001 per share 4,500 4 2,996 -- -- -- 3,000
Issuance of stock for loan
conversions at $0.0335 per
share 2,812 3 94,307 -- -- -- 94,310
Issuance of stock for loan
conversions at $0.0676 per
share 11,625 12 785,520 -- -- -- 785,532
Net loss -- -- -- -- -- (336,776) (336,776)
------- ----- ---------- --------- ------ ----------- -----------
BALANCE AUGUST 2006 46,501 47 901,171 -- -- (978,611) (77,394)
Cancellation of shares returned
to treasury at $0.001 per share (1,387) (1) (924) -- -- -- (925)
Issuance of stock for cash at
$0.0005 per share 93,750 93 49,907 -- -- -- 50,000
Issuance of stock under private
placement for cash at $0.333 per
share 600 1 199,999 -- -- -- 200,000
Issuance of stock under private
placement for cash at $0.667 per
share 862 1 574,999 -- -- -- 575,000
Cancellation of shares (54,862) (55) 54 -- -- -- --
Recapitaliztion adjustment -- -- (305,127) -- -- -- (305,127)
Issuance of stock under private
placement for cash at $0.667 per
share 450 -- 300,000 -- -- -- 300,000
Issuance of stock uinder private
placement for cash at $0.379 per
share 528 1 199,999 -- -- -- 200,000
Issuance of stock under private
placement for cash at $0.238 per
share 419 -- 100,000 -- -- -- 100,000
Issuance of stock for assignment
of farmout agreement at $0.30 per
share 1,500 1 449,999 -- -- -- 450,000
Net loss -- -- -- -- -- (1,163,678) (1,163,678)
------- ----- ---------- --------- ------ ----------- -----------
BALANCE AUGUST 31, 2007 88,361 88 2,470,077 -- -- (2,142,289) 327,876
Issuance of stock under private
placement for cash of $0.26 per
share 576 1 149,999 -- -- -- 150,000
Cancellation of stock (3,234) (3) 3 -- -- -- --
Issuance of stock under private
placement for cash of $0.40 per
share 1,600 2 639,998 -- -- -- 640,000
Issuance of stock under private
placement for cash of $0.50 per
share 1,500 1 749,999 -- -- -- 750,000
Issuance of stock under private
placement for cash of $0.30 per
share 833 1 249,999 -- -- -- 250,000
Issuance of stock under private
placement for cash of $0.25 per
share 400 -- 100,000 -- -- -- 100,000
Obligation to issue shares -- -- -- 45,083 -- -- 45,083
Net loss -- -- -- -- -- (1,133,589) (1,133,589)
------- ----- ---------- --------- ------ ----------- -----------
BALANCE AUGUST 31, 2008 90,036 90 4,360,075 45,083 -- (3,275,878) 1,129,370
Issuance of stock under private
placement for cash of $0.15 per
share 1,000 1 149,999 -- -- -- 150,000
Issuance of stock under private
placement for cash of $0.05 per
share 600 1 29,999 -- -- -- 30,000
Issuance of stock under private
placement for cash of $0.03 per
share 500 -- 15,000 -- -- -- 15,000
Obligation to issue shares -- -- -- 62,984 -- -- 62,984
Net Loss -- -- -- -- -- (1,437,460) (1,437,460)
------- ----- ---------- --------- ------ ----------- -----------
BALANCE AUGUST 31, 2009 92,136 92 4,555,073 108,067 -- (4,713,338) (50,106)
Obligation to issue shares-debt
settled -- -- -- (108,067) -- -- (108,067)
Settlement of related party debt -- -- 117,542 -- -- -- 117,542
Sale of UK Subsidiary -- -- (2,607) -- -- -- (2,607)
100,000 100 25 -- (125) -- --
Net Loss -- -- -- -- -- (62,801) (62,801)
------- ----- ---------- --------- ------ ----------- -----------
BALANCE AUGUST 31, 2010 192,136 192 4,670,033 -- (125) (4,776,139) (106,039)
Net Loss -- -- -- -- -- (34,963) (34,963)
------- ----- ---------- --------- ------ ----------- -----------
BALANCE AUGUST 31, 2011 192,136 $ 192 $4,670,033 $ -- $ (125) $(4,811,102) $ (141,002)
Net Loss -- -- -- -- -- (121,798) (121,798)
------- ----- ---------- --------- ------ ----------- -----------
BALANCE AUGUST 31, 2012 192,136 $ 192 $4,670,033 $ -- $ (125) $(4,932,900) $ (262,800)
======= ===== ========== ========= ====== =========== ===========
The accompanying notes are an integral part of these financial statements
26
Western Standard Energy Corp.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
August 31, 2012
1. NATURE OF BUSINESS AND CONTINUANCE OF OPERATIONS
Western Standard Energy Corp. (the "Company") was incorporated on February 2,
2005 under the laws of the State of Nevada.
