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EX-32.1 - CERTIFICATION - Dominovas Energy Corp | exhibit32-1.htm |
EX-31.1 - CERTIFICATION - Dominovas Energy Corp | exhibit31-1.htm |
EX-10.32 - ASSIGNMENT AGREEMENT - Dominovas Energy Corp | exhibit10-32.htm |
EX-10.31 - ASSIGNMENT AGREEMENT - Dominovas Energy Corp | exhibit10-31.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: August 31, 2009
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________________ to __________________
Commission file number: 000-51736
WESTERN STANDARD ENERGY
CORP.
(Exact name of registrant as specified in its
charter)
Nevada | 20-5854735 |
State or other jurisdiction of | (I.R.S. Employer |
incorporation or organization | Identification No.) |
2 Sheraton Street, London UK W1F 8BH
(Address of principal executive offices and Zip Code)
Registrant's telephone number, including area code | 44 207 479 4800 |
N/A
(Former name or former address,
if changed since last report)
Securities registered pursuant to Section 12(b) of the Act
Title of Each Class | Name of each Exchange on which registered |
Nil | N/A |
Securities registered pursuant to Section 12(g) of the Act
Common Stock, par value $0.001 per share
(Title of Class)
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the
Securities Act. Yes
[ ] No [X]
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section
15(d) of the Act. Yes
[X] No [ ]
Note Checking the box above will not relieve any registrant
required to file reports pursuant to Section
13 or 15(d) of the Exchange Act
from their obligations under those Sections.
ii
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of
the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes
[X] No [ ]
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if
any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405
of Regulation S-T (§ 232.405
of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit
and
post such files). Yes [ ] No [ ]
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter)
is not
contained herein, and will not be contained, to the best of registrants
knowledge, in definitive proxy or information
statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, or a
smaller reporting company. See the definitions of large accelerated filer,
accelerated filer and smaller reporting company
in Rule 12b-2 of the
Exchange Act
Large accelerated filer [ ] | Accelerated filer [ ] | |
Non-accelerated filer [ ] | (Do not check if a smaller reporting company) | Smaller reporting company [X] |
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Act).
Yes[ ]
No [X]
State the aggregate market value of the voting and non-voting
common equity held by non-affiliates computed by reference
to the price at
which the common equity was last sold, or the average bid and asked price of
such common equity, as of the
last business day of the registrants most
recently completed second fiscal quarter.
52,998,522 shares of common stock at a price of $0.02 per share for an aggregate market value of $1,059,970.44 1
1 The aggregate market value of the voting stock held
by non-affiliates is computed by reference to the price at which the
common
equity was last sold as reported on Yahoo! Finance.
Note.If a determination as to whether a particular
person or entity is an affiliate cannot be made without involving
unreasonable effort and expense, the aggregate market value of the common
stock held by non-affiliates may be
calculated on the basis of assumptions
reasonable under the circumstances, provided that the assumptions are set forth
in this Form.
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Section 12, 13 or
15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of securities
under a plan confirmed by a court.
Yes [
] No [ ]
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
Indicate the number of shares outstanding of each of the
registrants classes of common stock, as of the latest practicable
date:
92,136,022 shares of common stock outstanding as at December 2,
2009.
DOCUMENTS INCORPORATED BY REFERENCE
Not Applicable
iii
TABLE OF CONTENTS
1
PART I
ITEM 1. BUSINESS
Forward-Looking Statements
This annual report contains forward-looking statements that relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as may, should, expects, plans, anticipates, believes, estimates, predicts, potential or continue or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled Risk Factors that may cause our or our industrys actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.
Our financial statements are stated in United States Dollars (US$) unless otherwise stated and are prepared in accordance with United States Generally Accepted Accounting Principles.
In this annual report, unless otherwise specified, all references to common shares refer to the common shares in our capital stock.
As used in this annual report, the terms we, us, our and Western Standard mean Western Standard Energy Corp., and our wholly-owned subsidiary, Western Standard Energy Limited, unless otherwise indicated.
Corporate Overview
We are an exploration stage company engaged in the acquisition, exploration, and, if warranted, development of prospective oil and gas properties.
We were incorporated in the State of Nevada on February 2, 2005 under the name Comtrix Inc. From incorporation until June 2005, our operating activities consisted primarily of developing fingerprint recognition products for residential buildings in China. Our management investigated opportunities and challenges in the business of developing fingerprint recognition products and security for residential buildings in China and determined that the business did not present the best opportunity for our company to realize value for our shareholders. Accordingly, we abandoned this business plan and focused on the identification of other suitable business opportunities and/or business combinations.
