Registration Number:
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Amendment No.1
FORM SB-2/A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
WILON RESOURCES, INC.
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(Name of small business
issuer in its charter)
Tennessee 1311 62-1757285
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(State of incorporation (Primary Standard Industrial (I.R.S. Employer
or jurisdiction Classification Code Number) Identification No.)
of organization)
931 Ashland Terrace, Chattanooga Tennessee 37415 (800) 509-8853
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(Address and telephone number of principal executive offices)
931 Ashland Terrace, Chattanooga Tennessee 37415 (800) 509-8853
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(Address of principal place of business or intended principal place of business)
Harry Thompson, 931 Ashland Terrace, Chattanooga Tennessee 37415 (800) 509-8853
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(Name, address, and telephone number of agent for service)
Copies to:
Louis M. Smith, Esq.
4306 Talahi Way
Louisville, Kentucky 40207
Phone: (502) 744-6093
Fax: (502) 893-9622
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: From time to time after
the effective date of the registration statement until such time that all of the
shares of common stock registered hereunder have been sold.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. /x/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. / /
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CALCULATION OF REGISTRATION FEE
Proposed Proposed
Title of Maximum Maximum
Each Class of Amount Offering Aggregate Amount of
Securities Being Being Price Per Offering Registration
Registered Registered Unit (1) Price(1) Fee
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Shares of common stock 1,879,000 $ 0.60 $ 939,500 $103.73
owned by existing
stockholders
Resale of Shares of Common
Stock Underlying Warrants 2,000,000 0.60 1,200,000 110.40
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TOTAL $2,139,500 $214.13
(1) Estimated solely for the purposes of computing the registration fee
pursuant to Rule 457.
(2) Pursuant to Rule 416 there are also registered hereby such additional
number of shares as may become issuable by reason of the anti-dilution
provisions of the warrants. These additional shares are not issuable by
reason of the anti-dilution provisions of other derivative securities we
may issue in the future.
The registrant hereby amends the registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that the registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the registration statement
shall become effective on such date as the Securities and Exchange Commission,
acting pursuant to said Section 8(a), may determine.
The information in this prospectus is not complete and may be changed.
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these securities may not be sold until the registration statement filed with the
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securities and exchange commission is effective. This prospectus is not an offer
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to sell, nor does it seek an offer to buy, these securities in any state where
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the offer or sale is not permitted.
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Subject to completion: Dated November 10, 2003
PROSPECTUS
WILON RESOURCES, INC.
3,879,000 SHARES OF COMMON STOCK
This prospectus relates to the resale by selling stockholders of 1,879,000
shares of our common stock to be owned by seller stockholders upon the closing
of the merger of Wilon Energy Group, Inc. into our company, and the resale by
Colebrook, Inc. of the 2,000,000 shares of our common stock underlying our
common stock purchase warrants which it owns. The offering will expire two years
from the effective date of the registration statement of which the prospectus is
a part. None of our securities trades on any securities market. Selling
stockholders must sell their shares at $.60 per share until a securities market
quotes the shares. Thereafter, selling stockholders, who are not affiliates, may
sell their shares at market prices or at privately negotiated prices. Selling
stockholders who are affiliates must sell their shares at $.60 per share for the
duration of the offering. We will not receive any of the proceeds from the sale
of the shares by the selling stockholders. We have not retained any underwriter
in connection with the sale of our securities. We intend to pay, on behalf of
the selling stockholders, the expenses of the offering which we estimate at
$35,000.
Of the shares registered:
o 1,879,000 are currently outstanding, and
o 2,000,000 shares are issuable upon the exercise of warrants.
The warrants are exercisable at $.60 from the date our common stock
commences to trade publicly for a period of six months.
Colebrook may use this prospectus in connection with resales of up to
2,000,000 shares of our common stock underlying the warrants.
As you review the prospectus, you should carefully consider the matters
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described in "Risk Factors" beginning on page 4.
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Neither the Securities and Exchange Commission nor any state securities
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commission has approved or disapproved of these securities or passed on the
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accuracy or adequacy of the prospectus. Any representation to the contrary is a
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criminal offense.
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The date of this prospectus is November 10, 2003.
////PAGES SUBJECT TO CONFIRMATION////
TABLE OF CONTENTS
PAGE
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Prospectus Summary..................................................... 3
The Offering........................................................... 3
Summary Financial Information.......................................... 4
Risk Factors........................................................... 5
Capitalization......................................................... 8
Dividend Policy........................................................ 9
Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................ 9
Our Business........................................................... 14
Management............................................................. 22
Certain Related Party Transactions..................................... 25
Principal Stockholders................................................. 26
Description of Securities.............................................. 27
Selling Stockholders................................................... 29
Plan of Distribution of Shares of Existing Stockholders ............... 31
Colebrook's Plan of Distribution....................................... 35
Shares Eligible for Future Sale........................................ 27
Where You Can Find More Information.................................... 38
Legal Proceedings...................................................... 38
Legal Matters......................x.................................... 38
Experts................................................................ 38
Financial Statements................................................... F-1
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You may rely only on the information contained in this prospectus. We have
not authorized anyone to provide information different from that contained in
this prospectus. Neither the delivery of this prospectus nor sale of common
stock means that information contained in this prospectus is correct after the
date of this prospectus. This prospectus is not an offer to sell or solicitation
of an offer to buy these shares of common stock in any circumstances under which
the offer or solicitation is unlawful.
2
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information in the prospectus including our financial statements and notes to
those statements appearing elsewhere in the prospectus. The prospectus contains
forward-looking statements based on current expectations of our company and our
industry. These forward-looking statements involve risks and uncertainties. Our
actual results could differ materially from those anticipated in these
forward-looking statements as a result of the factors described in the "Risk
Factors" section and elsewhere in the prospectus.
We are an independent natural gas and oil company engaged in exploration,
development and production activities in the Appalachian Basin, particularly in
Wayne County, West Virginia and Magoffin County, Kentucky. Our business strategy
focuses primarily on the acquisition of proved developed and undeveloped
properties and on the enhancement and development of these properties. We
operate gas wells in which we own the entire or part of the working interest and
also own and operate gas transmission lines in Wayne County, West Virginia which
gather natural gas from our wells. We also lease 1,000 acres in Magoffin County,
Kentucky adjacent to two wells which we have completed and which are producing.
We were formed under the laws of Tennessee in October, 1998. On November
10, 2003, Wilon Energy Group, Inc. entered into a merger agreement with us under
which we will be the surviving company. All shares issued to stockholders of
Wilon Energy Group, Inc. will become shares of our common stock on a 1:1 basis.
Closing of the merger agreement is set on or as soon as possible after the
effective date of the registration statement of which the prospectus is a part.
In the event the registration statement of which the prospectus is a part is not
effective on or before December 31, 2003, either we or Wilon Energy Group, Inc.
may rescind the merger.
We are registering the resale of 1,879,000 shares of our common stock owned
by persons who will become stockholders upon closing of the merger with Wilon
Energy Group, Inc. Selling stockholders may sell their shares at $.60 per share
until a securities market quotes the shares. Thereafter, selling stockholders,
who are not affiliates, must sell their shares at market prices or at privately
negotiated prices. Selling stockholders who are affiliates must sell their
shares at $.60 per share for the duration of the offering.
We are also registering resale of the shares underlying the warrants
purchased by Colebrook. On November 10, 2003, Colebrook purchased 2,000,000
warrants for an aggregate purchase price of $1,000. The warrants are exercisable
at $.60 per warrant for six months from the date our common stock commences
trading on a securities market.
Our executive officers are located at 931 Ashland Terrace, Chattanooga
Tennessee 37415; and our telephone number at that address is (800) 509-8853.
THE OFFERING
Common stock outstanding.......... 12,279,000 shares
Shares offered by the selling
stockholders who are holders
of their shares as of the date
of the prospectus.............. 1,879,000 shares of common stock
Warrants outstanding.............. 2,000,000 warrants
Shares to be offered by Colebrook
Upon exercise of warrants....... 2,000,000 shares of common stock
Common stock outstanding after
exercise of outstanding warrants. 14,279,000 shares
Use of proceeds................. The selling stockholders will receive the net
proceeds and we will receive none of the pro-
ceeds from the sale of the shares offered by
the prospectus.
3
SUMMARY FINANCIAL INFORMATION
SUMMARY FINANCIAL INFORMATION
The following table sets forth our summary unaudited financial data as of
June 30, 2003 and 2002 and for the years ended September 30, 2002 and 2001.
Statement of Operations
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Unaudited
For the Nine months For the years
ended June 30, ended September 30,
2003 2002 2002 2001
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Revenues:
Gas and drilling program sales $807,120 $345,000 $566,546 $245,142
Royalty income 260,247 739 49,959 0
Sales of interest in gas
producing properties 483 73,600 96,100 337,953
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Total revenues 1,037,850 419,339 712,605 583,095
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Cost of gas and drilling production 196,036 76,849 239,293 145,641
Selling, general and administrative 514,590 253,153 427,875 419,897
Depreciation, depletion and
amortization 23,875 3,325 9,725 9,570
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Total expenses 734,501 333,327 676,893 575,108
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Operating income 303,349 86,012 35,712 7,987
Interest income 0 1,052 1,137 437
Interest (expense) 0 0 (3,419) (3,005)
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Net Income $ 303,349 $87,064 $33,430 $5,419
========= ========== ========== ======
Basic and diluted earnings
per common share $ 0.26 $ 87.06 $33.43 $5.420
========== ========== ========= =======
Weighted average shares outstanding,
basic and diluted 1,156,444 1,000 1,000 1,000
========== ========== ========= =======
4
RISK FACTORS
You should carefully consider the following factors in addition to the
other information in this prospectus, including the financial statements and
related notes, before investing in our common stock. These risk factors are all
those which we believe are material to our business. Risks and uncertainties
that we do not presently know about or that we currently believe are immaterial
may also impair our business. If any of the following risks actually occurs, our
business, financial condition or results of operations will likely suffer.
The prices we receive for our gas are volatile and, in the event of an
extended downturn in prices, will result in a decrease in revenues and an
erosion of our financial condition.
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Our reserves, profitability and future rate of growth are substantially
dependent upon prevailing prices for natural gas. Such prices can be volatile.
Prices are affected by market supply and demand factors, regional pricing
variations, governmental action and weather conditions. Thus, we cannot estimate
future prices for natural gas with any reliability. Almost all our revenues come
and are anticipated to come from the sale of natural gas. Any significant or
extended decline in the prices of natural gas could have a material adverse
effect on our revenues and thus our financial condition.
Any downward change in the Appalachian gas price premium will hurt our revenues.
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Spot prices for natural gas sold from Appalachian wells historically have
been higher than those for gas produced in the Gulf Coast and the Mid-Continent,
because of the geographic proximity to the Northeast gas markets. No assurance
can be given that this price advantage will continue. If the Appalachian gas
price premium decreases or disappears, our revenues would be reduced and profits
could disappear.
Our reserve estimates are uncertain and may prove to be less than
anticipated in which case our ability to generate revenues in the future will be
jeopardized.
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Estimates of our proved reserves and future net revenues are based on
engineering reports prepared by independent petroleum engineers. Natural gas
reserves cannot be measured in an exact way, and estimates of other engineers
might differ materially. Certain events, including production history,
acquisitions and sales of properties, changes in prices and further development
could result in increases or decreases of estimated proved reserves or estimates
of future net earnings. Our estimates of future cash flows reflect average
natural gas and oil prices of $3.00 per 1,000 cubic feet, known as "mcf". There
can be no assurance, however, that such prices will be realized or that the
volumes projected will be produced. Future performance which is lower than the
estimates derived from the engineering reports could reduce our future revenues
and profits.
5
We face risks in acquiring and drilling wells in that they may not produce
as anticipated or which would reduce our revenues and reduce or eliminate our
profits.
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The future success of our operations will be largely dependent upon our
ability to replace and expand our gas and oil reserves through the acquisition
of producing properties and the development of natural gas reserves. Without
successful acquisitions and exploitation, exploration and development
operations, we will not be able to replace the reserves depleted by production,
and our revenues will decline over time. Successful acquisition of producing
properties generally requires, among other things, accurate assessments of
recoverable reserves, future natural gas prices, operating costs and potential
environmental risks and other liabilities. Such assessments are necessarily
inexact and their accuracy is inherently uncertain. Development of our natural
gas reserves involves the risk that no commercial production will be obtained or
that production will be insufficient to recover drilling and completion or
cleaning and reworking costs. Drilling also may be curtailed, delayed or
canceled as a result of many factors, including, among other things,
unacceptably low prices, title problems, weather conditions, labor shortages and
equipment delivery problems.
We may not be able to market our natural gas and thus fail to generate
revenue from gas we are capable of producing from our wells.
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The availability of a ready market for our gas depends on numerous factors
beyond our control, including, among other factors, the demand for and supply of
natural gas, the proximity of our natural gas and oil reserves to pipelines, the
capacity of such pipelines, the cooperation of pipeline owners, general economic
conditions, fluctuations in seasonal demand and the effects of inclement weather
and governmental regulation. In addition, even if we enter into natural gas
purchase arrangements, we may subject to the risk of periodic reduced purchases,
flexible pricing or access to pipelines. Any significant reduction or
curtailment of production for an extended period of time will reduce or our
revenues and reduce or eliminate our profits.
We face operating hazards and environmental risks which could subject us to
litigation or prevent us from producing natural gas from our wells which could
destroy our business.
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We are subject to all risks normally incident to the development,
production and transmission of natural gas, including pipeline leaks,
uncontrollable flows of gas, oil, brine or well fluids into the environment,
fires, explosions, cratering, pollution and other environmental risks. The
occurrence of any of these hazards could, nonetheless, result in substantial
losses due to damage or destruction of gas and oil wells, formations or
production facilities, damage or injury to property and persons or suspension of
operations. We maintain insurance coverage, in amounts and against risks which
we believe to be appropriate, taking into account our size and the scope of our
operations. Our insurance policies, however, have standard exclusions. Losses
can occur from an uninsurable risk or in amounts more than existing insurance
coverage. The occurrence of an event, which is not insured or not fully insured,
would reduce our cash, and our earnings and could destroy our business.
6
As manager of our natural gas well investment programs we may be subject to
liability for failure to perform our obligations with respect to their
operations.
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We have sold interests in wells to investors and intend to do so in the
future. The interests in these programs constitute securities; and we are
subject to potential liability to our investors in these programs, including the
possible return of their investment and damages, for failure to comply with
applicable federal and state securities laws and regulations. We could also be
enjoined from selling additional programs. Such liability could destroy our
business.
Our revenue model may not be successful and our business may decline.
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Our revenue model calls for increased production from existing wells and
production from new wells. It also calls for our ownership of the entire working
interest of the wells we acquire and for the formation of gas well partnerships
and other ventures. We can give no assurance that this revenue model will be
successful. If it is not successful, our plans to expand production will not
come to fruition and our revenues and earnings will decline.