GOING CONCERN
These financial statements have been prepared in accordance with United States
generally accepted accounting principles ("GAAP"), on a going concern basis,
which contemplates the satisfaction of liabilities and commitments in the normal
course of business. As at August 31, 2012, the Company was in the exploration
stage; has incurred a net loss of $121,798 for the year ended August 31, 2012
[2011 - $34,963] and at August 31, 2012 had a deficit accumulated of $4,932,900
[2011 - $4,811,102]. The Company has no revenue and has an accumulated deficit
and negative working capital of $262,800 as at August 31, 2012. Further losses
are anticipated in the development of its business and there can be no assurance
that the Company will be able to achieve or maintain profitability. The
continuing operations of the Company depends upon the ability of the Company to
obtain necessary financing to fund its on-going working capital requirements and
exploration activities, and upon future profitable operations. The accompanying
financial statements do not include any adjustments related to the amount and
classification of liabilities that might result from the outcome of this
uncertainty. There is no assurance that equity or debt capital will be available
as necessary to meet the Company's capital requirements or, if the capital is
available, that it will be on terms acceptable to the Company. The issuances of
additional equity securities by the Company may result in significant dilution
in the equity interests of its current shareholders. Obtaining commercial loans,
assuming those loans would be available, will increase the Company's liabilities
and future cash commitments. If the Company is unable to obtain financing in the
amounts and on terms deemed acceptable, the business and future success may be
adversely affected.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The financial statements of the Company have been prepared in accordance with
GAAP in the United States of America and are presented in US dollars. The
Company is an exploration stage company and has not realized any revenues to
date.
USE OF ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in conformity with US GAAP required
management to make estimates and assumptions that affect the report amounts of
assets and liabilities and disclosure of contingent assets and liability at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. The Company regularly evaluates estimates
and assumptions. The Company bases its estimates and assumptions on current
facts, historical experience and various other factors that it believes to be
reasonable under the circumstances, the results of which form the basis from
making judgments about the liability and the accrual of costs and expenses that
are not readily apparent from other sources. The actual results experienced by
the Company may differ materially and adversely from the Company's estimates. To
the extent there are material differences between the estimates and the actual
results, future results of operations will be affected.
27
FINANCIAL INSTRUMENTS
The fair value of the Company's financial instruments, consisting of accounts
payable and notes payable, are estimated to be equal to their carrying value. It
is management's opinion that the Company is not exposed to significant interest,
currency or credit risks arising from these financial instruments.
FOREIGN CURRENCY TRANSLATION
Foreign denominated monetary assets and liabilities are translated into their
United States dollar equivalents using foreign exchange rates which prevailed at
the balance sheet date. Revenue and expenses are translated at average rates of
exchange during the period. Related translation adjustments are reported as a
separate component of stockholders' equity, whereas gains or losses resulting
from foreign currency transactions are included in results of operations.
INCOME TAXES
Deferred income taxes are provided for tax effects of temporary differences
between the tax basis of asset and liabilities and their reported amounts in the
financial statements. The Company uses the liability method to account for
income taxes, which requires deferred taxes to be recorded at the statutory rate
expected to being in effect when the taxes are paid. Valuation allowances are
provided for a deferred tax asset when it is probable that such asset will not
be realized.
Management evaluated tax positions taken or expected to be taken in a tax
return. The evaluation of a tax position included a determination of whether a
tax position should be recognized in the financial statements and such a
position should only be recognized if the Company determines that it is more
likely than not that the tax position will be sustained upon examination by the
tax authorities, based upon the technical merits of the position. For those tax
positions that should be recognized, the measurement of a tax position is
determined as being the largest amount of benefit that is greater than fifty
percent likely of being realized upon ultimate settlement.
LOSS PER SHARE
Basic loss per share is computed by dividing net loss available to common
shareholders by the weighted average number of outstanding common shares during
the period. Diluted loss per share gives effect to all dilutive potential common
shares outstanding during the period. Dilutive loss per share excludes all
potential common shares if there effect is anti-dilutive. Because the Company
does not have any potentially dilutive securities, diluted loss per share is
equal to basic loss per share.
RECENT ACCOUNTING PRONOUNCEMENTS
Recent pronouncements with future effective dates are either not applicable or
are not expected to be significant to the financial statement of the Company.
28
3. NOTE PAYABLE
On December 22, 2009, the Company entered into a loan agreement with an
individual and a corporation (collectively "the Lenders") whereby the Company
agreed to issue a note payable in exchange for proceeds of $60,000. The note
bears interest at 11% per annum, secured by the assets of the Company and is
payable on demand. Between January 1, 2010 and August 31, 2012, the Lenders paid
for $75,068 in expenses on behalf of the Company. This amount has the same terms
as the note payable and has been included in accounts payable as at August 31,
2012. At August 31, 2012, the Company owed $135,068 (2011 - $115,983) to the
Lenders and $35,334 (2011 - $18,519) in accrued interest.
4. COMMON STOCK
Authorized: 200,000,000 common shares
On April 14, 2010, the company adopted a stock option plan allowing the
Company's directors to grant up to 5,000,000 stock options pursuant to the terms
and conditions of the stock option plan. As at August 31, 2012 no options have
been granted.
5. INCOME TAXES
As at August 31, 2012, the Company had accumulated non-capital loss
carry-forwards of approximately $4,159,561. These losses are available to reduce
taxable income in future taxation years and begin to expire in 2024 after a
carry-forward period of 20 years. The Company is required to compute the
deferred tax benefits from non-capital loss carrying-forwards. However, due to
the uncertainty of realization of these loss carry-forwards, a full valuation
allowance has been provided against this deferred tax asset.