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On June 23, 2006, we executed a letter of intent with Lusora Corp. wherein the existing shareholders of Lusora Corp. agreed to exchange issued and outstanding shares of its common stock for the same number of shares of our company. Also effective June 23, 2006, we changed our name from Comtrix Inc. to Lusora Healthcare Systems Inc. In addition, effective June 23, 2006 we effected a 25 for one forward stock split of our authorized, issued and outstanding common stock. As a result, our authorized capital increased from 75,000,000 shares of common stock with a par value of $0.001 to 1,857,000,000 shares of common stock with a par value of $0.001.
Effective September 7, 2007, we changed our name from Lusora Healthcare Systems Inc. to Western Standard Energy Corp when we decided to change the focus of our business plan from wireless personal security and monitoring systems to acquisition and exploration in the oil and gas industry. In addition on September 7, 2007, we effected a 1.5 for one stock split of our authorized and issued and outstanding common stock. As a result, our authorized capital increased from 1,875,000,000 shares of common stock with a par value of $0.001 to 2,812,500,000 shares of common stock with a par value of $0.001.
Since September 2007, we have focused our resources on acquiring and exploring oil and gas prospects in Montana and South Dakota.
Competition
The oil and natural gas industry is intensely competitive, and we compete with numerous other oil and gas exploration and production companies. Many of these companies have substantially greater resources than we have. Not only do they explore for and produce oil and natural gas, but many also carry on midstream and refining operations and market petroleum and other products on a regional, national or worldwide basis. The operations of other companies may be able to pay more for exploratory prospects and productive oil and natural gas properties. They may also have more resources to define, evaluate, bid for and purchase a greater number of properties and prospects than our financial or human resources permit. In addition, during periods of low oil and natural gas market prices, these companies may have a greater ability to continue exploration activities.
Our larger or integrated competitors may have the resources to be better able to absorb the burden of existing, and any changes to federal, state, and local laws and regulations more easily than we can, which would adversely affect our competitive position. Our ability to discover reserves and acquire additional properties in the future will be dependent upon our ability and resources to evaluate and select suitable properties and to consummate transactions in this highly competitive environment. In addition, we may be at a disadvantage in producing oil and natural gas properties and bidding for exploratory prospects, because we have fewer financial and human resources than other companies in our industry. Should a larger and better financed company decide to directly compete with us, and be successful in its efforts, our business could be adversely affected.
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Patents and Trademarks
We do not own any patents or trademarks.
Marketing and Customers
The market for oil and natural gas that we will produce depends on factors beyond our control, including the extent of domestic production and imports of oil and natural gas, the proximity and capacity of natural gas pipelines and other transportation facilities, demand for oil and natural gas, the marketing of competitive fuels and the effects of state and federal regulation. The oil and gas industry also competes with other industries in supplying the energy and fuel requirements of industrial, commercial and individual consumers.
Principal Agreements Affecting Our Ordinary Business
We do not own any real estate. Our interests are comprised of leaseholds subject to the terms and provisions of lease agreements that provide us with the right to drill and maintain wells in specific geographic areas. All of our lease arrangements that comprise our acreage positions are established using industry-standard terms that have been established and engrained in the oil and gas industry for many years.
In general, our lease agreements stipulate five year terms. Bonuses and royalty payments are made on a case-by-case basis consistent with industry standard pricing. Once a well is drilled and if production established, the well is considered held by production, meaning the lease continues as long as oil is being produced. Other locations within the drilling unit created for a well may also be drilled at any time with no time limit as long as the lease is held by production. The majority of our North Dakota leases and, where applicable our potential royalty interests, have two years remaining on the terms.
Some of our acreage is subject to joint venture and farm out agreements, and we expect that we will continue to evaluate potential partners and arrangements to develop our positions. The provisions of each relationship are and will be subject to separately negotiated arrangements. We do not rely on any material patents, trademarks, license, franchises, labor contracts or other similar arrangements during our ordinary course of business.
Research and Development
We did not incur expenditures in research and development over the last two fiscal years.
Governmental Regulation and Environmental Matters
Our operations are subject to various rules, regulations and limitations impacting the oil and natural gas exploration and production industry as whole.
4
Regulation of Oil and Natural Gas Production
Our oil and natural gas exploration, production and related operations, when developed, are subject to extensive rules and regulations promulgated by federal, state, tribal and local authorities and agencies. For example, some states in which we may operate require permits for drilling operations, drilling bonds and reports concerning operations and impose other requirements relating to the exploration and production of oil and natural gas. Such states may also have statutes or regulations addressing conservation matters, including provisions for the unitization or pooling of oil and natural gas properties, the establishment of maximum rates of production from wells, and the regulation of spacing, plugging and abandonment of such wells. Failure to comply with any such rules and regulations can result in substantial penalties. The regulatory burden on the oil and gas industry will most likely increase our cost of doing business and may affect our profitability. Although we believe we are currently in substantial compliance with all applicable laws and regulations, because such rules and regulations are frequently amended or reinterpreted, we are unable to predict the future cost or impact of complying with such laws. Significant expenditures may be required to comply with governmental laws and regulations and may have a material adverse effect on our financial condition and results of operations.