We depend on income from a narrow range of activities so that we cannot
leverage any adverse economic circumstances with revenues from other businesses;
and, as a result, our business could decline.
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We intend to derive our revenue from the purchase and development of gas
wells in Appalachia. We cannot predict our total revenue as that is a function
of the productive capacity of our existing and future wells and the price we
receive for the gas we sell. If revenues from Appalachia gas wells do not
materialize or are not as robust as we predict, our business; and hence our
financial condition would decline.
Our common stock may not be able to trade on the Over-the-Counter Bulletin
Board; or, if inaugurated, the Bulletin Board Exchange, and, if our stock is
unable to trade on either market, our investors may be unable to sell their
shares publicly and, Colebrook, the holder of our warrants, may be unable or
unwilling to exercise them jeopardizing our attempt to fund our operations.
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We intend that our securities trade on the Over-the-Counter Bulletin Board.
However, we can offer no assurance that our securities will so trade and, if
they do trade on the OTCBB, whether an active trading market will be established
or, if established, whether it can be maintained. The National Association of
Securities Dealers, Inc. has announced the formation of a new automated
marketplace, the Bulletin Board Exchange, and the eventual dissolution of the
OTCBB. We can offer no assurance that our securities will be accepted on the
BBX, if established, and, if they do not, our securities may trade on the Pink
Sheets, a non-automated market, with a consequential lack of liquidity. In that
event, our investors may be unable to sell their shares publicly and, Colebrook,
the holder of our warrants may be unable or unwilling to exercise them
jeopardizing our attempt to fund our operations.
7
An active market for our common stock may not develop, making it difficult
for you to sell your stock and preventing us from raising money through our
warrants.
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Prior to the date of the prospectus, there has been no public market for
our common stock. It is uncertain the extent to which a trading market will
develop or how liquid that market might become. An illiquid market for our stock
may result in price volatility and poor execution of buy and sell orders for
investors. The price of our common stock may be lower than the exercise price of
our warrants. Thus, the possibility of funding our ongoing operations will cease
if an active trading market does not develop.
The sale of material amounts of our common stock could reduce the price of
our common stock and encourage short sales.
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If and when Colebrook, our warrantholder, exercises its warrants and sells
the common stock, our common stock price may decrease due to the additional
shares in the market. Stock issuances may encourage short sales, which could
place further downward pressure on the price of our common stock.
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CAPITALIZATION
The following table sets forth our capitalization as of June 30, 2003.
June 30,
2003
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Long-term debt $ 0
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Shareholders' equity:
Preferred stock $.001 par value;
Authorized 10,000,000 shares; issued
And outstanding -0- shares 0
Common stock $.001 par value;
authorized 50,000,000 shares; issued
and outstanding 10,400,000 shares 10,400
Retained earnings 987,373
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Total shareholders' equity 997,773
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Total capitalization $ 1,046,301
=========
8
DIVIDEND POLICY
We have not declared or paid any cash dividends on our capital stock and do
not anticipate paying any cash dividends in the foreseeable future.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview
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The following discussion of our financial condition and results of
operations should be read in conjunction with the financial statements and notes
appearing elsewhere in the prospectus.
It is difficult for us to forecast our revenues or earnings accurately. We
believe that future period-to-period comparisons of our operating results may
not be meaningful and should not be relied upon as an indication of future
performance as we have and will have no backlog of orders. Our operating results
in one or more future quarters may fall below investor expectations which,
assuming our common stock trades on a recognized market, would almost certainly
cause the future trading price of our common stock to decline. You should read
the following discussion together with the consolidated financial statements and
their accompanying notes, included elsewhere in the prospectus.
We are engaged in the acquisition and enhancement of developed natural gas
producing properties and the exploration, development and efficient production
of undeveloped natural gas properties which we own in whole or in part. We
derive our revenues from our own gas production, well operations, gas gathering,
transportation and gas marketing services we provide for third parties who own
interests in wells we operate. We also derive income from the sale of interests
in our gas producing properties.
Critical Accounting Policies and Estimates
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Our results of operations are based on the preparation of financial
statements in conformity with accounting principles generally accepted in the
United States. The preparation of financial statements requires management to
select accounting policies for critical accounting areas as well as estimates
and assumptions that affect the amounts reported in the consolidated financial
statements. Significant changes in assumptions and/or conditions in our critical
accounting policies could materially impact our operating results.
Our significant accounting policies are described in Note A to the
financial statements. We believe our most critical accounting policies include
revenue recognition as it relates to the method of accounting for gas
properties, recognition of income and costs, deferred revenue and accounting for
income taxes.
9
We use the successful efforts method of accounting for gas producing
activities. Under successful efforts, costs to acquire mineral interests in gas
properties, to drill and equip exploratory wells that find proved reserves, and
to drill and equip developmental wells are capitalized. Costs to drill
exploratory wells that do not find proved reserves, costs of developmental wells
on properties the we have no further interest in, geological and geophysical
costs, and costs of carrying and retaining unproved. properties are expensed.
Unproved gas properties that are significant are periodically assessed for
impairment of value and a loss is recognized at the time of impairment by
providing an impairment allowance. Other unproved properties are expensed when
surrendered or expired.
When a property is determined to contain proved reserves, the capitalized
costs of such properties are transferred from unproved properties to proved
properties and are amortized by the unit-of-production method based upon
estimated proved developed reserves. To the extent that capitalized costs of
groups of proved properties having similar characteristics exceed the estimated
future net cash flows, the excess capitalized costs are written down to the
present value of such amounts. Estimated future net cash flows are determined
based primarily upon the estimated future proved reserves related to our current
proved properties and, to a lesser extent, certain future net cash flows related
to operating and related fees due us related to our management of various
partnerships. We follow Statement of Financial Accounting Standards ("SFAS") No.
121 which requires a review for impairment whenever circumstances indicate that
the carrying amount of an asset may not be recoverable. Impairment is recorded
as impaired properties are identified.
On sale or abandonment of an entire interest in an unproved property, gain
or loss is recognized, taking into consideration the amount of any recorded
impairment. If a partial interest in an unproved property is sold, the amount
received is treated as a reduction of the cost of the interest retained. The
carrying cost of unproved properties is not significant.
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
basis. Deferred tax assets and liabilities are measured using enacted tax rates
that will apply in the years in which those temporary differences are expected
to be recovered or settled. The effect on deferred tax assets and liabilities of
a change in tax rates is recognized in income in the period that includes the
enactment date. Since we have Section 29 tax credits in excess of any tax
liability, there are no deferred taxes arising from the timing differences of
the deferred income liability.
10
The following table is a review of the results of our operations for the
fiscal year ended September 30, 2002 and 2001 and nine months ended June 30,
2003 and 2002. All items in the table are calculated as a percentage of total
revenues.
Unaudited
Fiscal Years Ended Nine Months Ended
September 30, June 30,
------------------- ------------------
2002 2001 2003 2002
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Revenues:
Gas and drilling program
Sales 79.5% 42.0% 77.8% 82.2%
Royalty income 7.0% 0.0% 22.1% 0.2%
Sales on Interest in gas producing
Properties 13.5% 58.0% 0.1% 17.6%
------ ------ ----- -----
Total Revenues 100.0% 100.0% 100.0% 100.0%
Expenses:
Gas production and drilling costs 33.6% 25.9% 18.9% 18.3%
General and administrative . 60.0% 72.0% 49.6% 60.4%
Depreciation, depletion and
Amortization 1.4% 1.6% 2.3% 0.8%
Interest (net) 0.3% 0.5% 0.0% 0.0%
Net Income 4.7% 0.9% 29.2% 20.8%
==== ==== ===== ====
The following discussion and analysis reviews our results of operations and
financial condition for the years ended September 30, 2001 and 2002 and for the
nine months ended June 30, 2002 and 2003. This review should be read in
conjunction with the Financial Statements and other financial data presented
elsewhere herein.
COMPARISON OF THE YEARS ENDED SEPTEMBER 30, 2002 AND SEPTEMBER 30, 2001 AND THE
NINE MONTH PERIODS ENDED JUNE 30, 2002 AND 2001.
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The following statement of income shows the results of operations for the
year ended September, 2002 and the comparable year ended September 30, 2001 and
the results of operations for the nine months ended June 30, 2003 and the
comparable three months ended June 30, 2002.
Information presented below and in the following discussion which relates
to the years ended September 30, 2002 and 2001 was derived from audited
financial information.
11
For the years ending September 30,
2002 2001
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Revenues:
Gas and drilling program sales $ 566,546 $ 245,142
Royalty income 49,959 0
Sales of interest in gas
producing properties 96,100 337,953
------- -------
Total revenues 712,605 583,095
------- -------
Cost of gas and drilling production 239,293 145,641
Selling, general and administrative 427,875 419,897
Depreciation, depletion and amortization 9,725 9,570
------- -------
Total expenses 676,893 575,108
------- -------
Operating income 35,712 7,987
Interest income 1,137 437
Interest (expense) (3,419) (3,005)
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Net Income $ 33,430 $ 5,419
Statement of Operations
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Nine months ended June 30,
2003 2002
--------- ---------
Revenues:
Gas and drilling program sales $ 807,120 $ 345,000
Royalty income 230,247 739
Sales of interest in gas
producing properties 483 73,600
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Total revenues 1,037,850 419,339
------- -------
Cost of gas and drilling production 196,036 76,849
Selling, general and administrative 514,590 253,153
Depreciation, depletion and amortization 23,875 3,325
------- -------
Total expenses 734,501 333,327
------- -------
Operating income 142,632 86,012
Interest income 0 1,052
Interest (expense) 0 0
Net Income $ 303,349 $ 87,064
======= =======
12
Revenues
- --------
Revenues from gas and drilling program sales in the year ended September 30,
2002 were $566,546 compared to revenue of $245,142 for the year ended September
30, 2001, an increase of $321,404. There was a $462,120 increase in
revenue for the nine months ended June 30, 2003 of $807,120 as compared to
revenue of $345,000 for the nine months ended June 30, 2002.
Royalty income increased by $49,959 for the year ended September 30, 2002
as compared to $-0- for the year ended September 30, 2001. Royalty income
increased by $229,508 for the nine months ended June 30, 203 as compared to $739
for the nine months ended June 30, 2002.
Sales of interests in gas producing properties decreased $241,853 from
revenues earned through program sales aggregating $96,100 for the year ended
September 30, 2002 as compared to revenue from program sales of $337,953 for the
year ended September 30, 2001. For the nine months ended June 30, 2003, sales of
interests were $483, a decline of $71,117 from sales of $73,600 in the nine
months ended June 30, 2002.
Expenses
- --------
The cost of gas and drilling production increased $119,187 from costs
aggregating $196,036 for the nine months ended June 30, 2003 as compared to
$76,849 for the months ended June 30, 2002.
Selling, general and administrative expenses increased by $7,978 from costs
aggregating $427,875 for the year ended September 30, 2002 as compared to
$419,897 for the year ended September 30, 2001.
Selling, general and administrative expenses increased by $261,437 from
costs aggregating $514,590 for the nine months ended June 30, 2003 as compared
to $253,153 for the nine months ended June 30, 2002.
Depreciation, depletion and amortization increased $155 to $9,725 in the
year ended September 30, 2002 compared to $9,570 in the year ended September 30
2001.
Depreciation, depletion and amortization increased $20,550 to $23,875 for
the nine months ended June 30, 2003 as compared to $3,325 for the nine months
ended June 30, 2002.
Operating income from operations for the year ended September 30, 2002
increased by $27,725 to $35,712 as compared to $7,987 for the year ended
September 30, 2001. The increase in income from operations was primarily due to
a combination of the items discussed above.
13
Operating income from operations for the nine months ended June 30, 2003
increased by $217,337 to $303,349 as compared to $86,012 for the nine months
ended June 30, 2002 The increase in income from operations was primarily due to
a combination of the items discussed above.
Net interest expense decreased by $2,568 to $2,282 for the year ended
September 30, 2002 as compared to $2,568 for the year ended September 30, 2001.
Inflation and Changes in Prices
- -------------------------------
Inflation affects our operating expenses as does interest rates, which may
have an effect on our profitability. Gas prices have not followed inflation and
have fluctuated widely during recent years as a result of other forces such as
OPEC, economic factors, demand for and supply of natural gas in the United
States and within our regional area of operation. Natural gas prices increased
during the year ended September 30, 2002 and for the nine months ended June 30,
2003 due to higher energy consumption during the summer of 2002, a much colder
winter in 2002/2003 and, to some extent, a slight economic recovery in the
United States. As a result of these market forces, we received an average price
of $3.64 per mcf for its natural gas in the year ended September 30, 2002
compared to $3.43 for 2001.
We cannot predict the duration of the current condition of gas markets and
prices, because of the forces noted above, as well as other variables, may
change.
Liquidity and capital resources
- ------------------------------
Our cash position decreased by $6,243 from $6,659 at September 30, 2001 to
$416 at September 30, 2002. We were funded through cash provided from operations
of $58,502 as compared to funding through borrowings of $33,180 for the year
ended September 30, 2001. Our capital expenditures increased by $39,119 from
$9,911 for the year ended September 30, 2001 as compared to $49,030 for the year
ended September 30, 2002. Working capital at decreased by 38,379 from a positive
working capital at September 30, 2001 of $4,510 to a negative $33,869 at
September 30, 2002.
OUR BUSINESS
Brief History of Oil and Gas Operations in Appalachia
- -----------------------------------------------------
According to the West Virginia Geological & Economic Survey, Native
Americans recognized and perhaps used as a fuel source the "burning springs" and
outflows of petroleum on the Little Kanawha, Kanawha, and Big Sandy rivers.
Records show that the early settlers were also aware of the "burning springs"
which were natural gas vents. George Washington visited one such burning spring,
located on the Kanawha River, in 1775.
14
The oil and gas industry in West Virginia began as an outgrowth of the salt
industry. In the early 1800s, saltmakers frequently hit oil or gas in their
drilling, but considered it a nuisance. In fact, so much oil was diverted to the
Kanawha River by salt manufactures that it was long known as "Old Greasy" to the
boatmen. Gas was first struck in a well drilled for salt at Charleston in 1815.
Once the value of oil and gas was realized, the Great Kanawha Valley region
became a pioneer in the discovery of petroleum by boring and in the use of oil
and gas on a commercial scale. By 1826, oil was used for lamps in workshops and
factories. The drilling tools, jars, and casing, first developed for the salt
industry, became essential equipment to the petroleum industry.
On the Little Kanawha River, near the Hughes River, was a stream called
Burning Springs Run, named because there were two springs at its mouth from
which natural gas escaped. As early as 1781, Thomas Jefferson described the
brilliant flame which could be produced by thrusting a lighted candle into the
escaping gas at this site. A salt brine well struck oil at 200 feet and produced
200 barrels of oil per day. The Burning Springs oil field was one of only two
oil fields in America prior to the Civil War.