At August 31, 2012 and 2011, the components of the deferred tax asset, the
statutory tax rate, the effective tax rate and the elected amount of the
valuation allowance are shown below:
August 31, August 31,
2012 2011
------------ ------------
Non-capital tax loss carry forwards $ 4,159,561 $ 4,037,763
Statutory tax rate 35% 35%
Effective tax rate -- --
Deferred tax asset 1,455,846 1,413,217
Less: valuation allowance (1,455,846) (1,413,217)
------------ ------------
NET DEFERRED TAX ASSET $ -- $ --
============ ============
6. SUBSEQUENT EVENTS
On October 15, 2012, the Company entered into a securities purchase agreement
with BRL Consulting Inc. and Gladys Jenks (collectively, the "Purchasers")
pursuant to which the Purchasers agreed to convert $3,125 of debt owing to them
for 2,500,000 common shares of the Company.
On October 29, 2012, the Company issued to the two Purchasers an amended
convertible debenture (the "Debenture") in the aggregate principal amount of
$250,000. The Debenture is convertible, upon a default into shares of the
Company's common stock equal in number to 50% of the total issued and
outstanding Common Stock of the Company at the time of conversion. The Company
has also agreed to register the shares that may be convertible under the
Debenture. The Debenture matures on the earlier of April 1, 2013 or the 90th day
following the Company's receipt of SEC approval of the Registration statement.
The Debenture shall bear no interest.
Subsequent to year end, the Company issued 480,000 common shares at $0.25 per
share for gross proceeds of $120,000 and 33,269,857 shares at $0.00125 per share
for gross proceeds of $41,587.
29
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL MATTERS
None
ITEM 9A(T). CONTROLS AND PROCEDURES
DISCLOSURE CONTROLS AND PROCEDURES
As required by paragraph (b) of Rules 13a-15 or 15d-15 under the Exchange Act,
our management, with the participation of our principal executive and principal
financial officer, evaluated our company's disclosure controls and procedures
(as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end
of the period covered by this Annual Report on Form 10-K. Disclosure controls
and procedures are controls and other procedures that are designed to ensure
that information required to be disclosed in our company's reports filed or
submitted under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the Securities and Exchange
Commission's rules and forms. Disclosure controls and procedures include
controls and procedures designed to ensure that information required to be
disclosed in our company's reports filed under the Exchange Act is accumulated
and communicated to our principal executive and principal financial officer, as
appropriate, to allow timely decisions regarding required disclosure.
Based on its evaluation, our management concluded that as of the end of the
period covered by this Annual Report on Form 10-K, our disclosure controls and
procedures were not effective.
These deficiencies were as follows:
(1) lack of an outside director on our board of directors and accordingly lack
of a functioning independent audit committee; (2) inadequate internal controls
over purchase of goods and services and related disbursements primarily due to
the inadequate segregation of duties inherent in a small company with a small
staff; (3) insufficient written policies and procedures for accounting and
financial reporting with respect to the requirements and application of both US
GAAP and SEC guidelines; and, (4) non-existence of either a written code of
ethics or a whistle-blower policy.
MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING.
Our Company's management is responsible for establishing and maintaining
adequate internal control over financial reporting (as defined in Rules
13a-15(f) and 15d-15(f) of the Exchange Act) for our company. Our Company's
internal control over financial reporting is designed to provide reasonable
assurance, not absolute assurance, regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles in the United States of
America. Internal control over financial reporting includes those policies and
procedures that: (i) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of our
company's assets; (ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles in the United States of
America, and that our Company's receipts and expenditures are being made only in
accordance with authorizations of our management and directors; and (iii)
provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of our assets that could have a
material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. In addition, projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions and that the
degree of compliance with the policies or procedures may deteriorate.
30
Our Management, including our principal executive officer and principal
financial officer, conducted an evaluation of the design and operation of our
internal control over financial reporting as of August 31, 2012 based on the
criteria set forth in Internal Control - Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission. The objectives
of internal control include providing management with reasonable, but not
absolute, assurance that assets are safeguarded against loss from unauthorized
use or disposition, and that transactions are executed in accordance with
management's authorization and recorded properly to permit the preparation of
the consolidated financial statements in conformity with accounting principles
generally accepted in the United States. Our management has concluded that, as
of August 31, 2012, our internal control over financial reporting is effective.
Our management reviewed the results of their assessment with our Board of
Directors.
This report does not include an attestation report of our registered public
accounting firm regarding internal control over financial reporting.
Management's report was not subject to attestation by our company's registered
public accounting firm pursuant to temporary rules of the SEC that permit our
company to provide only management's report in this Annual Report on Form 10-K.
INHERENT LIMITATIONS ON EFFECTIVENESS OF CONTROLS
Internal control over financial reporting has inherent limitations which include
but is not limited to the use of independent professionals for advice and
guidance, interpretation of existing and/or changing rules and principles,
segregation of management duties, scale of organization, and personnel factors.
Internal control over financial reporting is a process which involves human
diligence and compliance and is subject to lapses in judgment and breakdowns
resulting from human failures. Internal control over financial reporting also
can be circumvented by collusion or improper management override. Because of its
inherent limitations, internal control over financial reporting may not prevent
or detect misstatements on a timely basis, however these inherent limitations
are known features of the financial reporting process and it is possible to
design into the process safeguards to reduce, though not eliminate, this risk.