Environmental Matters
Our operations and properties are subject to extensive and changing federal, state and local laws and regulations relating to environmental protection, including the generation, storage, handling, emission, transportation and discharge of materials into the environment, and relating to safety and health. The recent trend in environmental legislation and regulation generally is toward stricter standards, and this trend will likely continue. These laws and regulations may:
- require the acquisition of a permit or other authorization before construction or drilling commences and for certain other activities;
- limit or prohibit construction, drilling and other activities on certain lands lying within wilderness and other protected areas; and
- impose substantial liabilities for pollution resulting from its operations.
The permits required for our operations may be subject to revocation, modification and renewal by issuing authorities. Governmental authorities have the power to enforce their regulations, and violations are subject to fines or injunctions, or both. In the opinion of management, we are in substantial compliance with current applicable environmental laws and regulations, and have no material commitments for capital expenditures to comply with existing environmental requirements. Nevertheless, changes in existing environmental laws and regulations or in interpretations thereof could have a significant impact on the Company, as well as the oil and natural gas industry in general.
5
The Comprehensive Environmental, Response, Compensation, and Liability Act of 1980 (CERCLA) and comparable state statutes impose strict, joint and several liability on owners and operators of sites and on persons who disposed of or arranged for the disposal of hazardous substances found at such sites. It is not uncommon for the neighboring landowners and other third parties to file claims for personal injury and property damage allegedly caused by the hazardous substances released into the environment. The Federal Resource Conservation and Recovery Act (RCRA) and comparable state statutes govern the disposal of solid waste and hazardous waste and authorize the imposition of substantial fines and penalties for noncompliance. Although CERCLA currently excludes petroleum from its definition of hazardous substance, state laws affecting our operations may impose clean-up liability relating to petroleum and petroleum related products. In addition, although RCRA classifies certain oil field wastes as non-hazardous, such exploration and production wastes could be reclassified as hazardous wastes thereby making such wastes subject to more stringent handling and disposal requirements.
The Endangered Species Act (ESA) seeks to ensure that activities do not jeopardize endangered or threatened animal, fish and plant species, nor destroy or modify the critical habitat of such species. Under ESA, exploration and production operations, as well as actions by federal agencies, may not significantly impair or jeopardize the species or its habitat. ESA provides for criminal penalties for willful violations of the Act. Other statutes that provide protection to animal and plant species and that may apply to our operations include, but are not necessarily limited to, the Fish and Wildlife Coordination Act, the Fishery Conservation and Management Act, the Migratory Bird Treaty Act and the National Historic Preservation Act. Although we believe that our operations will be in substantial compliance with such statutes, any change in these statutes or any reclassification of a species as endangered could subject the Company to significant expenses to modify our operations or could force the Company to discontinue certain operations altogether.
Employees
We currently have one full time employee, our Chief Executive Officer Dan Bauer. Mr Bauer is responsible for all significant policy-making decisions and has been assisted in the implementation of the Companys business by our three person advisory board. We do not expect a significant change in the number of full time employees over the next 12 months and will continue using the services of independent consultants and contractors to perform various professional services, particularly in the area of land services and drilling. We believe that this use of third-party service providers will enhance our ability to contain general and administrative expenses during this stage of our development.
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Reports to Security Holders
We file reports and other information with the SEC. This annual report on Form 10-K, historical information about our company and other information can be inspected andcopied at the Public Reference Room of the SEC located at Room 1580, 100 F Street, N.E., Washington D.C. 20549. Copies of such materials, including copies of any portion of this annual report on Form 10-K, can be obtained from the Public Reference Room of the SEC at prescribed rates. You can call the SEC at 1-800-SEC-0330 to obtain information on the operation of the Public Reference Room. Such materials may also be accessed electronically by means of the SECs home page on the Internet (http://www.sec.gov).
ITEM 1A. RISK FACTORS
In addition to other information in this current report, the following risk factors should be carefully considered in evaluating our business because such factors may have a significant impact on our business, operating results, liquidity and financial condition. As a result of the risk factors set forth below, actual results could differ materially from those projected in any forward-looking statements. Additional risks and uncertainties not presently known to us, or that we currently consider to be immaterial, may also impact our business, operating results, liquidity and financial condition. If any such risks occur, our business, operating results, liquidity and financial condition could be materially affected in an adverse manner. Under such circumstances, the trading price of our securities could decline, and you may lose all or part of your investment.