Area of Operations
- ------------------
Appalachia is surrounded by major natural gas markets in the northeastern
United States. This proximity to a substantial number of large commercial and
industrial gas markets, including natural gas powered electricity plants,
coupled with the relatively stable nature of Appalachian production and the
availability of transportation facilities has resulted in generally higher
wellhead prices for Appalachian natural gas than those prices available in the
Gulf Coast and Mid-continent regions of the United States. Appalachia includes
portions of Ohio, Pennsylvania, New York, West Virginia, Kentucky and Tennessee.
Although Appalachia has sedimentary formations indicating the potential for
deposits of gas and oil reserves to depths of 30,000 feet or more, most
production in the Basin has been from wells drilled to a number of relatively
shallow blanket formations at depths of 1,000 to 7,500 feet. These formations
are generally characterized by long-lived reserves that produce for more than 20
years. Our drilling success rates and of other operators drilling to these
formations historically have exceeded 90%.
Long production life and high drilling success rates to these shallow
formations has resulted in a highly fragmented, extensively drilled, low
technology operating environment in Appalachia. As a result, there has been
limited testing or development of productive and potentially productive
formations at deeper depths. Although our management believes that significant
exploration and development opportunities may exist in these deeper, less
developed formations for those operators with the capital and technical
expertise, we will not engage in drilling to such depths unless as part of a
program in which investors put up substantially all the funds needed.
15
Cautionary Statement Regarding Industry Forecasts
- -------------------------------------------------
Market data and certain industry forecasts used throughout the Prospectus
were obtained from internal surveys, market research, publicly available
information and industry and federal government publications. Industry
publications generally state that the information contained therein has been
obtained from sources believed to be reliable, but that the accuracy and
completeness of such information is not guaranteed. Similarly, internal surveys,
industry forecasts and market research, while believed to be reliable, have not
been independently verified and the Issuer does not make any representation as
to the accuracy of such information.
Projections of Natural Gas Usage and Pricing
- -------------------------------------------
We believe that the market for natural gas will grow in the future due to
four main factors:
o Efficiency. Relative to other energy sources, natural gas losses
during transportation from source to destination are slight, averaging
only about 9% of the natural gas energy.
o Environmentally favorable. Natural gas is the cleanest and most
environmentally safe of the fossil fuels.
o Safety. The delivery of natural gas is among the safest means of
distributing energy to customers, as the natural gas transmission
system is fixed and is located underground.
o Price. The deregulation of the natural gas industry and a favorable
regulatory environment have resulted in end-users' ability to purchase
natural gas on a competitive basis from a greater variety of sources.
The United States Energy Information Administration of the Department of
Energy in its Annual Energy Outlook 2002 with Projections to 2020 predicts that
the price of natural gas is expected to be $3.26 per mcf in 2020.
Total energy consumption is projected to increase from 99.3 to 130.9
quadrillion British thermal units, referred to as BTUs between 2000 and 2020, an
average annual increase of 1.4 percent. In 2020, this forecast is nearly 4
quadrillion Btu higher than in 2001, primarily due to higher projected energy
demand in the commercial and transportation sectors.
Demand for natural gas has increased at an average annual rate of 2%, from
22.8 to 33.8 trillion cubic feet between 2000 and 2020, primarily due to rapid
growth in demand for electricity generation.
16
Our History
- ------------
We were formed under the laws of Tennessee as Wilon Resources, Inc., on
October 1, 1998 to engage in the production of natural gas. From October, 1998
to February, 1999, we entered into 13 leases in Wayne County, West Virginia
which contained a total of 31 producing natural gas wells, a gathering system,
pipelines and meters. The leases, known as the Trace Fork Group, were with a
number nonaffiliated third parties and called for the payment of an annual
acreage fee. In addition, the owners of the mineral rights receive a royalty of
12.5% on revenues after deduction of severance taxes and costs of maintaining
the wells.
Through 1999, we replaced three compressors in the system in order to more
efficiently deliver natural gas and we also reworked all the wells, including
cleaning them out, replacing valves and fittings, replacing tubing, improving
access roads, repairing drainage systems, replacing parts of the gathering
system and repairing and replacing parts of the pipelines. Sales of natural gas
were made to three nonaffiliated companies. Presently, the majority of the wells
on the Wayne County properties are undergoing routine maintenance.
In January, 1999, we purchased 41 natural gas wells in Wayne County, West
Virginia from Myers Drilling Company, Inc. The wells and leases encompass
approximately six thousand acres. Thirty of the wells are presently being
reworked. After the completion of the purchase of the property, we commenced to
place a few of the operating natural gas wells into production. Pipe joints had
to be replaced as the gas pressure exceeded the aggregate limits of the joints.
Most of the wells had to be cleaned out, valves and fittings were replaced,
meters repaired, tubing replaced, gathering system up graded, pipelines repaired
and replaced, and the drainage system improved.
We also acquired an additional 17 natural gas wells in the same area of
operation in September, 1999. These natural gas wells had not been in operation
for a number of years and needed extensive work done to make them operational.
The work included cleaning out, replacing valves and fittings, replacing tubing
and laying of lines for the gathering system to deliver gas to the main
pipeline. The property has an additional 1500 acres of possible production.
Business Strategy
- -----------------
Our business strategy is to increase production, operating margins and cash
flow by
o making acquisitions of natural gas wells or properties that will, in
our management's opinion, add to our operating results and/or
beneficial to our future strategic positioning;
o through the exploration and development of our existing and acquired
acreage base;
o through selling a portion of our future gas production under fixed
price contracts with varying expiration dates, using financial hedging
instruments to realize a target price for a portion of our future gas
production.
o by improving profit margins through operational and technological
efficiencies; and
o through the further expansion of our gas gathering systems.
17
Acquisitions
- ------------
Our acquisition strategy focuses on natural gas wells and leases that can
provide:
o enhanced cash flow,
o additional drilling and development opportunities,
o synergies with our existing properties,
o enhancement potential of current operations, and/or
o economies of scale and cost efficiencies.
Natural Gas Operations, Production and Development.
- ---------------------------------------------------
Operations.
-----------
We contract for services performed on all of the wells in which we hold
working interests. We seek to maximize the value of our natural gas properties
through cleaning and reworking wells, operating cost reductions and equipment
improvements.
Our management travels to well sites on a regular basis and continuously
reviews its properties to identify actions which could reduce operating costs
and improve production.
Development.
- -----------
Our exploration and development activities have primarily involved the
acquisition of proved undeveloped gas properties and the drilling and
development of such properties.
Our Future Development Plans.
- -----------------------------
Drilling New Natural Gas Wells
- ------------------------------
With appropriate funding, we intend to drill new natural gas wells on our
existing leases to the Devonian Shale formation at a target depth of about 3,500
feet. The cost for drilling these wells will be paid from our funds or by
entering into ventures to share the working interest of the wells with other
entities. Our management, based on its previous experience, estimates that the
total costs for such drilling will be recovered within three years of the
commencement of drilling. The productive life of these wells is estimated to be
in excess of 20 years.
Natural Gas Wells located in Kentucky
- -------------------------------------
We have leased mineral rights with ten acre spacing in Magoffin County,
Kentucky. In 2001, for investors, we drilled four wells to a depth about
2,500-3,000 feet into the Big Six formation, Each well averages 200 mfd. We
retain a 25% working interest.
18
Sales of Working Interests in various wells
- -------------------------------------------
Between 1999 and 2001, we sold working interests in various natural gas
producing wells. The terms of the sales were that the purchaser pay a down
payment with the balance due within generally 12 months. If the working
interests were not paid in full within the contracted time frame for payment,
purchasers agreed to reassign to us their interests in the wells. At this time,
all of the interests sold pursuant through down payments have been reassigned.
Recompletion of Natural Gas Wells
- ---------------------------------
We presently lease approximately 15,000 acres in West Virginia that contain
producing natural gas wells. A certain number of these wells will be selected
for deepening approximately 1,500 feet to approximately 3,750 feet, the Devonian
Shale formation. Completion will be in accordance with standard completion
procedures for this area. The costs for this program will be funded by our
funds, although we may consider raising money for this purpose from investors.
We estimate, based on our experience, that the costs of deepening the wells
should be recovered in three years based on present gas prices. The production
life of these re-completed wells is estimated to be in excess of twenty years.
Reworking Existing Natural Gas Wells
- ------------------------------------
We have leased a number of producing natural gas wells that need to be
reworked in order to increase production. Reworking includes cleaning out the
wells, drilling out sediment, setting and cementing new casing, replacing valves
and fittings, repairing gathering systems and performing other maintenance.
We estimate that the production life of these wells be significantly
increased and should continue to produce for an additional ten years prior to
another reworking procedure. Total productive life is estimated at twenty years.
The Process of Drilling Natural Gas Wells
- -----------------------------------------
If wells are drilled too close together, they would communicate with each
other and each would draw off production from the other. Recently, some
geologists question if Appalachian natural gas wells draw laterally or
vertically. If vertically, then wells could be spaced closer together without
affecting one another. The reason for this speculation is that many older wells
which were shut-in for years have resumed production which supports the theory
that they are fed from below. However, our wells are generally spaced one well
every ten acres and will continue to be spaced apart.
We drill wells through the use of specialized contractors to the target
depth using air drilling equipment from a truck rig having a 25 foot mast. Pipe
of 9 inches in diameter are set in the hole. Within that pipe, another pipe of 7
inches diameter is set and cement is pushed into the center pipe and comes up to
fill the space between the pipes for a depth of several hundred feet. Finally, a
4 1/2 inch casing is inserted in the middle which extends to the bottom of the
hole and is cemented in place to cut off any water flow and to stabilize the
hole.
19
We then order a radiation log which indicates the rock formation and a
temperature log. The logs indicate where to perforate. Strings of 50 caliber
shells are set off electrically; and the shot perforates the casing and the
cement - and opens up the formation. The shot is followed with approximately 500
gallons of 15% hydrochloric acid to open up the shot holes. Finally, stimulation
or fracing by forcing sand and water under pressure through the shot holes is
performed. The additional sand is to prop up the perforated openings. After
clean up, the wells are ready for production.
Prior to production, we install blow out preventers - large valves which
can be shut if pressure builds up. We also install appropriate values and
meters, meter runs between the wells and the meters and meter houses to contain
the meters. We start production slowly to prevent sand from blowing back into
the wells and build up production over a period of months.
Title to Properties
- -------------------
We believe that we hold good and indefeasible title to our properties, in
accordance with standards generally accepted in the natural gas industry. A
title examination has been performed with respect to substantially all of our
producing properties. Each of our leased properties represents a material
portion of our holdings; and a title dispute could have adverse consequences for
our production and retention of revenues from production of natural gas.
Our properties are subject to royalties and other customary outstanding
interests. Our properties are also subject to liens incident to operating
agreements, current taxes, development obligations under natural gas leases and
other encumbrances, easements and restrictions. We do not believe that any of
these burdens will materially interfere with the use of our properties.
Natural Gas Sales
- -----------------
We sell the natural gas we produce to gas transmission companies,
industrial end-users and utilities under contracts with terms ranging from one
month to three years. As customary in the industry, virtually all of our
contract pricing provisions are tied to a market index, with certain adjustments
based on, among other factors, whether a well delivers to a gathering or
transmission line, quality of natural gas and prevailing supply and demand
conditions, so that the price of the natural gas fluctuates to remain
competitive with other available natural gas supplies. As a result, our revenues
from the sale of natural gas will suffer if market prices decline and benefit if
they increase.
At September 30, 2002, the weighted net average price of natural gas we
produced sold at prices averaging $3.64 per mcf, depending upon well location,
the date of the sales contract and other factors. Whenever feasible, we attempt
to explore multiple market possibilities from each of our gathering systems in
order to sell our natural gas at the highest prices.
A variety of factors affect the market for natural gas, including the
availability of other domestic production, natural gas imports, the availability
and price of alternative fuels, the proximity and capacity of natural gas
pipelines, general fluctuations in the supply and demand for natural gas and the
effects of state and federal regulations on natural gas production and sales.
The natural gas industry also competes with other industries in supplying the
energy and fuel requirements of industrial, commercial and individual customers.
We market our natural gas to natural gas utilities, pipelines and industrial and
commercial customers, either directly through our gathering system, or utilizing
transportation services provided by regulated interstate pipeline companies.
20
Financing
- ---------
We have conducted well development drilling and reworking activities for
our own account and for other investors. We intend to continue financing our
well acquisition, reworking and development drilling from funds from warrant
exercise, from reinvestment of positive cash flow from our present activities
and from investors who would share working interests with us. We presently own
interests in two wells which were financed by investors.
Tax benefits
- ------------
Intangible Drilling Costs
- -------------------------
In general, intangible drilling costs, known as "IDC" consist of those
costs which in and of themselves have no salvage value. Congress granted to the
Treasury Secretary the authority to prescribe regulations that would allow
taxpayers the option of deducting, rather than capitalizing, intangible drilling
and development costs. The Secretary's rules state that, in general, the option
to deduct IDC applies only to expenditures for drilling and development items
that do not have a salvage value. We and any investors have the option of
deducting IDC as an expense or capitalizing it over a 60-month period beginning
in the month the expenditure is made.
We also claim depreciation, cost recovery, and amortization deductions with
respect to our basis natural gas property as permitted by the Internal Revenue
Code. The cost of lease equipment and well equipment, such as casing, tubing,
tanks, and pumping units, and the cost of pipelines cannot be deducted currently
but must be capitalized.
Devonian Shale Tax Credit
- ----------------------
The owners of wells drilled to the Devonian Shale depth drilled prior to
1993 are entitled to a tax credit per thousand cubic feet on gas produced until
January 1, 2003. Certain of our wells qualified and, as a result, some of our
investors took these credits on their personal income tax returns.
Employees
- ---------
As of June 30, 2003, we had three employees, all of whom are officers and
directors. We also employ consultants or consultant companies on an as needed
basis.
Facilities
- ----------
We lease modern office premises in Chattanooga, Tennessee at an annual
rental of $15,000, payable monthly. The five year lease was entered into on
November 30, 2001. We may renew for three successive five year periods
commencing December 1, 2006, upon the same terms adjusted for changes in the
Consumer Price Index.
21
MANAGEMENT
Executive Officers and Directors
The following table sets forth certain information regarding our executive
officers and directors:
Name Age Position Since
- ------------------------- --- ---------------------------------- -----
Harry F. Thompson 67 President, Treasurer and a Director 1998
931 Ashland Terrace
Chattanooga Tennessee 37415
Amy Pye 31 Secretary and a Director 2002
931 Ashland Terrace
Chattanooga Tennessee 37415
Eric J. Thompson 28 Vice-President and a Director 2002
931 Ashland Terrace
Chattanooga Tennessee 37415
Bryan P. S. Gray 63 A Director 2002
5006 NW 49th Road
Tamarac, Florida 33319
- --------------------
Harry F. Thompson has been our president since our inception in 1998. From 1994
to 1998, he was President of CBG, Inc., a natural gas production company located
in Chattanooga, TN. He sold the company to found Wilon Resources, Inc. From 1991
to 1994, Mr. Thompson was an independent business consultant in Chattanooga, TN.