Therefore, even those systems determined to be effective can provide only
reasonable assurance with respect to financial statement preparation and
presentation. Projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate because of changes
in conditions, or that the degree of compliance with the policies or procedures
may deteriorate.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There have been no changes in our internal controls over financial reporting
that occurred during the year ended August 31, 2012 that have materially or are
reasonably likely to materially affect, our internal controls over financial
reporting.
CERTIFICATES
Certificates with respect to disclosure controls and procedures and internal
control over financial reporting under Rules 13a-14(a) or 15d-14(a) of the
Exchange Act are attached to this Annual Report on Form 10-K.
ITEM 9B. OTHER INFORMATION
Effective December 15, 2011, Peter Jenks resigned as our President, Chief
Executive Officer, Chief Financial Officer, Secretary and Director. As a result
of the resignation, we appointed Steve Cook as our new President, Chief
Executive Officer, Chief Financial Officer, Secretary and to the board of
directors.
Effective October 1, 2012, Steve Cook resigned as our President, Chief Executive
Officer, Chief Financial Officer, Secretary and Director. As a result of the
resignation, we appointed Dallas Gray as our new President, Chief Executive
Officer, Chief Financial Officer, Secretary and to the board of directors.
Dallas Gray is now our sole officer and director.
31
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
As at the date of this report, our directors and executive officers, their ages,
positions held, and duration of such, are as follows:
All directors of our Company hold office until the next annual meeting of the
Shareholders or until their successors have been elected and qualified. The
executive officers of our company are appointed by our board of directors and
hold office until their death, resignation or removal from office. Our
directors, executive officers and the executive officers of our operating
subsidiaries, as well as the positions held, age and duration of appointment for
such persons are as follows:
DIRECTORS AND OFFICERS
Date First Elected
Name Position Held with our Company Age or Appointed
---- ------------------------------ --- ------------
Dallas Gray President, Secretary, Treasurer and sole Director 42 October 1, 2012
SIGNIFICANT EMPLOYEES
Name Position Held with our Company Age Date Appointed
---- ------------------------------ --- --------------
Dallas Gray Chief Executive Officer 42 October 1, 2012
FAMILY RELATIONSHIPS
There are no family relationships between any director, executive officer, or
person nominated or chosen by us to become a director or executive officer.
BUSINESS EXPERIENCE
The following is a brief account of the education and business experience of our
directors and executive officers during at least the past five years, indicating
their business experience, principal occupations during the period, and the
names and principal businesses of the organizations by which they were employed.
DALLAS GRAY, DIRECTOR, PRESIDENT AND CHIEF EXECUTIVE OFFICER
Mr. Gray has been our President and CEO since October 1, 2012. He has over 20
years' experience in the management of radio stations. From 2006, Mr. Gray has
acted as Retail Sales and/or General Manager of various Kelowna radio stations,
including his current position of General Manager of NewCap Inc., a private
company which owns certain radio stations in the interior of British Columbia.
Mr. Gray was a director of Sun Country Radio Ltd. (Private Company) from 2008 to
2012, a current director of the Downtown Kelowna Association (Non-profit) since
2010 and was also appointed president in 2012 and a director of the BC
Association of Broadcasters (Non- profit) since 2012. Mr. Gray is Co-Chair - 66
th Annual Conference May, 2013.
Mr. Gray obtained a Business Administration degree at Okanagan University
College.
INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
Our directors, executive officers and control persons have not been involved in
any of the following events during the past five years:
32
1. any Federal bankruptcy or state insolvency petition filed by or
against any business or property of which such person was a general
partner or executive officer either at the time of the bankruptcy or
within two years prior to that time;
2. any conviction in a criminal proceeding or being subject to a pending
criminal proceeding (excluding traffic violations and other minor
offenses);
3. being subject to any order, judgment, or decree, not subsequently
reversed, suspended or vacated, of any court of competent
jurisdiction, permanently or temporarily enjoining, barring,
suspending or otherwise limiting his involvement in any type of
business, securities or banking activities;
4. being the subject of any order, judgment or decree, not subsequently
reversed, suspended or vacated, of any Federal or State authority
barring, suspending or otherwise limiting for more than 60 days the
right of such person to engage in any activity described in paragraph
(f)(3)(i) of this section, or to be associated with persons engaged in
any such activity;
5. being found by a court of competent jurisdiction in a civil action or
by the Commission to have violated any Federal or State securities
law, and the judgment in such civil action or finding by the
Commission has not been subsequently reversed, suspended, or vacated;
or
6. being found by a court of competent jurisdiction (in a civil action),
the Securities and Exchange Commission or the Commodity Futures
Trading Commission to have violated a federal or state securities or
commodities law, and the judgment has not been reversed, suspended, or
vacated.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires our executive officers and directors
and persons who own more than 10% of a registered class of our equity securities
to file with the SEC initial statements of beneficial ownership, reports of
changes in ownership and annual reports concerning their ownership of our common
stock and other equity securities, on Forms 3, 4 and 5 respectively. Executive
officers, directors and greater than 10% shareholders are required by the SEC
regulations to furnish us with copies of all Section 16(a) reports that they
file.
Based solely on our review of the copies of such forms received by us, or
written representations from certain reporting persons, we believe that all
filing requirements applicable to our officers, directors and greater than 10%
beneficial owners were complied with, with the exception of the following:
Number of
Transactions Not
Number of Late Reported on a Failure to File
Name Reports Timely Basis Requested Forms
---- ------- ------------ ---------------
Nil Nil Nil Nil
CODE OF ETHICS
We have not yet adopted a Code of Ethics but intend to do so in the near future.
CORPORATE GOVERNANCE
Dallas Gray is our sole director and officer. He is not independent as the term
is used in Item 7(d)(3)(iv) of Schedule 14A under the SECURITIES EXCHANGE ACT OF
1934, AS AMENDED. We do not have a standing Nominating, Compensation or Audit
Committee.
NOMINATING COMMITTEE
We do not have standing nominating or compensation committees, or committees
performing similar functions. Our board of directors believe that it is not
necessary to have a standing compensation committee at this time because the
functions of such committee are adequately performed by our board of directors.
33
Our board of directors also is of the view that it is appropriate for us not to
have a standing nominating committee because our board of directors has
performed and will perform adequately the functions of a nominating committee.
Our board of directors has not adopted a charter for the nomination committee.
There has not been any defined policy or procedure requirements for stockholders
to submit recommendations or nomination for directors. Our board of directors
does not believe that a defined policy with regard to the consideration of
candidates recommended by stockholders is necessary at this time because we
believe that, given the early stages of our development, a specific nominating
policy would be premature and of little assistance until our business operations
are at a more advanced level. There are no specific, minimum qualifications that
our board of directors believes must be met by a candidate recommended by our
board of directors. The process of identifying and evaluating nominees for
director typically begins with our board of directors soliciting professional
firms with whom we have an existing business relationship, such as law firms,
accounting firms or financial advisory firms, for suitable candidates to serve
as directors. It is followed by our board of directors' review of the
candidates' resumes and interview of candidates. Based on the information
gathered, our board of directors then makes a decision on whether to recommend
the candidates as nominees for director. We do not pay any fee to any third
party or parties to identify or evaluate or assist in identifying or evaluating
potential nominee.
A shareholder who wishes to recommend nominees to our board of directors may do
so in writing to our President, Dallas Gray, c/o 980 Skeena Drive, Kelowna, BC,
Canada V1V 2K7.
AUDIT COMMITTEE AND AUDIT COMMITTEE FINANCIAL EXPERT
We do not have a standing audit committee at the present time. Our board of
directors has determined that we do not have a board member that qualifies as an
"audit committee financial expert" as defined in Item 407(d)(5)(ii) of
Regulation S-K, nor do we have a board member that qualifies as "independent" as
the term is used in Item 7(d)(3)(iv) of Schedule 14A under the Securities
Exchange Act of 1934, as amended.
We believe that an audit committee, including at least one independent director,
is an important part of the normal process of oversight in the establishment and
monitoring of required internal controls over financial reporting. However, we
believe this would be too costly and burdensome and is not completely warranted
in our circumstances given the early stage of our development; the fact we have
not generated any revenues from operations to date; and funding resources are
limited. In the meantime, we believe our board of directors is capable of
analyzing and evaluating our financial statements and understanding internal
controls and procedures over financial reporting.
OTHER COMMITTEES
All proceedings of our board of directors for the year ended August 31, 2012
were conducted by resolutions consented to in writing by our directors and filed
with the minutes of the proceedings of the board of directors. Our company
currently does not have nominating, compensation or audit committees or
committees performing similar functions nor does our company have a written
nominating, compensation or audit committee charter. Our board of directors
believes it is not necessary to have such committees for the reasons indicated
above.
Our Company does not have any defined policy or procedural requirements for
shareholders to submit recommendations or nominations for directors. Our
directors believe that, given the stage of our development, a specific
nominating policy would be premature and of little assistance until our business
operations develop to a more advanced level. Our company does not currently have
any specific or minimum criteria for the election of nominees to the Board of
Directors and we do not have any specific process or procedure for evaluating
such nominees. Our board of directors will assess all candidates, whether
submitted by management or shareholders, and make recommendations for election
or appointment.
A shareholder who wishes to communicate with our board of directors may do so by
directing a written request addressed to our President, Dallas Gray, c/o 980
Skeena Drive, Kelowna, BC, Canada V1V 2K7.
34
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION
The particulars of compensation paid to the following persons:
(a) our principal executive officer;
(b) each of our two most highly compensated executive officers who were serving
as executive officers at the end of the years ended August 31, 2012 and 2011;
and (c) up to two additional individuals for whom disclosure would have been
provided under (b) but for the fact that the individual was not serving as our
executive officer at the end of the most recently completed financial year, who
we will collectively refer to as the named executive officers, for our year
ended August 31, 2012, are set out in the following summary compensation table:
Non-Equity Nonqualified
Name and Incentive Deferred
Principal Stock Option Plan Compensation All Other
Position Year Salary($) Bonus($) Awards($) Awards($) Compensation($) Earnings($) Compensation($) Totals($)
-------- ---- --------- -------- --------- --------- --------------- ----------- --------------- ---------
Steve Cook(1) 2012 Nil Nil Nil Nil Nil Nil Nil Nil
President,CEO
Secretary, Treasurer
Peter Jenks(1) 2011 Nil Nil Nil Nil Nil Nil Nil Nil
President,CEO
Secretary, Treasurer
Dallas Gray 2012 Nil Nil Nil Nil Nil Nil Nil Nil
President, CEO
Secretary, Treasurer
----------
1. No longer an officer or director of the Company.
There are no arrangements or plans in which we provide pension, retirement or
similar benefits for directors or executive officers. Our directors and
executive officers may receive stock options at the discretion of our board of
directors in the future. We do not have any material bonus or profit sharing
plans pursuant to which cash or non-cash compensation is or may be paid to our
directors or executive officers, except that stock options may be granted at the
discretion of our board of directors from time to time. We have no plans or
arrangements in respect of remuneration received or that may be received by our
executive officers to compensate such officers in the event of termination of
employment (as a result of resignation, retirement, change of control) or a
change of responsibilities following a change of control.