From 1983 to 1991, he was President of Tricor, Inc., an oil and gas production
company. From 1960 - 1981, Mr. Thompson maintained a general and corporate
practice of law business in Huntington, WV. He received is B. S. in Zoology from
Marshall University, Huntington, WV in 1957 and his LLB from the T.C. Williams
School of Law, University of Richmond, VA, in 1960.
Amy Pye has served as our Administrative Assistant since 1999 and Secretary
of since April 2001. She became a director of our company in November 2002. From
1997 to 1999 she served as a manager for various Chattanooga based Retail
stores. She attended Chattanooga State Technical Community College from 1992 to
1993.
Eric J. Thompson has been our Vice-President and a director since May,
2001. From 1998 to 2001, he served as an Administrator. From 1998 to 2001 he was
Assistant Store Manager of Goody's Inc. He attended Chattanooga State Technical
Community College from 1994 to 1996.
22
Bryan P. S. Gray has, since 1984, acted as a consultant in real estate and
business projects. He was, from 1983 to 1984, successively Director of Finance
and Administration and General Manager for Confederation Offshore Limited, St.
John's, Newfoundland, a consortium of companies which analyzed and developed
offshore oil-related projects. From 1981 to 1983, he was President of ScotCan
Consulting, Ltd. Mr. Gray, was from 1965 to 1981 affiliated with the Bank of
Nova Scotia in capacities ranging from Business Development Representative,
Deputy Manager, Senior Representatives and Branch Manager.
Director Compensation
- ---------------------
Our directors do not receive cash compensation for their services as
directors but are reimbursed for their reasonable expenses for attending board
and board committee meetings.
Compensation Arrangements
- -------------------------
We have not entered into employment contracts with any of our management
employees.
Executive Compensation
- ----------------------
The following table sets forth for the fiscal years ended September 30,
2002 and 2001, the compensation we paid to our Chief Executive Officer(s) and
any other executive officers who earned in excess of $100,000 based on salary
and bonus.
Summary Compensation Table
Long Term
Compensation
Annual Compensation Awards
================================================================================
Other Annual Securities
Name and Principal Compensation Underlying
Position Year Salary ($) Bonus ($) ($) Options/SARs
================================================================================
Harry Thompson 2002 104,000 -0- 10,000 -0-
Chief Executive Officer 2001 104,000 -0- 10,000 -0-
23
Option Grants for the fiscal years ended September 30, 2002 and 2001
- --------------------------------------------------------------------
The following table sets forth information concerning the grant of stock
options to the named executive officer during the fiscal years ended 2002 and
2001.
Individual Grants
================================================================================
Potential Realizable
Value at Assumed
Number of % of Total Annual Rates of
Shares Options Stock Price
Underlying Granted to Exercise Appreciation
Options Employees Price Per Expiration for Option Term
Name Granted in Year Share Date 5% 10%
===============================================================================
Harry Thompson -0- -0- -0- -0- -0- -0-
Aggregated Option Exercise for the fiscal years Ended September 30, 2002 and
2001 and Fiscal Year-End Option Values
- --------------------------------------------------------------------------------
The following table sets forth information concerning the exercise of stock
options during the fiscal years ended May 31, 2002 and 2001 by the named
executive officer, and his options outstanding at the end of the transition
period.
================================================================================
Aggregate Option/SAR Exercises in Transition Period and TP-End Option/SAR Values
================================================================================
Number of Securities
Underlying Unexercised
Options/SARs at TPY-End Value of Unexercised In-
Shares (#) the Money Options/SARs
Acquired on Value ======================= at TP-End ($)
Name Exercise (#) Realized($)Exercisable Unexercisable Exercisable Unexercisable
================================================================================
Harry Thompson-0- -0- -0- -0- -0- -0-
================================================================================
24
Indemnification of directors and executive officers and limitation of liability
- ------------------------------------------------------------------------------
The Tennessee Business Corporation Act authorizes a court to award, or a
corporation's board of directors to grant, indemnity to directors and officers
in terms sufficiently broad to permit such indemnification under certain
circumstances for liabilities (including reimbursement for expenses incurred)
arising under the Securities Act. As permitted by the Tennessee Business
Corporation Act, our amended certificate of incorporation includes a provision
that eliminates the personal liability of our directors for monetary damages for
breach of fiduciary duty as a director, except for liability (1) for any breach
of the director's duty of loyalty to our company or our stockholders, (2) for
acts or omissions not in good faith or that involve intentional misconduct or a
knowing violation of law, (3) under section 174 of the Tennessee Business
Corporation Act (regarding unlawful dividends and stock purchases) or (4) for
any transaction from which the director derived an improper personal benefit.
As permitted by the Tennessee Business Corporation Act, our bylaws provide
that we are required to indemnify our directors and officers, consultants and
employees to the fullest extent permitted by the Tennessee Business Corporation
Act. Subject to certain very limited exceptions, we are required to advance
expenses, as incurred, in connection with a legal proceeding to the fullest
extent permitted by the Tennessee Business Corporation Act, subject to certain
very limited exceptions. The rights conferred in our bylaws are not exclusive.
We have not obtained directors' and officers' liability insurance.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to our directors, officers and controlling persons
pursuant to the foregoing provisions, or otherwise, we have been advised that in
this opinion of the SEC such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
CERTAIN RELATED PARTY TRANSACTIONS
We were formed in October, 1998, under the Tennessee Business Corporation
Act. In October, 1998, we issued 1,000 shares of our common stock to Harlis
Trust, the trustee of which is Harry Thompson, our President. On March 11, 2003,
we forward split our issued and outstanding shares of common stock in the ratio
of 10,400 to 1 so that Harlis Trust owned 14,400,000 shares of our common stock.
On August 11, 2003, Harlis Trust Gifted 100,000 shares each to Amy Pye, Eric
Thompson, Kevin Thompson and Stephany Rutledge, the children of Harry Thompson,
our President.
Also, on November 10, 2003, Wilon Energy Group, Inc. merged into the
registrant and the registrant is the surviving company.
Keon Transport purchased 5,000 shares in a private placement of Wilon
Energy Group, Inc. which became 5,000 of our shares after the merger of Wilon
Energy Group, Inc. into us. Keon Transport is owned by Kevin Thompson, a son of
Harry Thompson, our President.
American Energy Holdings, LLC purchased 5,000 shares in the private
Placement of Wilon Energy Group, Inc. which became 5,000 of our shares after the
merger of Wilon Energy Group, Inc. into us. American Energy Holdings, LLC is
owned by Harry Thompson, our President.
Amcor Holdings purchased 5,000 shares in the private placement of Wilon
Energy Group, Inc. which became 5,000 of our shares after the merger of Wilon
Energy Group, Inc. into us. Amcor Holdings is beneficially owned by Phylis
Thompson and Eric Thompson, respectively the wife and a son of Harry Thompson,
our President.
Amy Pye purchased 5,000 shares in the private placement of Wilon Energy
Group, Inc. which became 5,000 of our shares after the merger of Wilon Energy
Group, Inc. into Wilon Resources, Inc. Amy Pye is our Secretary and daughter of
Harry Thompson, our President.
Eric J. Thompson purchased 5,000 shares in the private placement of Wilon
Energy Group, Inc. which became 5,000 of our shares after the merger of Wilon
Energy Group, Inc. into Wilon Resources, Inc. Eric Thompson is a Vice President
and son of Harry Thompson, our President.
Page 25
Kevin Thompson purchased 5,000 shares in the private placement of Wilon
Energy Group, Inc. which became 5,000 of our shares after the merger of Wilon
Energy Group, Inc. into Wilon Resources, Inc. Kevin Thompson is a son of Harry
Thompson, our President.
Harry Thompson, Eric J. Thompson Amy Pye and Kevin Thompson disclaim
ownership of each Other's shares.
Harry Thompson receives a salary of $104,000 per year, Amy Pye, Secretary,
his daughter, receives a salary of $26,000 per year and Eric Thompson,
Vice-President, his son, receives a salary of $26,000 per year.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to
beneficial ownership of our common stock as of June 20, 2003 by each stockholder
known by us to be the beneficial owner of more than 5% of our common stock, each
of our directors and executive officers and all executive officers and directors
as a group.
Shares of Common Stock Beneficially Owned(1)
--------------------------------------------
Name Title Number Percent
- ---------------------- ---------- -------------- -------
Harry F. Thompson President, Treasurer
and a Director 10,005,000 81.4%
Amy Pye Secretary
and a Director 105,000 0.9%
Eric J. Thompson Vice-President 105,000 0.9%
and a Director
Bryan P. S. Gray A Director 0 0.0%
Directors and officers %
(4 persons)
- ------------------
(1) Beneficial ownership is determined in accordance with the rules of the
SEC and generally includes voting or investment power with respect to
securities. Unless otherwise indicated below, the persons and entity named in
the table have sole voting and sole investment power with respect to all shares
beneficially owned, subject to community property laws where applicable. Shares
of our common stock underlying warrants or options that are currently
exercisable or exercisable within 60 days of the date of the Prospectus are
deemed to be outstanding and to be beneficially owned by the person holding such
options for the purpose of computing the percentage ownership of such person but
are not treated as outstanding for the purpose of computing the percentage
ownership of any other person. The percentage of beneficial ownership is based
on 12,279,000 shares of our common stock outstanding as of the date of the
Prospectus.
26
(2) The shares beneficially owned by Harry Thompson are held as follows:
Harlis Trust 10,000,000 shares
American Energy Holdings 5,000 shares
(3) Harry Thompson is the father of Amy Pye and Eric Thompson.
Harry Thompson, Amy Pye and Eric Thompson disclaim ownership of each others
shares.
DESCRIPTION OF SECURITIES
Common Stock
- ------------
We are authorized to issue 50,000,000 shares of common stock, $.001 par
value per share, of which 10,400,000 shares are issued and outstanding and
12,279,000 shares will be issued and outstanding as of the closing of the merger
of Wilon Energy Group, Inc. into us. Each outstanding share of common stock is
entitled to one vote, either in person or by proxy, on all matters that may be
voted upon by their holders at meetings of the stockholders.
Holders of our common stock (i) have equal ratable rights to dividends from
funds legally available therefor, if declared by our board of directors; (ii)
are entitled to share ratably in all of our assets available for distribution to
holders of common stock upon our liquidation, dissolution or winding up; (iii)
do not have preemptive, subscription or conversion rights, or redemption or
sinking fund provisions; and (iv) are entitled to one noncumulative vote per
share on all matters on which stockholders may vote at all meetings of our
stockholders. Cumulative voting for the election of directors is not provided
for in our amended certificate of incorporation, which means that the holders of
a majority of the shares voted can elect all of the directors then standing for
election.
Subject to preferences that may apply to shares of preferred stock
outstanding at the time, the holders of outstanding shares of our common stock
are entitled to receive dividends out of legally available funds at such times
and in such amounts as our board of directors may from time to time determine.
Each stockholder is entitled to one vote for each share of our common stock held
on all matters submitted to a vote of stockholders. Our common stock is not
entitled to preemptive rights and is not subject to conversion or redemption.
Upon a liquidation, dissolution or winding-up, the assets legally available for
distribution to stockholders are distributable ratably among the holders of our
common stock and any participating preferred stock outstanding at that time
after payment of liquidation preferences, if any, on any outstanding preferred
stock and payment of other claims of creditors.
27
Preferred Stock
- ---------------
We may, subject to limitations prescribed by Tennessee law, provide for the
issuance of up to 10,000,000 shares of our preferred stock in one or more
series, to establish from time to time the number of shares to be included in
each such series, to fix the rights, preferences and privileges of the shares of
each wholly unissued series and any qualifications, limitations or restrictions
thereon, and to increase or decrease the number of shares of any such series
(but not below the number of shares of such series then outstanding) without any
further vote or action by the stockholders. Our board of directors may authorize
the issuance of preferred stock with voting or conversion rights that could
adversely affect the voting power or other rights of the holders of our common
stock. The issuance of preferred stock, while providing flexibility in
connection with possible acquisitions and other corporate purposes, could, among
other things, have the effect of delaying, deferring or preventing a change in
control and may adversely affect the market price of the common stock and the
voting and other rights of the holders of common stock. We have no current plans
to issue any shares of preferred stock.
Common Stock Purchase Warrants
We have sold to Colebrook 2,000,000 common stock warrants. The warrants are
exercisable for a period, commencing the date our common stock trades on a
public market, for six months. Each warrant entitles the holder to purchase one
share of our common stock for $.60.
Colebrook may only exercise its warrants when there is a current effective
registration statement covering resale of the underlying shares of common stock.
If we are unable to maintain a current effective registration statement,
Colebrook will be unable to exercise its warrants and they may become valueless.
Warrants may be exercised by surrendering the warrant certificate, with the
form of election to purchase printed on the reverse side of the warrant
certificate properly completed and executed, together with payment of the
exercise price, to us. Warrants may be exercised in whole or from time to time
in part. If less than all of the warrants evidenced by a warrant certificate are
exercised, a new warrant certificate will be issued for the remaining number of
unexercised warrants.
Colebrook is protected against dilution of the equity interest represented
by the underlying shares of common stock upon the occurrence of certain events,
including, but not limited to, issuance of stock dividends. If we merge,
reorganize or are acquired in such a way as to terminate the warrants, they may
be exercised immediately prior to such action. In the event of liquidation,
dissolution or winding up, Colebrook, the holder of the warrants is not entitled
to participate in our assets.
For the life of the warrants, Colebrook is given the opportunity to profit
from a rise in the market price of our common stock. The exercise of the
warrants will result in the dilution of the then book value of our common stock
and would result in a dilution of the percentage ownership of then existing
stockholders. The terms upon which we may obtain additional capital may be
adversely affected through the period in which the warrants remain exercisable.
Colebrook may be expected to exercise the warrants at a time when we would, in
all likelihood, be able to obtain equity capital on terms more favorable than
those provided for by the warrants.
28
In the event the proceeds of warrant exercise are not sufficient for the
development and growth of our business, we may seek additional financing. We
believe that the proceeds of exercise of existing warrants will be sufficient
for such purpose and therefore do not expect to issue any additional securities
at this time. However, we may issue additional securities, incur debt or procure
other types of financing if needed. We have not entered into any agreements,
plans or proposals for such financing and have no plans to do so. If we require
additional financing, there is no guarantee that such financing will be
available to us or if available that such financing will be on terms acceptable
to us.
Reports to Stockholders
- -----------------------
We intend to furnish our stockholders with annual reports containing
audited financial statements as soon as practicable after the end of each fiscal
year. Our fiscal year ends on September 30th.
Transfer Agent
- --------------
We have appointed Interwest Transfer Co., Inc., Salt Lake City, Utah as
transfer agent for our shares of common stock.