EMPLOYMENT CONTRACTS
We are not party to any employment contracts with our directors and officers.
DIRECTOR COMPENSATION POLICY
Directors of our Company may be paid for their expenses incurred in attending
each meeting of the directors. In addition to expenses, directors may be paid a
sum for attending each meeting of the directors or may receive a stated salary
as director. No payment precludes any director from serving our company in any
other capacity and being compensated for such service. During the year ended
August 31, 2012, we did not pay any compensation or grant any stock options to
our directors.
DIRECTOR INDEPENDENCE
Under NASDAQ Marketplace Rule 5605(a)(2), a director is not considered to be
independent if he is also an executive officer or employee of the company.
Dallas Gray, our sole director, is not independent as he is also an officer.
35
Fees Non-Equity Nonqualified
Earned Incentive Deferred
Paid in Stock Option Plan Compensation All Other
Name Cash($) Awards($) Awards($) Compensation($) Earnings($) Compensation($) Total($)
---- ------- --------- --------- --------------- ----------- --------------- --------
Steve Cook Nil Nil Nil Nil Nil Nil Nil
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
As at August 31, 2012, we had not adopted any equity compensation plan and no
stock, options, or other equity securities were awarded to our executive
officers except as listed below.
Option Awards Stock Awards
----------------------------------------------------------------- -------------------------------------------------
Equity
Incentive
Equity Plan
Incentive Awards:
Plan Market or
Awards: Payout
Equity Number of Value of
Incentive Number Unearned Unearned
Plan Awards; of Market Shares, Shares,
Number of Number of Number of Shares Value of Units or Units or
Securities Securities Securities or Units Shares or Other Other
Underlying Underlying Underlying of Stock Units of Rights Rights
Unexercised Unexercised Unexercised Option Option That Stock That That That
Options Options Unearned Exercise Expiration Have Not Have Not Have Not Have Not
Name Exercisable(#) Unexercisable(#) Options(#) Price($) Date Vested(#) Vested($) Vested(#) Vested(#)
---- -------------- ---------------- ---------- ----- ---- --------- --------- --------- ---------
N/A Nil Nil Nil Nil Nil Nil Nil Nil Nil
OPTION EXERCISES AND STOCK VESTED TABLE.
Not applicable.
RE-PRICING OF OPTIONS/SARS
None.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
We have not adopted a stock option plan and have not granted any stock options.
EQUITY COMPENSATION PLAN INFORMATION
Number of Securities
Number of Securities to be Remaining Available for
Issued Upon Exercise of Weighted-Average Exercise Future Issuance Under
Outstanding Options, Price of Outstanding Options, Equity Compensation Plans
Warrants and Rights Warrants and Rights (excluding column (a))
Plan Category (a) (b) (c)
------------- ------------------- ------------------- -------------------------
Equity Compensation Plans Nil Nil Nil
Approved by Security
Holders
Equity Compensation Plans Not Nil Nil Nil
Approved by Security Holders
Total Nil Nil Nil
36
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Title of Name and address of Amount and nature of Percent of
class beneficial owner beneficial ownership class (1)
----- ---------------- -------------------- ---------
common Monaco Capital Inc. 100,000 direct 0.29%
stock 7 New Road, Second Floor #6
Belize City, Belize
SECURITY OWNERSHIP OF MANAGEMENT
Title of Name and address of Amount and nature of Percent of
class beneficial owner beneficial ownership class (1)
----- ---------------- -------------------- ---------
common Dallas Gray 15,000,000 direct 44.8%
stock
----------
1. Percentage of ownership is based on 33,941,993 common shares issued and
outstanding as of November 26, 2012.
In the following tables, we have determined the number and percentage of shares
beneficially owned in accordance with Rule 13d-3 of the Exchange Act based on
information provided to us by our controlling shareholder, executive officers
and directors, and this information does not necessarily indicate beneficial
ownership for any other purpose. In determining the number of shares of our
common stock beneficially owned by a person and the percentage ownership of that
person, we include any shares as to which the person has sole or shared voting
power or investment power, as well as any shares subject to warrants or options
held by that person that are currently exercisable or exercisable within 60
days.
CHANGES IN CONTROL
Pursuant to the terms of a private placement subscription agreement dated
October 20, 2012 between our company and Dallas Gray, the investor purchased a
total of 15,000,000 shares of common stock from us on November 9, 2012. The
purchase price of the shares was US $18,750, which was paid in cash and by the
personal funds of Mr. Gray. Dallas Gray owns 15,000,000 shares of our company or
44.8% of our issued and outstanding stock.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
TRANSACTIONS WITH RELATED PERSONS
None of the following parties has, since our date of incorporation, had any
material interest, direct or indirect, in any transaction with us or in any
presently proposed transaction that has or will materially affect us, other than
as noted in this section:
(i) Any of our directors or officers;
(ii) Any person proposed as a nominee for election as a director;
(iii)Any person who beneficially owns, directly or indirectly, shares
carrying more than 5% of the voting rights attached to our outstanding
shares of common stock;
(iv) Any of our promoters; and
(v) Any member of the immediate family (including spouse, parents,
children, siblings and in- laws) of any of the foregoing persons.
PENSION, RETIREMENT OR SIMILAR BENEFIT PLANS
There are no arrangements or plans in which we provide pension, retirement or
similar benefits for directors or executive officers. We have no material bonus
or profit sharing plans pursuant to which cash or non-cash compensation is or
37
may be paid to our directors or executive officers, except that stock options
may be granted at the discretion of the Board of Directors or a committee
thereof.
We have no plans or arrangements in respect of remuneration received or that may
be received by our executive officers to compensate such officers in the event
of termination of employment (as a result of resignation, retirement, change of
control) or a change of responsibilities following a change of control, where
the value of such compensation exceeds $60,000 per executive officer.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
AUDIT FEES
For the years ended August 31, 2012 and 2011, the aggregate fees billed by Dale
Matheson Carr-Hilton Labonte LLP for professional services rendered for the
quarterly reviews and annual audit of our consolidated financial statements
included in our quarterly reports on Form 10Q and our annual report on Form 10-K
were:
Year Ended Year Ended
August 31, 2012 August 31, 2011
--------------- ---------------
Audit Fees and Audit Related Fees $ 3,500 $13,500
Income Tax Fees $ 0 $ 2,000
All Other Fees $ 0 $ 4,500
Total
POLICY ON PRE-APPROVAL BY AUDIT COMMITTEE OF SERVICES PERFORMED BY INDEPENDENT
AUDITORS
We do not use Dale Matheson for financial information system design and
implementation. These services, which include designing or implementing a system
that aggregates source data underlying the financial statements or generates
information that is significant to our financial statements, are provided
internally or by other service providers. We do not engage Dale Matheson to
provide compliance outsourcing services.
Effective May 6, 2003, the Securities and Exchange Commission adopted rules that
require that before Dale Matheson is engaged by us to render any auditing or
permitted non-audit related service, the engagement be:
* approved by our audit committee (which consists of our entire board of
directors); or
* entered into pursuant to pre-approval policies and procedures
established by the board of directors, provided the policies and
procedures are detailed as to the particular service, the board of
directors is informed of each service, and such policies and
procedures do not include delegation of the board of directors'
responsibilities to management.
The board of directors pre-approves all services provided by our independent
auditors. All of the above services and fees were reviewed and approved by the
board of directors either before or after the respective services were rendered.
The board of directors has considered the nature and amount of fees billed by
Dale Matheson and believes that the provision of services for activities
unrelated to the audit is compatible with maintaining Dale Matheson's
independence.
38
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
Exhibits required by Item 601 of Regulation S-K:
Exhibit
No. Description
------- -----------
(3) ARTICLES OF INCORPORATION AND BY-LAWS
3.1 Articles of Incorporation (attached as an exhibit to our Registration
Statement on Form SB-2, filed on November 2, 2005)
3.2 Bylaws (attached as an exhibit to our Registration Statement on Form
SB-2, filed on November 2, 2005)
3.3 Articles of Merger (attached as an exhibit to our current report on
Form 8-K filed on June 28, 2006)
3.4 Certificate of Change (attached as an exhibit to our current report on
Form 8-K filed on June 28, 2006)
3.5 Certificate of Change (attached as an exhibit to our current report on
Form 8-K filed on July 7, 2007)
3.6 Articles of Merger (attached as an exhibit to our current report on
Form 8-K filed on July 7, 2007)
3.7 Articles of Merger (attached as an exhibit to our annual report on
Form 10-KSB filed on December 14, 2007)
(4) INSTRUMENTS DEFINING RIGHTS OF SECURITY HOLDERS, INCLUDING INDENTURES
4.1 Specimen ordinary share certificate (attached as an exhibit to our
Registration Statement on Form SB-2, filed on November 2, 2005)
(10) MATERIAL CONTRACTS
10.1 Form of Subscription Agreement (attached as an exhibit to our current
report on Form 8-K filed on September 26, 2006)
10.2 Promissory Note (attached as an exhibit to our current report on Form
8-K filed on October 3, 2006)
10.3 Lease Agreement (attached as an exhibit to our current report on Form
8-K filed on November 29, 2006)