SELLING STOCKHOLDERS
1,879,000 of the shares offered under this prospectus may be sold by
holders who have previously acquired their shares. We will not receive any of
the proceeds from sales of shares offered under the prospectus. All costs,
expenses and fees in connection with the registration of the selling
stockholders' shares will be borne by us. All brokerage commissions, if any,
attributable to the sale of shares by selling stockholders will be borne by
selling stockholders.
The selling stockholders are offering a maximum of 1,879,000 shares of our
common stock. The following table sets forth:
o the name of each person who is a selling stockholder;
o the title of each person who is one of our officers or directors;
o the number of securities owned by each such person at the date of the
prospectus; and
o the number of shares of common stock such person will own after the
offering.
The column "Shares Owned After the Offering" gives effect to the sale of
all the shares of common stock being offered by the prospectus.
29
Shares Owned Prior to Shares Owned After
Number of to the Offering the Offering
Shares --------------------- -----------------
Selling Stockholders Offered Number Percent Number Percent
- -------------------- ----------- --------- ------- ------ -------
Amcor Holdings 5,000 5,000 - % 0 0.0%
American Energy Holdings LLC 5,000 5,000 - % 0 0.0%
Arden, Amos 10,000 10,000 - % 0 0.0%
Shinya, Araki 5,000 5,000 - % 0 0.0%
Baker, Vera 5,000 5,000 - % 0 0.0%
Baker, Vera F. Trust 70,000 70,000 - % 0 0.0%
Baker, Gregory 25,000 25,000 - % 0 0.0%
Baker, Myron 40,000 40,000 - % 0 0.0%
Basye, Martin 20,000 20,000 - % 0 0.0%
Berk, Elaine 5,000 5,000 - % 0 0.0%
Berk Theodore 165,000 165,000 1.3% 0 0.0%
Blundell, Richard 10,000 10,000 - % 0 0.0%
Brown, Michelle 5,000 5,000 - % 0 0.0%
Carol, Bonnie 5,000 5,000 - % 0 0.0%
Chadwick, Linda 5,000 5,000 - % 0 0.0%
Cole, Linda S. Irrev Trust 100,000 100,000 - % 0 0.0%
Colebrook, Inc. 400,000 400,000 3.3% 0 0.0%
Cox, Neil 8,000 8,000 - % 0 0.0%
Elliott, Thomas 5,000 5,000 - % 0 0.0%
Falcon Crest Capital, Inc. 500,000 500,000 4.1% 0 0.0%
Foley, Neil 5,000 5,000 - % 0 0.0%
Geyer, Jean 10,000 10,000 - % 0 0.0%
Graham, Debra 25,000 25,000 - % 0 0.0%
Harlis Trust 5,000 5,000 - % 0 0.0%
Hass, Emma 8,000 8,000 - % 0 0.0%
Heng, Ken 10,000 10,000 - % 0 0.0%
John, James 16,000 16,000 - % 0 0.0%
Kaly Trust 5,000 5,000 - % 0 0.0%
Keon Transport, LLC 5,000 5,000 - % 0 0.0%
Koeller, Melvin 5,000 5,000 - % 0 0.0%
Kovalsky, Susan 5,000 5,000 - % 0 0.0%
Krimmel, Max 5,000 5,000 - % 0 0.0%
Lawson, Joseph A. 5,000 5,000 - % 0 0.0%
Lutsky, Donna 5,000 5,000 - % 0 0.0%
Lutsky, Jay 5,000 5,000 - % 0 0.0%
McGuire, Malcolm 10,000 10,000 - % 0 0.0%
Neil, Sue 8,000 8,000 - % 0 0.0%
Nexgen Holdings, Inc. 230,000 230,000 1.9% 0 0.0%
O'Hara, Kevin 8,000 8,000 - % 0 0.0%
Olson Jewelers 8,000 8,000 - % 0 0.0%
Oustz, Bettye 8,000 8,000 - % 0 0.0%
Pahng, Seon-Hwa 5,000 5,000 - % 0 0.0%
Palmisano, Angelo 5,000 5,000 - % 0 0.0%
Pol, Ed 5,000 5,000 - % 0 0.0%
Polevoy, Carol 8,000 8,000 - % 0 0.0%
30
Pye, Amy 5,000 5,000 - % 0 0.0%
Reisfield, Lisa 5,000 5,000 - % 0 0.0%
Rutledge, S. J. 5,000 5,000 - % 0 0.0%
Sessions, Dean 5,000 5,000 - % 0 0.0%
Sessions, Patsy 5,000 5,000 - % 0 0.0%
Sessions, Robert 5,000 5,000 - % 0 0.0%
Sessions, Tanna 5,000 5,000 - % 0 0.0%
Sichel, Bart 5,000 5,000 - % 0 0.0%
Sichel, Jeffrey 5,000 5,000 - % 0 0.0%
Sichel, Michael B. 5,000 5,000 - % 0 0.0%
Pembridge Capital Establishmen5,000 5,000 - % 0 0.0%
Thompson, Eric 5,000 5,000 - % 0 0.0%
Thompson, Kevin 5,000 5,000 - % 0 0.0%
Weggeland, Layne 5,000 5,000 - % 0 0.0%
Whitbeck, John 5,000 5,000 - % 0 0.0%
Wong, Philip 8,000 8,000 - % 0 0.0%
- -----------------
1. Myron and Vera Baker are husband and wife. Gregory Baker is an adult son.
Debra Graham is the daughter of Myron Baker and Vera Baker. Each
disclaims ownership of each others' shares.
2. Theodore Berk and Elaine Berk are husband and wife. Each disclaims
ownership of each others' shares.
3. Jay Lutsky and Donna Lutsky are husband and wife and disclaim any ownership
in each other's shares.
4. American Energy Holdings owned by Harry Thompson, President. Mr. Thompson
is also trustee of Harlis Trust.
5. Dean Sessions and Patsy Sessions are husband and wife. Robert Sessions is
the brother of Dean Sessions and the husband of Tanna Sessions. Each
disclaims ownership of each others' shares.
6. Rochfort Young is the beneficial owner of the Pembridge Capital
Establishment.
Common stock registered for resale constitutes approximately 15.2% of our
issued and outstanding common shares as of the date of the prospectus.
PLAN OF DISTRIBUTION OF SHARES OF EXISTING STOCKHOLDERS
The shares covered by this prospectus may be offered and sold from time to
time by the selling stockholders. The term "selling stockholders" includes
donees, pledgees, transferees or other successors-in-interest selling shares
received after the date of the prospectus from a selling stockholder as a gift,
pledge, partnership distribution or other non-sale related transfer. Selling
stockholders will act independently of us in making decisions with respect to
the timing, manner and size of each sale. Sales may be made on one or more
exchanges or in the over-the-counter market or otherwise, at prices and under
terms then prevailing or at prices related to the then current market price or
in negotiated transactions. Selling stockholders may sell their shares by one or
more of, or a combination of, the following methods:
31
o purchases by a broker-dealer as principal and resale by such broker-dealer
for its own account pursuant to the prospectus;
o ordinary brokerage transactions and transactions in which the broker
solicits purchasers;
o block trades in which the broker-dealer so engaged will attempt to sell the
shares as agent; and
o in privately negotiated transactions.
In addition, any shares that qualify for sale pursuant to Rule 144 may be
sold under Rule 144 rather than pursuant to the prospectus.
To the extent required, the prospectus may be amended or supplemented from
time to time to describe a specific plan of distribution. In connection with
distributions of the shares or otherwise, the selling stockholders may enter
into hedging transactions with broker-dealers or other financial institutions.
In connection with such transactions, broker-dealers or other financial
institutions may engage in short sales of the common stock in the course of
hedging the positions they assume with the selling stockholders. The selling
stockholders may also sell their common stock short and redeliver the shares to
close out such short positions. Selling stockholders may also enter into option
or other transactions with broker-dealers or other financial institutions which
require the delivery to such broker-dealer or other financial institution of
shares offered by this prospectus, which shares such broker-dealer or other
financial institution may resell pursuant to the prospectus (as supplemented or
amended to reflect such transaction). Selling stockholders may also pledge
shares to a broker-dealer or other financial institution, and, upon a default,
such broker-dealer or other financial institution, may effect sales of the
pledged shares pursuant to this prospectus (as supplemented or amended to
reflect such transaction).
In effecting sales, broker-dealers or agents engaged by selling
stockholders may arrange for other broker-dealers to participate. Broker-dealers
or agents may receive commissions, discounts or concessions from the selling
stockholders in amount to be negotiated immediately prior to the sale.
In offering the shares covered by the prospectus, selling stockholders and
any broker-dealers who execute sales for the selling stockholders may be deemed
to be "underwriters" within the meaning of the Securities Act in connection with
such sales. Any profits realized by selling stockholders and the compensation of
any broker-dealer may be deemed to be underwriting discounts and commissions.
In order to comply with the securities laws of certain states, shares must
be sold in such jurisdictions only through registered or licensed brokers or
dealers. In addition, in certain states, shares may not be sold unless they have
been registered or qualified for sale in the applicable state or an exemption
from the registration or qualification requirement is available and is complied
with.
32
We have advised the selling stockholders that the anti-manipulation rules
of Regulation M under the Exchange Act may apply to sales of shares in the
market and to the activities of the selling stockholders and their affiliates.
In addition, we will make copies of this prospectus available to the selling
stockholders for the purpose of satisfying the prospectus delivery requirements
of the Securities Act. Selling stockholders may indemnify any broker-dealer
participating in transactions involving the sale of the shares against certain
liabilities, including liabilities arising under the Securities Act.
At the time a particular offer of shares is made, if required, a prospectus
supplement will be distributed that will set forth the number of shares being
offered and the terms of the offering, including the name of any underwriter,
dealer or agent, the purchase price paid by any underwriter, any discount,
commission and other item constituting compensation, any discount, commission or
concession allowed or reallowed or paid to any dealer, and the proposed selling
price to the public.
We have agreed to indemnify the selling stockholders against certain
liabilities, including certain liabilities under the Securities Act.
We have agreed with the selling stockholders to keep the registration
statement of which this prospectus constitutes a part effective until the
earlier of:
o such time as all of the shares covered by this prospectus have been
disposed of pursuant to and in accordance with the Registration Statement
or
o two years from the effective date of the registration statement.
COLEBROOK'S PLAN OF DISTRIBUTION
Colebrook is free to offer and sell its shares of our common stock at such
times, in such manner and at such prices as it may determine on a best efforts
basis. The types of transactions in which the shares of our common stock are
sold may include transactions in the over-the-counter market (including block
transactions), negotiated transactions, or a combination of such methods of
sale. The sales will be at market prices prevailing at the time of sale or at
negotiated prices. Such transactions may or may not involve brokers or dealers.
Colebrook has advised us that it has not entered into any agreement,
understanding or arrangement with any broker-dealers regarding the sale of its
shares, and does not have a coordinating broker acting in connection with the
proposed sale of our common stock.
Colebrook may sell its shares directly to purchasers or to or through
broker-dealers, which may act as agents. These broker-dealers may receive
compensation in the form of discounts, concessions or commissions from the
selling shareholders. They may also receive compensation from the purchasers of
our common stock for whom such broker-dealers may act as agents.
Colebrook is an "underwriter" within the meaning of Section 2(a)(11) of the
Securities Act. Any commissions received by broker-dealers and any profit on the
resale of the shares of our common stock sold by them might be deemed to be
underwriting discounts or commissions. Colebrook may agree to indemnify
broker-dealers for transactions involving sales of our common stock against
certain liabilities, including liabilities arising under the Securities Act.
33
Because Colebrook is an underwriter within the meaning of Section 2(a)(11)
of the Securities Act, it will be subject to prospectus delivery requirements.
We have informed Colebrook that the anti-manipulation rules of the SEC,
including Regulation M promulgated under the Securities Exchange Act of 1934,
will apply to its sales in the market, and have provided them with a copy of
such rules and regulations.
Regulation M may limit the timing of purchases and sales of any of the
shares of our common stock by Colebrook and any other person distributing our
common stock. The anti-manipulation rules under the Securities Exchange Act may
apply to sales of shares of our common stock in the market and to the activities
of Colebrook and its affiliates. Furthermore, Regulation M of the Securities
Exchange Act may restrict the ability of any person engaged in the distribution
of shares of our common stock to engage in market-making activities with respect
to the particular shares of common stock being distributed for a period of up to
five business days prior to the commencement of such distribution. All of the
foregoing may affect the marketability of our common stock and the ability of
any person or entity to engage in market-making activities with respect to our
common stock.
Rules 101 and 102 of Regulation M under the Securities Exchange Act, among
other things, generally prohibit certain participants in a distribution from
bidding for or purchasing for an account in which the participant has a
beneficial interest, any of the securities that are the subject of the
distribution. Rule 104 of Regulation M provides that no person, directly or
indirectly, may stabilize, effect any syndicate covering transaction, or impose
a penalty bid in connection with an offering of any security in contravention of
the rule's provisions.
Colebrook may not rely upon Rule 144 for the sale of our common shares in
the open market since it is an underwriter within the meaning of Section
2(a)(11) of the Securities Act and the safe-harbor provided by Rule 144 is not
available to underwriters of our common stock.
We will pay all expenses in connection with the registration and sale of
the common stock by Colebrook. Colebrook will pay all commissions, transfer
taxes and other expenses associated with their sales. The shares offered hereby
are being registered pursuant to our contractual obligations, and we have agreed
to pay the expenses of the preparation of this prospectus.
We have agreed to indemnify and reimburse Colebrook against any losses,
claims, damages or liabilities to which they may become subject under the
Securities Act of 1933, the Securities Exchange Act of 1934, or any other
federal or state law, insofar as such losses arise out of or are based upon (i)
any untrue statement or alleged untrue statement of a material fact contained in
a registration statement, or (ii) the omission or alleged omission of a material
fact required to be stated therein or necessary to make the statements therein
not misleading.
We cannot issue additional shares to Colebrook that, when added to the
shares Colebrook owns will result in Colebrook holding over 9.9% of our
outstanding shares upon exercise of warrants.
34
SHARES ELIGIBLE FOR FUTURE SALE
No public trading market presently exists for our securities. Upon the
effectiveness of the registration statement, 1,879,000 shares of our common
stock to be held by stockholders upon the closing of the merger of Wilon Energy
Group, Inc. into us will be freely tradable without restriction under the
Securities Act. 25,000 of these of these shares are held by our affiliates as
that term is defined in Rule 144 under the Securities Act. In addition, up to
2,000,000 shares of our common stock acquired through exercise of our warrants
may be resold publicly. At the closing of the merger with Wilon Energy Group,
Inc., we will have approximately 62 holders of our common Stock which is our
only class of issued and outstanding stock.