10.4 Form of Subscription Agreement (attached as an exhibit to our current
report on Form 8-K filed on November 29, 2006)
10.5 Share Exchange Agreement (attached as an exhibit to our current report
on Form 8-K filed on November 29, 2006)
10.6 Share Issuance Agreement with Global (attached as an exhibit to our
current report on Form 8- K filed on May 15, 2007)
10.7 Letter of Intent (attached as an exhibit to our current report on Form
8-K filed on May 17, 2007)
10.8 Private Placement Subscription Agreement (attached as an exhibit to
our current report on Form 8-K filed on May 23, 2007)
39
10.9 Office Lease and Services Agreement (attached as an exhibit to our
quarterly report on Form 10- QSB filed on July 16, 2007)
10.10 Assignment Agreement between Power Energy Enterprises SA and Lusora
Healthcare Systems Inc. (attached as an exhibit to our current report
on Form 8-K filed on September 4, 2007)
10.11 Farmout Agreement between Coastal Petroleum Company and Lusora
Healthcare Systems Inc. (attached as an exhibit to our current report
on Form 8-K filed on September 4, 2007)
10.12 Private Placement Subscription Agreement (attached as an exhibit to
our current report on Form 8-K filed on October 16, 2007)
10.13 Warrant Certificate (attached as an exhibit to our current report on
Form 8-K filed on October 16, 2007)
10.14 Private Placement Subscription Agreement (attached as an exhibit to
our current report on Form 8-K filed on November 11, 2007)
10.15 Warrant Certificate (attached as an exhibit to our current report on
Form 8-K filed on November 11, 2007)
10.16 Memorandum of Understanding with Coastal Petroleum, dated November 29,
2007, signed December 4 (attached as an exhibit to our current report
on Form 8-K filed on December 11, 2007)
10.17 Letter from Western Standard Energy Corp. to Coastal Petroleum
Company, dated November 28, 2007 (attached as an exhibit to our
current report on Form 8-K filed on December 11, 2007)
10.18 Assignment Agreement between Coastal Petroleum Company and Western
Standard Energy Corp., dated November 7, 2007 (attached as an exhibit
to our current report on Form 8-K filed on December 11, 2007)
10.19 Farmout Agreement between Oil For America and Western Standard Energy
Corp., dated November 9, 2007 (attached as an exhibit to our current
report on Form 8-K filed on December 11, 2007)
10.20 Assignment Agreement between Oil For America and Western Standard
Energy Corp., dated November 7, 2007 (attached as an exhibit to our
current report on Form 8-K filed on December 11, 2007)
10.21 Farmout Agreement between Coastal Petroleum Company and Western
Standard Energy Corp., dated December 11, 2007 (attached as an exhibit
to our annual report on Form 10-KSB filed on December 14, 2007)
10.22 Assignment Agreement between Coastal Petroleum Company and Western
Standard Energy Corp., dated December 12, 2007 (attached as an exhibit
to our annual report on Form 10-KSB filed on December 14, 2007)
10.23 Form of Subscription Agreement dated December 24, 2007 (attached as an
exhibit to our quarterly report on Form 10-QSB filed on February 4,
2008)
10.24 Memorandum of Understanding dated January 24, 2008 between Western
Standard Energy Corp. and F Cross Resources, LLC (attached as an
exhibit to our quarterly report on Form 10-QSB filed on February 4,
2008)
40
10.25 Memorandum of Intent with Oil For America dated April 17, 2008
(attached as an exhibit to our current report on Form 8-K filed on
April 21, 2008)
10.26 Share Issuance Agreement dated May 6, 2008 with Infinity Energy
Investments Limited (attached as an exhibit to our current report on
Form 8-K filed on May 8, 2008)
10.27 Memorandum of Intent dated May 6, 2008 with Oil for America (attached
as an exhibit to our quarterly report on Form 10-QSB filed on July 15,
2008)
10.28 Letter of Intent with East Dickinson Oil and Gas Co. dated October 31,
2008 (attached as an exhibit to our current report on Form 8-K filed
on November 10, 2008)
10.29 Assignment Agreement with East Dickinson Oil and Gas Co., dated
November 3, 2008 (attached as an exhibit to our annual report on Form
10-K filed on December 15, 2008)
10.30 Assignment Agreement with Stark County Oil & Gas Co., dated November
3, 2008 (attached as an exhibit to our annual report on Form 10-K
filed on December 15, 2008)
10.31 Assignment Agreement with East Dickinson Oil & Gas Co., dated
September 18, 2009 (attached as an exhibit to our annual report on
Form 10-K filed on December 14, 2009)
10.32 Assignment Agreement with Oil For America LLC., dated November 15,
2009 (attached as an exhibit to our annual report on Form 10-K filed
on December 14, 2009)
10.33 Loan Agreement dated December 22, 2009 (attached as an exhibit to our
current report on Form 8-K filed on December 29, 2009)
(31) SECTION 302 CERTIFICATION
31.1 Certification Statement pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
(32) SECTION 906 CERTIFICATION
32.1 Certification Statement pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act Of 2002
99.1 Great Northern Gas Company - Starbuck East Prospect Valley Co.,
Montana Geological Report dated February 2, 2005 (attached as an
exhibit to our current report on Form 8-K filed on May 15, 2008)
99.2 Letter from Richard Robertson dated September 25, 2007 verifying the
contents of the February 2, 2005 Geological Report (attached as an
exhibit to our current report on Form 8-K filed on May 15, 2008)
101 Interactive Data Files pursuant to Rule 405 of Regulation S-T.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
WESTERN STANDARD ENERGY CORP.
By: /s/ Dallas Gray
--------------------------------------------------------
Dallas Gray
President, CEO, CFO, Secretary, Treasurer and Director
Principal Executive Officer, Principal Financial Officer
and Principal Accounting Officer
Dated: November 26, 2012
42