Shares held by affiliates will be eligible for sale in the public market,
subject to certain volume limitations and the expiration of applicable holding
periods under Rule 144 under the Securities Act. In general, under Rule 144 as
currently in effect, a person (or persons whose shares are aggregated) who has
beneficially owned restricted shares for at least one year (including the
holding period of any prior owner except an affiliate) would be entitled to sell
within any three-month period a number of shares that does not exceed the
greater of (1) 1% of the number of shares of common stock then outstanding
(which will equal approximately 150,279 shares assuming all the shares
underlying the stock purchase agreement are issued) or (2) the average weekly
trading volume of the common stock during the four calendar weeks preceding the
filing of a Form 144 with respect to such sale. Sales under Rule 144 are also
subject to certain manner of sale provisions and notice requirements and to the
availability of current public information about us. Under Rule 144(k), a person
who is not deemed to have been an affiliate of us at any time during the three
months preceding a sale, and who has beneficially owned the shares proposed to
be sold for at least two years (including the holding period of any prior owner
except an affiliate), is entitled to sell such shares without complying with the
manner of sale, public information, volume limitation or notice provisions of
Rule 144.
We can offer no assurance that an active public market in our shares or
warrants will develop initially on the OTCBB. Future sales of substantial
amounts of our shares (including shares issued upon exercise of outstanding
options) in the public market could adversely affect market prices prevailing
from time to time and could impair our ability to raise capital through the sale
of our equity securities.
WHERE YOU CAN FIND MORE INFORMATION
We have not previously been required to comply with the reporting
requirements of the Securities Exchange Act. We have filed with the SEC a
registration statement on Form SB-2 to register the securities offered by the
prospectus. We intend to file annual and quarterly reports, proxy statements and
other reports, if required, with the SEC. If in the future, we are not required
to deliver an annual report to security holders, we will voluntarily send an
annual report which will include audited financial statements. The prospectus is
part of the registration statement, and, as permitted by the SEC's rules, does
not contain all of the information in the registration statement.
For further information about us and the securities offered under the
prospectus, you may refer to the registration statement and to the exhibits and
schedules filed as a part of the registration statement. You can review the
registration statement and its exhibits at the public reference facility
maintained by the SEC at Judiciary Plaza, Room 1024, 450 Fifth Street, N. W.,
Washington, D. C. 20549 Please call the SEC at 1-800-SEC-0330 for further
information on the public reference facility. The SEC maintains an Internet site
at http://www.sec.gov that contains reports, proxy and information statements,
and other information regarding issuers, such as our company, that file
electronically with the SEC at (http://www.sec.gov).
35
LEGAL PROCEEDINGS
We are not a party to nor are we aware of any material existing, pending or
threatened lawsuits or other legal actions.
LEGAL MATTERS
Certain legal matters, including the legality of the issuance of the shares
of common stock offered herein, are being passed upon for us by our counsel,
Louis M. Smith,Jr., Attorney at Law, 4306 Talahi Way, Louisville, Kentucky
40207.
EXPERTS
Our financial statements as of September 30, 2002 and 2001 have been
included herein and in the registration statement in reliance upon the report of
Drakeford & Drakeford, independent certified public accountants, appearing
elsewhere herein, and upon the authority of as an expert in accounting and
auditing.
36
INDEX TO FINANCIAL STATEMENTS
Part 1 - Financial Information
Page
Item 1 - Financial Statements
Report of Independent Certified Public Accoutants
Balance Sheets as of June 30, 2003 (Unaudited) and September 30, 2002 F-2
Statements of Operations for the nine months ended June 30, 2003 and
2002 (unaudited) F-3
Statements of Operations for the years ended September 30, 2002 and
2001 F-4
Statement of Stockholders Equity for the nine months ended June 30,
2003 (unaudited) F-5
Statements of Cash Flows for the nine months ended June 30, 2003
2002 (unaudited) F-6
Statements of Cash Flows for the years ended September 30, 2002 and
2001 F-7
Notes to Financial Statements F-8 - F-17
DRAKEFORD & DRAKEFORD, LLC
CERTIFIED PUBLIC ACCOUNTANTS
A LIMITED LIABILITY CORPORATION
ACCOUNTANTS & CONSULTANTS
601 Jefferson Davis Hwy Telephone: 770-575-0915
Fredericksburg, Va. 22408
To The Board of Directors and Shareholders
of WILON RESOURCES, INC.
We have audited the accompanying balance sheet of WILON RESOURCES, INC. as
of September 30, 2002 and the related statements of operations, cash flows and
shareholders' equity for the years ended September 30, 2001 and 2002. 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of WILON RESOURCES, INC. as of
September 30, 2002 and the results of its operations, shareholders' equity and
cash flows for the years ended September 30, 2001 and 2002 in conformity with
generally accepted accounting principles.
/s/ Drakeford & Drakeford, LLC
Drakeford & Drakeford, LLC
Certified Public Accountants
December 10, 2002
F-2
WILON RESOURCES, INC.
BALANCE SHEETS
Unaudited
ASSETS September 30, 2002 June 30, 2003
CURRENT ASSETS
Cash and cash equivalents $ 416 $ 52,721
Total current assets 416 52,721
PROPERTY AND EQUIPMENT, at cost
Gas properties 948,279 979,945
Furniture and fixtures 5,615 5,615
Vehicles 41,407 41,407
995,301 1,026,967
Less:accumulated depreciation, depletion, amortization (20,212) (44,086)
Total property and equipment, net 975,089 982,881
OTHER ASSETS
Deposits 200 200
Loan receivable-officer 60,000 10,499
Total other 60,200 10,699
assets
TOTAL ASSETS $ 1,035,705 $ 1,046,301
LIABILITIES AND STOCKHOLDERS EQUITY
CURRENT LIABILITIES
Payroll taxes and withholdings $ 0 $ 30,746
Loan payable 2,350 2,350
Notes payable 31,935 15,432
Total current liabilities 34,285 48,528
LONG-TERM LIABILITIES
Deferred income 306,996 0
STOCKHOLDERS EQUITY
Preferred stock, authorized 10,000,000 shares at $.001 par
value; no outstanding shares at June 30, 2003
Common stock, no par value; authorized - 1,000 shares;
issued and outstanding 1,000 shares at
September 30, 2002 ; authorized-50,000,000 shares at $.001 par value,
10,400,000 issued and outstanding at June 30, 2003 1,000 10,400
Retained Earnings 693,424 987,373
Total stockholders equity 694,424 997,773
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY $ 1,035,705 $1,046,301
The accompanying notes are an integral part of these statements.
WILON RESOURCES, INC.
STATEMENT OF OPERATIONS
Nine Months Ended June 30, 2003 and 2002
Unaudited
Nine months ended June 30,
2002 2003
Revenues:
Gas and drilling program sales $ 345,000 $ 807,120
Royalty income 739 230,247
Sales of interest in gas producing properties 73,600 483
Total revenues 419,339 1,037,850
Cost of gas and drilling production 76,849 196,036
Selling, general and administrative 253,153 514,590
Depreciation, depletion and amortization 3,325 23,875
Total expenses 333,327 734,501
Operating income 86,012 303,349
Interest income 1,052 0
Interest (expense) 0 0
Net Income $ 87,064 $ 303,349
Basic and diluted earnings per common share $ 87.06 $ .26
Weighted average shares outstanding, basic and diluted 1,000 1,156,444
The accompanying notes are an integral part of these statements.
WILON RESOURCES, INC.
STATEMENTS OF OPERATIONS
Years Ended September 30,
2001 2002
Revenues:
Gas and drilling program sales $245,142 $566,546
Royalty income 0 49,959
Sales of interest in gas producing properties 337,953 96,100
Total revenues 583,095 712,605
Cost of gas and drilling production 145,641 239,293
Selling, general and administrative 419,897 427,875
Depreciation, depletion and amortization 9,570 9,725
Total expenses 575,108 676,893
Operating income 7,987 35,712
Interest income 437 1,137
Interest (expense) (3,005) (3,419)
Net Income $ 5,419 $ 33,430
Basic and diluted earnings per common share $ 5.42 $ 33.43
Weighted average shares outstanding, basic and diluted 1,000 1,000
The accompanying notes are an integral part of these statements.
WILON RESOURCES, INC.
STATEMENT OF STOCKHOLDERS EQUITY
Additional
Preferred stock Common stock paid-in Accumulated
Shares Amount Shares Amount capital earnings Total
Balance at Sept 30, 2000 0 $0 1,000 $1,000 $0 $654,575 $655,575
Net Income for the year
ended September 30, 2001 5,419 5,419
Balance at Sept 30, 2001 0 0 1,000 1,000 0 659,994 660,994
Net Income for the year ended Sept 30, 2002 33,430 33,430
Balance at September 30, 2002 693,424 694,424
Authorization of a 10,400 to 1 forward stock split
from 1,000 to 10,400,000 shares 10,399,000 9,400 (9,400) 0
Net Income for the nine months ended 303,349 303,349
June 30, 2003 (unaudited)
______ ______
Balance at
June 30, 2003 (unaudited) 0 $0 10,400,000 $10,400 0 $987,373 $997,773
The accompanying notes are an integral part of this statement.
WILON RESOURCES, INC.
STATEMENT OF CASH FLOWS
Nine Months Ended June 30, 2003 and 2002
Unaudited
2002 2003
OPERATING ACTIVITIES
Net Income $ 12,330 $303,349
Adjustments for noncash and nonoperating items:
Depreciation, depletion and amortization 4,325 23,874
Changes in operating assets and liabilities, net of acquisitions:
Loan receivable-officer (24,550) 49,501
Deferred income 0 (306,996)
Payroll taxes and withholdings 2,415 30,746
Cash provided by operating activities (5,480) 100,474
INVESTING ACTIVITIES
Capital expenditures (1,145) (31,666)
FINANCING ACTIVITIES
Debt repayments 44,315 (16,503)
Cash (used) by financing activities (16,503)
INCREASE IN CASH AND EQUIVALENTS 37,690 52,305
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 12,435 416
CASH AND EQUIVALENTS AT END OF PERIOD $ 50,125 $ 52,721
The accompanying notes are an integral part of these statements
F-17
WILON RESOURCES, INC.
STATEMENT OF CASH FLOWS
For The Years Ended September 30, 2002 and 2001
2001 2002
OPERATING ACTIVITIES
Net Income $ 5,419 $33,430
Adjustments for noncash and nonoperating items:
Depreciation, depletion and amortization 9,570 9,725
Changes in operating assets and liabilities, net of acquisitions:
Receivables (50,000) 50,000
Loan receivable-officer 0 (32,504)
Deposits (200) 0
Accounts payable (2,347) (2,149)
Cash provided (used) by operating activities (37,558) 58,502
INVESTING ACTIVITIES
Capital expenditures (9,911) (49,030)
Cash used by investing activities (9,911) (49,030)
FINANCING ACTIVITIES
Borrowings 33,180 0
Debt repayments 0 (15,715)
Cash provided (used) by financing activities 33,180 (15,715)
INCREASE (DECREASE) IN CASH AND EQUIVALENTS
(14,289) (6,243)
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 20,948 6,659
CASH AND EQUIVALENTS AT END OF PERIOD $ 6,659 $ 416
The accompanying notes are an integral part of these statements
WILON RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS
Nine Months ended June 30, 2003 (Unaudited) and 2002 (Unaudited) and years ended
September 30, 2002 and 2001
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Wilon Resources, Inc. ("Company") was incorporated in October 1998 in the
state of Tennessee. The Company is engaged in natural gas exploration,
development and production, with primary emphasis on the production of gas
reserves through acquisitions of proved, producing gas properties in the states
of West Virginia and Kentucky.
The Company presently holds approximately 15,000 acres by leases that have
producing natural gas wells. A certain number of these wells will be selected
for deepening approximately 1500 feet to the Devonian Shale formation.
Completion will be in accordance with standard completion procedures for the
area.
Interim Financial Information (Unaudited)
The Interim Finacial Statements of the Company as of June 30, 2003 and for
the nine months ended June 30, 2003 and 2002, included herein, have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the SEC. The unaudited interim financial statements include all adjustments,
consisting of normal recurring adjustments, considered necessary for a fair
presentation of the results for the interim periods presented. In certain
information and footnote disclosures normally included in the financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations relating
to interim financial statements. In the opinion of managment, the accompanying
unaudited statements reflect all adjustmetns necessary to present fairly the
results of its operations and its cash flows for the nine months ended June 30,
2003 and 2002.
Revenue and Cost
The Company has adopted the full cost method of accounting for gas
properties. Management believes adoption of the full cost method more accurately
reflects management's exploration objectives and results by including all costs
incurred as integral for the acquisition, discovery and development of whatever
reserves ultimately result from its efforts as a whole. Under the full cost
method of accounting, all costs associated with acquisition, exploration and
development of gas reserves, including directly related overhead costs, are
capitalized.
All capitalized costs of gas properties, including the estimated future
costs to develop proved reserves, are amortized on the unit-of-production method
using estimates of proved reserves. Investments in unproved properties and major
development projects are not amortized until proved reserves associated with the
projects can be determined or until impairment occurs. If the results of an
assessment indicate that the properties are impaired, the amount of the
impairment is added to the capitalized costs to be amortized.
In addition, the capitalized costs are subject to a "ceiling test," which
basically limits such costs to the aggregate of the "estimated present value,"
discounted at a ten percent interest rate of future net revenues from proved
reserves, based on current economic and operating conditions, plus the lower of
cost or fair market value of unproved properties.
Sales of proved and unproved 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 proved
reserves of gas, in which case gain or loss is recognized in income.
WILON RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
Nine Months ended June 30, 2003 (Unaudited) and 2002 (Unaudited) and years ended
September 30, 2002 and 2001
NOTE A- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
-(Continued)
Office and Other Equipment
Office and other equipment are stated at cost and depreciated by the
straight-line method over estimated useful lives ranging from five to seven
years. Depreciation and amortization of office and other equipment amounted to
$23,875 for the period ended June 30, 2003.
Gas Properties
The Company uses the successful efforts method of accounting for gas
producing activities. Under successful efforts, costs to acquire mineral
interest in gas properties, to drill and equip exploratory wells that find
proved reserves, and to drill and equip developmental wells are capitalized.
Costs to drill exploratory wells that do not find proved reserves, costs of
developmental wells on properties the Company has no further interest in,
geological and geophysical costs, and costs of carrying and retaining unproved
properties are expensed. Unproved gas properties that are significant are
periodically assessed for impairment of value and a loss is recognized at the
time of impairment by providing an impairment allowance. Other unproved
properties are expensed when surrendered or expired.
When a property is determined to contain proved reserves, the capitalized
costs of such properties are transferred from unproved properties to proved
properties and are amortized by the unit-of-production method based upon
estimated proved developed reserves. To the extent that capitalized costs of
groups of proved properties having similar characteristics exceed the estimated
future net cash flows, the excess capitalized costs are written down to the
present value of such amounts. Estimated future net cash flows are determined
based primarily upon the estimated future proved reserves related to the
Company's current proved properties and, to a lesser extent, certain future net
cash flows related to operating and related fees due the Company related to its
management of various partnerships. The Company follows Statement of Financial
Accounting Standards ("SFAS") No. 121 which requires a review for impairment
whenever circumstances indicate that the carrying amount of an asset may not be
recoverable. Impairment is recorded as impaired properties are identified.
On sale or abandonment of an entire interest in an unproved property, gain
or loss is recognized, taking into consideration the amount of any recorded
impairment. If a partial interest in an unproved property is sold, the amount
received is treated as a reduction of the cost of the interest retained. The
carrying cost of unproved properties is not significant.
WILON RESOURCES, INC. NOTES TO FINANCIAL STATEMENTS (continued)
Nine Months ended June 30, 2003 (Unaudited) and 2002 (Unaudited) and years ended
September 30, 2002 and 2001
NOTE A- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
-(Continued)
Income Taxes-Deferred Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
basis. Deferred tax assets and liabilities are measured using enacted tax rates
that will apply in the years in which those temporary differences are expected
to be recovered or settled. The effect on deferred tax assets and liabilities of
a change in tax rates is recognized in income in the period that includes the
enactment date. Since the Company has Sec 29 tax credits in excess of any tax
liability, there are no deferred taxes arising from the timing differences of
the deferred income liability. (See Note-F)
Earnings Per Common Share
The Company has adopted the provisions of Statement of Financial Accounting
Standards (SFAS) No. 128, Earnings per Share. SFAS No. 128 requires the
presentation of basic earnings (loss) per share (EPS) and diluted EPS. Basic EPS
is calculated by dividing net income or loss (available to common stockholders)
by the weighted average number of common shares outstanding for the period.
Diluted EPS reflects the potential dilution that could occur if securities or
other contracts to issue common stock, such as stock options, warrants,
convertible preferred stock and convertible debentures, were exercised or
converted into common stock.
As discussed in Note F, there were no dilutive securities during the period
ended June 30, 2003. The weighted average number of common shares outstanding
was 1,156,444 shares for the period ended June 30, 2003 due to the 10,400 to 1
forward split on March 11, 2003.
WILON RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
Nine Months ended June 30, 2003 (Unaudited) and 2002 (Unaudited) and years ended
September 30, 2002 and 2001
NOTE A-ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
-(Continued)
Concentration of Credit Risk
Financial instruments which potentially subject the Company to a
concentration of credit risk consists primarily of trade accounts receivable
with a variety of local, national, and international oil and natural gas
companies. Such credit risks are considered by management to be limited due to
the financial resources of the oil and natural gas companies.
Risk Factors
The Company operates in an environment with many financial risks including,
but not limited to, the ability to acquire additional economically recoverable
gas reserves, the continued ability to market drilling programs, the inherent
risks of the search for, development of and production of gas, the ability to
sell natural gas at prices which will provide attractive rates of return, the
volatility and seasonality of gas production and prices, and the highly
competitive nature of the industry as well as worldwide economic conditions.
Impairment of Long-Lived Assets and Long-Lived Assets To Be Disposed Of
The Company has adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.
This statement requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceed the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell. During the period ended June 30, 2003, the Company's analysis indicated
that there was not an impairment of its long-lived assets.
WILON RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
Nine Months ended June 30, 2003 (Unaudited) and 2002 (Unaudited) and years ended
September 30, 2002 and 2001
NOTE A-ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
-(Continued)
Cash Equivalents
For purposes of the statements of cash flows, the Company considers all
certificates of deposit and other financial instruments with maturity dates of
three months or less to be cash equivalents.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates. Significant estimates used in calculating the Company's depletion,
depreciation and amortization which could be subject to significant near term
revision include estimated gas reserves. The Company's reserve estimates could
vary significantly depending on various factors, including Company and industry
volatility of natural gas prices.
Certain Significant Estimates
Management estimates included in these financial statements for which it is
reasonably possible that a future event in the near term could cause the
estimate to change and the change could have a severe impact, are as follows:
Management's estimates of gas reserves are based on various assumptions,
including constant gas prices. Actual future production, cash flows, taxes,
operating expenses, development expenditures and quantities of recoverable gas
reserves may vary substantially from those assumed in the estimate. The accuracy
of any reserve estimate is a function of the quality of available data,
engineering and geological interpretation, and judgment. Subsequent evaluation
of the same reserves based upon production history will result in variations,
which may be substantial, in the estimated reserves. While it is at least
reasonably possible that the estimates above will change materially in the near
term, no estimate can be made of the range of possible losses that might occur.
WILON RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
Nine Months ended June 30, 2003 (Unaudited) and 2002 (Unaudited) and years ended
September 30, 2002 and 2001
NOTE A-ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
-(Continued)
Fair Value of Financial Instruments
The Company defines the fair value of a financial instrument as the amount
at which the instrument could be exchanged in a current transaction between
willing parties. Financial instruments included in the Company's financial
statements include cash and cash equivalents, short-term investments, accounts
receivable, other receivables, other assets, accounts payable, notes payable and
due to affiliates. Unless otherwise disclosed in the notes to the financial
statements, the carrying value of financial instruments is considered to
approximate fair value due to the short maturity and characteristics of those
instruments. The carrying value of debt approximates fair value as terms
approximate those currently available for similar debt instruments.
Gas Revenue
The Company recognizes gas revenues as income as it is extracted from the
properties and sold. In the nine months period ended June 30, 2003, gas sales
increased by approximately $ 85,722 as compared to the nine months period ended
June 30, 2002. Well operating, gathering and other revenues include operating
fees charged to outside working interest owners in operated wells, gathering
fees (including transportation allowances and compression fees) , third party
gas sales associated with purchased natural gas and other miscellaneous
revenues. Such revenue is recognized at the time it is earned and the Company
has a contractual right to receive payment.
NOTE B LONG-TERM LIABILITIES
As of June 30, 2003, the Company's deferred income was recognized as the
production was established and matched toward this income. For the nine months
ended June 30, 2003, approximately $ 306,996 was allocated as earned during this
period.
WILON RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
Nine Months ended June 30, 2003 (Unaudited) and 2002 (Unaudited) and years ended
September 30, 2002 and 2001
NOTE C NOTES PAYABLE
The Company had a vehicle note in the amount of $15,432 with no interest
financed with Ford Credit as of June 30, 2003.
NOTE D LEASE OBLIGATIONS
The Company leases it's office space at an annual rental of Fifteen
Thousand Dollars, payable in monthly installments of One Thousand Two Hundred
Fifty Dollars each. The five year lease was entered into contract on November
30, 2001. The renewal terms of the lease gives the Company an option to renew
the lease for three successive five year periods commencing on the 1st day of
December, 2006, respectively, upon all terms, conditions and obligations set
forth in the original lease contract. Terms of any renewed lease is based upon
the Consumer Price Index-All Urban Consumers, U.S. City Average, published by
the Bureau of Labor Statistics of the United States Department of Labor-or such
other similar index if the Consumer Price Index is no longer so published.
NOTE E- SHAREHOLDERS EQUITY
The Company amended it's certificate of incorporation to increase the
authorized number of shares to 50,000,000 shares of common stock at $0.001 par
value and 10,000,000 shares of preferred stock at $0.001 par value.
The shares of preferred stock may be issued from time to time in one or
more classes or series with such dividend rates, voting rights, rights of
conversion, rights upon dissolution or liquidation, and with such designations
or restrictions thereof as shall be determined by resolution adopted by the
Board of Directors at the time such stock is issued without further approval of
the shareholders.
As of March 11, 2003, the Company authorized a 10,400 to 1 forward split of
the number of shares outstanding from 1,000 to 10,400,000 shares.
WILON RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
Nine Months ended June 30, 2003 (Unaudited) and 2002 (Unaudited) and years ended
September 30, 2002 and 2001
NOTE F RELATED PARTY TRANSACTIONS
A promissory note dated September 29, 2002, has been executed in the amount
of Sixty Thousand ($60,000), with interest at the rate of 8% per annum, and
payable in equal yearly installments of $12,000, commencing October 1, 2003. As
of June 30, 2003, this note has been reduced to $10,499. At thistime, there are
no employment agreements or contracts with related parties or officers.
NOTE G -INCOME TAXES
As of September 30, 2002, the Company's net income has been offset by the
Code Section 29 (credit for producing fuel from a nonconventional source) tax
credits that the Company has generated under Title 26. Section 29 of the
Internal Revenue Code specifies a credit of $3 for each barrel-of-oil equivalent
(BOE) of qualified fuel produced from a nonconventional source which is
attributable to the taxpayer. As of September 30, 2002, credits in the amounts
of $5,015, were utilized in order to offset income taxes for the current tax
period.
NOTE H - GAS RESERVES INFORMATION
The estimates of proved gas reserves utilized in the preparation of the
financial statements are estimated in accordance with guidelines established by
the Securities and Exchange Commission and the Financial Accounting Standards
Board, which require that reserve estimates be prepared under existing economic
and operating conditions with no provision for price and cost escalations over
prices and costs existing at year end except by contractual arrangements.
The Company emphasizes that reserve estimates are inherently imprecise.
Accordingly, the estimates are expected to change as more current information
becomes available. The Company's policy is to amortize capitalized gas costs on
the unit of production method, based upon these reserve estimates. It is
reasonably possible that, because of changes in market conditions or the
inherent imprecision of these reserve estimates, that the estimates of future
cash inflows, future gross revenues, the amount gas reserves, the remaining
estimated lives of the gas properties, or any combination of the above may be
increased or reduced in the near term.
Proved developed and undeveloped reserves:(Natural gas )
Proved, developed, non-producing 0.5 BCF (Devonian Shale) $5,500,000
Proved, undeveloped 24.5 BCF (Devonian Shale) $17,885,000
Probable 12.5 BCF (Silurian-Mckenzie/
Keefer/Big Six) $ 12,500,000
WILON RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
Nine Months ended June 30, 2003 (Unaudited) and 2002 (Unaudited) and years ended
September 30, 2002 and 2001
NOTE H - GAS RESERVES INFORMATION(continued)
The Devonian Shale analysis is based upon 120-acre well spacing over a
reported 12,000 leased acres. Per well recovery is estimated at 0.25 BCF.
The above stated reserves do not include five other producing formations
known as the Saltsand, Mixim, Big Injun, Berea, and Clinton.
NOTE I - SUPPLEMENTAL INFORMATION RELATING TO GAS PRODUCING
ACTIVITIES
CAPITALIZED COSTS RELATING TO GAS PRODUCING ACTIVITIES
September 30, 2002 June 30, 2003
Proved gas properties $ 948,279 $979,945
Less accumulated depreciation,
depletion, and impairment 15,249 23,651
Net capitalized costs $933,030 $956,294
COST INCURRED IN GAS PRODUCING ACTIVITIES
Year ended Year ended Nine months ended Nine months ended
September 30, September 30, June 30, June 30,
2001 2002 2002 2003
Property
acquisition costs $64,166 $39,946 $ 0 $31,666
Exploration costs 120,795 2,580 0 0
Development costs 684,506 14,620 0 0
Property acquisition costs include purchases of proved and unproved gas
properties.
WILON RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
Nine Months ended June 30, 2003 (Unaudited) and 2002 (Unaudited) and years ended
September 30, 2002 and 2001
NOTE I - SUPPLEMENTAL INFORMATION RELATING TO GAS PRODUCING
ACTIVITIES (continued)
RESULTS OF OPERATIONS FOR GAS PRODUCING ACTIVITIES
Year ended Year ended Nine months ended Nine months ended
September 30, September 30, June 30, June 30,
2001 2002 2002 2003
Gas production $245,142 $566,546 $345,000 $807,120
Loss on sale of
gas prop. 0 0 0 0
Production costs 123,794 203,402 76,849 196,036
Exploration
expenses 21,847 35,891 0 0
Depreciation,
depletion.
amortization
and other 7,875 8,150 5,970 8,402
Provision for
income taxes 0 0 0 0
Results of operations
for gas producing
activities (excluding
corporate overhead and
financing costs) $91,626 $319,103 $262,181 $602,682
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Tennessee Business Corporation Act provides for the indemnification of
the officers, directors and corporate employees and agents of Wilon Resources,
Inc. (the "Registrant") under certain circumstances as follows:
48-18-501. Part definitions.
In this part:
(1) "Corporation" includes any domestic or foreign predecessor entity of a
corporation in a merger or other transaction in which the predecessor's
existence ceased upon consummation of the transaction;
(2) "Director" means an individual who is or was a director of a
corporation including individuals acting pursuant to section 48-18-101, or an
individual who, while a director of a corporation, is or was serving at the
corporation's request as a director, officer, partner, trustee, employee, or
agent of another foreign or domestic corporation, partnership, joint venture,
trust, employee benefit plan, or other enterprise. A director is considered to
be serving an employee benefit plan at the corporation's request if the
director's duties to the corporation also impose duties on or otherwise involve
services by the director to the plan or to participants in or beneficiaries of
the plan. "Director" includes, unless the context requires otherwise, the estate
or personal representative of a director;
(3) "Expenses"includes counsel fees:
(4) "Liability" means the obligation to pay a judgment, settlement,
penalty, fine (including an excise tax assessed with respect to an employee
benefit plan), or reasonable expenses incurred with respect to a proceeding;
(5) "Official capacity" means:
(A) When used with respect to a director, the office of director in a
corporation; and
(B) When used with respect to an individual other than a director, as
contemplated in section 48-18-507a the office in a corporation held by the
officer or the employment or agency relationship undertaken by the employee
or agent on behalf of the corporation. "Official capacity" does not include
service for any other foreign or domestic corporation or any partnership,
joint venture, trust, employee benefit plan, or other enterprise;
(6) "Party" includes an individual who was, is, or is threatened to be made
a named defendant or respondent in a proceeding; and
II - 1
(7) "Proceeding" means any threatened, pending, or completed action, suit,
or proceeding, whether civil, criminal, administrative, or investigative and
whether formal or informal.
48-18-502. Authority to indemnify.
(a) Except as provided in subsection (d), a corporation may indemnify an
individual made a party to a proceeding because the individual is or was a
director against liability incurred in the proceeding if:
(1) The individual's conduct was in good faith; and
(2) The individual reasonably believed:
(A) In the case of conduct in the individual's official capacity with the
corporation, that the individual's conduct was in is best interest; and
(B) In all other cases, that the individual's conduct was at least not
opposed to its best interests; and
(3) In the case of any criminal proceeding, the individual had no
reasonable cause to believe the individual's conduct was unlawful.
(b) A director's conduct with respect to an employee benefit plan for a
purpose the director reasonably believed to be in the interests of the
participants in and beneficiaries of the plan is conduct that satisfies the
requirement of subdivision (a) (2) (B).
(c) The termination of a proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent is not, of
itself, determinative that the director did not meet the standard of conduct
described in this section.
(d) A corporation may not indemnify a director under this section:
(1) In connection with a proceeding by or in the right of the corporation
in which the director was adjudged liable to the corporation; or
(2) In connection with any other proceeding charging improper personal
benefit to the director, whether or not involving action in the director's
official capacity, in which the director was adjudged liable on the basis that
personal benefit was improperly received by the director.
48-18-503. Mandatory indemnification.
Unless limited by its charter, a corporation shall indemnify a director who
was wholly successful, on the merits or otherwise, in the defense of any
proceeding to which the director was a party because the director is or was a
director of the corporation against reasonable expenses incurred by the director
in connection with the proceeding.
48-18-504. Advance for expenses.
(a) A corporation may pay for or reimburse the reasonable expenses incurred
by a director who is a party to a proceeding in advance of final disposition of
the proceeding if:
(1) The director furnishes the corporation a written affirmation of the
director's good faith belief that the director has met the standard of conduct
descried in section 48-18-502;
(2) The director furnishes the corporation a written undertaking executed
personally or on the director's behalf, to repay the advance if it is ultimately
determined that the director is not entitled to indemnification; and
II - 2
(3) A determination is made that the facts then known to those making the
determination would not preclude indemnification under this part.
(b) The undertaking required by subdivision (a) (2) must be an unlimited
general obligation of the director but need not be secured and may be accepted
without reference to financial ability to make payment.
(c) Determinations and authorizations of payments under this section shall
be made in the manner specified in section 48-18-506.
48-18-505. Indemnification of directors.
Unless a corporation's charter provides otherwise, a director of the
corporation who is a party to a proceeding may apply for indemnification to the
court conducting the proceeding or to another court of competent jurisdiction.
On receipt of an application, the court, after giving any notice the court
considers necessary, may order indemnification if it determines the director is:
(1) Entitled to mandatory indemnification under section 48-18-503, in which
case the court shall also order the corporation to pay the director's reasonable
expenses incurred to obtain court-ordered indemnification; or
(2) Fairly and reasonably entitled to indemnification in view of all the
relevant circumstances, whether or not the director met the standard of conduct
set forth in section 48-18-502 or was adjudged liable as described in section
48-18-502 (d), but if the director was adjudged so liable the director's
indemnification is limited to reasonable expenses incurred.
48-18-506. Determination and authorization of indemnification.
(a) A corporation may not indemnify a director under section 48-18-502
unless authorized in the specific case after a determination has been made that
indemnification of the director is permissible in the circumstances because the
director has met the standard of conduct set forth in section 48-18-502.
(b) The determination has been made:
(1) by the board of directors by majority vote of a quorum consisting of
directors not at the time parties to the proceeding;
(2) If a quorum cannot be obtained under subdivision (b) (1), by majority
vote of a committee duly designated by the board of directors (in which
designation directors who are parties may participate), consisting solely
of two (2) or more directors not at the time parties to the proceeding;
(3) By independent special legal counsel:
(A) Selected by the board of directors or its committee in the manner
prescribed in subdivision (b) (1) or (2); or
(B) If a quorum of the board of directors cannot be obtained under
subdivision (b) (1) and a committee cannot be designated under subdivision ()
(2), selected majority vote of the full board of directors (in which selection
directors who are parties may participate); or
(4) By the shareholders, but shares owned by or voted under the control of
directors who are at the time parties to the proceeding may not be voted on the
determination.
(c) Authorization of indemnification and evaluation as to reasonableness of
expenses shall be made in the same manner as the determination that
indemnification is permissible, except that if the determination is made by
special legal counsel, authorization of indemnification and evaluation as to
reasonableness of expenses shall be made by those entitled under subdivision (b)
(3) to select counsel.
II - 3
48-18-507. Indemnification of officers, employees and agents.
Unless a corporation's charter provides otherwise:
(1) An officer of the corporation who is not a director is entitled to
mandatory indemnification under section 48-18-503 and is entitled to apply for
court-ordered indemnification under section 48-18-505 in each case to the same
extent as to a director; and
(2) The corporation may indemnify and advance expenses under this part to
an officer, employee, or agent of the corporation who is not a director to the
same extent as to a director; and
(3) A corporation may also indemnify and advance expenses to an officer,
employee, or agent who is not a director to the extent, consistent with public
policy that may be provided by its charter, bylaws, general or specific action
of its board of directors, or contract.
48-18-508. Insurance.
A corporation may purchase and maintain insurance on behalf of an
individual who is or was a director, officer, employee, or agent of the
corporation, is or was serving at the request of the corporation as a director,
officer, partner, trustee, employee, or agent of another foreign or domestic
corporation, partnership, joint venture, trust, employee benefit plan, or other
enterprise, against liability asserted against or incurred by the individual in
that capacity or arising from the individual's status as a director, officer,
employee or agent, whether or not the corporation would have power to indemnify
the individual against the same liability under section 48-18-502 or section
48-18-503.
48-18-509. Application of part.
(a) The indemnification and advancement of expenses granted pursuant to, or
provided by, chapters 11-27 of this title shall not be deemed exclusive of any
other rights to which a director seeking indemnification or advancement of
expenses may be entitled, whether contained in chapters 11 - 27 of this title,
the charter, or the bylaws or, when authorized by such charter or bylaws, in a
resolution of shareholders, a resolution of directors, or an agreement providing
for such indemnification; provided that no indemnification may be made to or on
behalf of any director if a judgment or other final adjudication adverse to the
director establishes the director's liability:
(1) Fro any breach of the duty of loyalty to the corporation or its
shareholders;
(2) For acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law; or
(3) Under section 48-18-304.
Nothing contained in chapters 11 - 27 of this title shall affect any rights
to indemnification to which corporate personnel, other than directors, may be
entitled by contract or otherwise under law. If the charter limits
indemnification or advance for expenses, indemnification and advance for
expenses are valid only to the extent consistent with the charter.
(b) This part does not limit a corporation's power to pay or reimburse
expenses incurred by a director in connection with the director's
appearance as a witness in a proceeding at a time when the director has
not been made a named defendant or respondent to the proceeding.
II - 4
Articles 8 and 9 of the Registrant's amended charter provide as follows:
Article 8
The personal liability of the directors of the Corporation is hereby
eliminated to the fullest extent permitted by the provisions of paragraph (7) of
subsection (b) of Section 102 of the Tennessee Business Corporation Act, as the
same may be amended and supplemented.
Article 9
The Corporation shall, to the fullest extent permitted by the provisions of
Tennessee Business Corporation Act, as the same may be amended and supplemented,
indemnify any and all persons whom it shall have power to indemnify under said
section from and against any and all of the expenses, liabilities or other
matters referred to in or covered by said section, and the indemnification
provided for herein shall not be deemed exclusive of any other rights to which
those indemnified may be entitled under any by-law, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action In another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person. The foregoing right of
indemnification shall in no way be exclusive of any other rights of
indemnification to which such person may be entitled under any by-law,
agreement, vote of stockholders or disinterested directors, or otherwise.
Article XII of the Registrant's by-laws provides as follows:
ARTICLE XII--INDEMNIFICATION OF DIRECTORS AND OFFICERS
1. Indemnification. The corporation shall indemnify any person who was or
is a party or is threatened to be made a party to any proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the corporation) by reason of the fact that such person is or was a
director, trustee, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, trustee, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by such person
in connection with such action, suit or proceeding if such person acted in good
faith and in a manner such person reasonably believed to be in or not opposed to
the best interests of the corporation, and with respect to any criminal action
or proceeding, had no reasonable cause to believe such person's conduct was
unlawful. The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, by itself, create a presumption that the person did not act in good
faith and in a manner which the person reasonably believed to be in or not
opposed to the best interest of the corporation, and with respect to any
criminal action or proceeding, had reasonable cause to believe that such
person's conduct was lawful.
2. Derivative Action. The corporation shall indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in the corporation's favor by reason of the fact that such person is or
was a director, trustee, officer, employee or agent of the corporation, or is or
was serving at the request of the corporation as a director, trustee, officer,
employee or agent of any other corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by such person
in connection with such action, suit or proceeding if such person acted in good
faith and in a manner such person reasonably believed to be in or not opposed to
the best interests of the corporation; provided, however, that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable for gross negligence or
willful misconduct in the performance of such person's duty to the corporation
unless and only to the extent that the court in which such action or suit was
brought shall determine upon application that, despite circumstances of the
case, such person is fairly and reasonably entitled to indemnity for such
expenses as such court shall deem proper. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent, shall not, by itself, create a presumption that
the person did not act in good faith and in a manner which the person reasonably
believed to be in or not opposed to the best interest of the corporation.
3. Successful Defense. To the extent that a director, trustee, officer,
employee or agent of the corporation has been successful, on the merits or
otherwise, in whole or in part, in defense of any action, suit or proceeding
referred to in paragraphs 1 and 2 above, or in defense of any claim, issue or
matter therein, such person shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by such person in connection
therewith.
4. Authorization. Any indemnification under paragraph 1 and 2 above (unless
ordered by a court) shall be made by the corporation only as authorized in the
specific case upon a determination that indemnification of the director,
trustee, officer, employee or agent is proper in the circumstances because such
person has met the applicable standard of conduct set forth in paragraph 1 and 2
above. Such determination shall be made (a) by the board of directors by a
majority vote of a quorum consisting of directors who were not parties to such
action, suit or proceeding, (b) by independent legal counsel (selected by one or
more of the directors, whether or not a quorum and whether or not disinterested)
in a written opinion, or (c) by the stockholders. Anyone making such a
determination under this paragraph 4 may determine that a person has met the
standards therein set forth as to some claims, issues or matters but not as to
others, and may reasonably prorate amounts to be paid as indemnification.
5. Advances. Expenses incurred in defending civil or criminal actions,
suits or proceedings shall be paid by the corporation, at any time or from time
to time in advance of the final disposition of such action, suit or proceeding
as authorized in the manner provided in paragraph 4 above upon receipt of an
undertaking by or on behalf of the director, trustee, officer, employee or agent
to repay such amount unless it shall ultimately be determined by the corporation
that the payment of expenses is authorized in this Section.
6. Nonexclusivity. The indemnification provided in this Section shall not
be deemed exclusive of any other rights to which those indemnified may be
entitled under any law, by-law, agreement, vote of stockholders or disinterested
director or otherwise, both as to action in such person's official capacity and
as to action in another capacity while holding such office, and shall continue
as to a person who has ceased to be a director, trustee, officer, employee or
agent and shall insure to the benefit of the heirs, executors, and
administrators of such a person.
7. Insurance. The Corporation shall have the power to purchase and maintain
insurance on behalf of any person who is or was a director, trustee, officer,
employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, trustee, officer, employee or agent of any
corporation, partnership, joint venture, trust or other enterprise, against any
liability assessed against such person in any such capacity or arising out of
such person's status as such, whether or not the corporation would have the
power to indemnify such person against such liability.
8. "Corporation" Defined. For purpose of this action, references to the
"corporation" shall include, in addition to the corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued, would
have had the power and authority to indemnify its directors, trustees, officers,
employees or agents, so that any person who is or was a director, trustee,
officer, employee or agent of such of constituent corporation will be considered
as if such person was a director, trustee, officer, employee or agent of the
corporation.
ITEM 25. EXPENSES OF ISSUANCE AND DISTRIBUTION.
The other expenses payable by the Registrant in connection with the
issuance and distribution of the securities being registered are estimated as
follows:
Securities and Exchange Commission Registration Fee............. $ 225
Legal Fees...................................................... 10,000
Accounting Fees................................................. 22,000
Printing and Engraving.......................................... 500
Blue Sky Qualification Fees and Expenses........................ 500
Transfer Agent Fee.............................................. 1,000
Miscellaneous................................................... 1,000
-----------
Total.................................................... $ 35,225
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
The registrant was formed in October, 1998 under the Tennessee Business
Corporation Act. In October, 1998, it issued 1,000 shares of its common stock to
Harlis Trust, controlled by Harry Thompson, its President. On March 11, 2003,
the registrant amended its charter to authorize 50,000,000 shares of common
stock. On that date, its issued and outstanding stock was forward split in the
ratio of 10,400,000 to 1 so that Harlis Trust owned 14,400,000 shares of common
stock. On August 11, 2003, Harlis Trust gifted 100,000 shares each to Amy Pye,
Eric Thompson, Kevin Thompson and Stephany Rutledge, the children of Harry
Thompson.
Also, on November 10, 2003, Wilon Energy Group, Inc. entered into a merger
agreement with the registrant under which the registrant will be the surviving
company. Closing of the merger agreement is set on or as soon as possible after
the effective date of the registration statement. Wilon Energy Group, Inc. has
issued an aggregate of 1,450,000 shares of its common stock in consideration of
consulting services valued at $1,450 or $0.01 per share. The shares were issued
as follows: 400,000 shares to Colebrook, Inc.; 230,000 shares to Nexgen
Holdings, Inc.; 500,000 shares to Falcon Crest, Inc.; and 160,000 shares to
Theodore Berk. It also offered and sold pursuant to a private placement under
Rule 504 to the Securities Act 329,000 shares at $0.01/share to 54 subscribers.
These securities were sold under the exemption from registration provided
By Rule 504 pursuant to section 3(b) to the Securities Act. Neither the
registrant nor any person acting on its behalf offered or sold the securities by
means of any form of general solicitation or general advertising. All purchasers
represented in writing that they acquired the securities for their own accounts.
A legend was placed on the stock certificates stating that the securities have
not been registered under the Securities Act and cannot be sold or otherwise
transferred without an effective registration or an exemption therefrom.
ITEM 28. UNDERTAKINGS.
The Registrant undertakes:
(1) To file, during any period in which offers or sales are being made,
post-effective amendment to this registration statement (the
"Registration Statement"):
(i) To include any prospectus required by Section 10 (a) (3) of the
Securities Act of 1933 (the "Securities Act");
(ii) To reflect in the prospectus any facts or events arising
after the Effective Date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the Registration
Statement or any material change to such information in this
registration statement, including (but not limited to) the addition of
an underwriter.
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be treated as a new
registration statement of the securities offered, and the offering of the
securities at that time to be the initial bona fide offering thereof.
(3)To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination
of the offering.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to any provisions contained in its Certificate of
Incorporation, or bylaws, or otherwise, the registrant has been advised that in
the opinion of the SEC such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel he matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certified that is has reasonable grounds to believe that it meets
all the requirements of the filing on Form SB-2 and authorized the registration
statement to be signed on its behalf by the undersigned, in Chattanooga,
Tennessee on August 11, 2003.
WILON RESOURCES, INC.
By: /s/ Harry Thompson
-----------------------
Harry Thompson
President
Chief Executive Officer
Chief Financial Officer
In accordance with the requirements of the Securities Act of 1933, the
registration statement was signed by the following persons in the capacities
and on the dates stated.
SIGNATURE TITLE DATE
------------------ --------------- ---------------
/s/ Harry Thompson
-------------------
Harry Thompson President, Treasurer, November 10, 2003
and a Director
/s/ Amy Pye
-------------------
Amy Pye Secretary and a Director November 10, 2003
/s/ Eric J. Thompson
--------------------
Eric J. Thompson Vice-President and a
Director November 10, 2003
/s/ Bryan P. S. Gray
--------------------
Bryan P. S. Gray Director November 10, 2003