Risks Associated with our Company
Because we may never earn revenues from our operations, our business may fail and then investors may lose all of their investment in our company.
We have no history of revenues from operations. We have yet to generate positive earnings and there can be no assurance that we will ever operate profitably. Our company has a limited operating history and is in the exploration stage. The success of our company is significantly dependent on the uncertain events of the discovery and exploitation of mineral reserves on our properties or selling the rights to exploit those mineral reserves. If our business plan is not successful and we are not able to operate profitably, then our stock may become worthless and investors may lose all of their investment in our company.
Prior to completion of our exploration stage, we anticipate that we will incur increased operating expenses without realizing any revenues. We therefore expect to incur significant losses into the foreseeable future. We recognize that if we are unable to generate significant revenues from the exploration of our mineral claims in the future, we will not be able to earn profits or continue operations. There is no history upon which to base any assumption as to the likelihood that we will prove successful, and we can provide no assurance that we will generate any revenues or ever achieve profitability. If we are unsuccessful in addressing these risks, our business will fail and investors may lose all of their investment in our company.
7
We have had a history of losses and no revenue, which raise substantial doubt about our ability to continue as a going concern.
Since inception, we have incurred aggregate net losses of $4,713,338 from operations. We can offer no assurance that we will ever operate profitably or that we will generate positive cash flow in the future. To date, we have not generated any revenues from our operations. Our history of losses and no revenues raise substantial doubt about our ability to continue as a going concern. We will not be able to generate significant revenues in the future. As a result, our management expects the business to continue to experience negative cash flow for the foreseeable future and cannot predict when, if ever, our business might become profitable. We will need to raise additional funds, and such funds may not be available on commercially acceptable terms, if at all. If we are unable to raise funds on acceptable terms, we may not be able to execute our business plan, take advantage of future opportunities, or respond to competitive pressures or unanticipated requirements. This may seriously harm our business, financial condition and results of operations.
The current ongoing global economic crisis could lead to an extended recession in the U.S. and around the world. An extended slowdown in economic activity caused by a recession would reduce national and worldwide demand for oil and natural gas and result in lower commodity prices for long periods of time. Prices for oil and natural gas have already decreased significantly from highs in 2008. We have put our exploration programs on hold, which is having a material adverse impact on our business, financial condition and results of operations. If oil and gas prices do not increase before we can no longer afford to pay our debts as they come due, our exploration program will likely never become economically feasible, we will go out of business and investors will lose their entire investment in our company.
Since October 2008, oil prices have decreased by two thirds off their highest prices and natural gas prices have decreased in half or more during the same time period. Costs of exploration, development and production have not yet adjusted to current economic conditions or in proportion to the significant reduction in product prices. Prolonged, substantial decreases in oil and natural gas prices would likely have a material adverse effect on our business, financial condition and results of operations, could further limit our access to funds through the sale of our equity securities or through loans to satisfy our capital requirements.
Capital and credit markets have experienced unprecedented volatility and disruption during 2009 and continue to be unpredictable. Given the current levels of market volatility and disruption, the availability of funds from those markets has diminished substantially. Further, arising from concerns about the stability of financial markets generally and the solvency of borrowers specifically, the cost of accessing the credit markets has increased as many lenders have raised interest rates, enacted tighter lending standards or altogether ceased to provide funding to borrowers.
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Due to these capital and credit market conditions, we cannot be certain that funding will be available to us in amounts or on terms that we believe are acceptable. We have decided to put our exploration program on hold until carrying them out becomes economically feasible. This hold on our exploration program is having a material adverse impact on our business, financial condition and results of operations. If oil and gas prices do not increase before we can no longer afford to pay our debts as they come due, our exploration program will likely never become economically feasible, we will go out of business and investors will lose their entire investment in our company.
Risks Relating to our Business and the Oil and Gas Industry
We are a new entrant into the oil and gas industry without a profitable or long operating history. We do not have any income producing oil and gas properties and we have limited financial resources. There is no means by which investors can evaluate our potential for success and there is no assurance that we will ever operate profitably.
We are an exploration stage company with only a limited operating history upon which to base an evaluation of our current business and future prospects. We have only begun engaging in the oil and gas exploration and development business since entering into the assignment agreement with Power Energy Enterprises SA in August 2007 and we do not have an established history of locating and developing properties that have oil and gas reserves. As a result, the revenue and income potential of our business is unproven. In addition, because of our limited operating history, we have limited insight into trends that may emerge and affect our business. Errors may be made in predicting and reacting to relevant business trends and we will be subject to the risks, uncertainties and difficulties frequently encountered by early-stage companies in evolving markets. We may not be able to successfully address any or all of these risks and uncertainties. Failure to adequately do so could cause our business, results of operations and financial condition to suffer.
Our proposed operations will require significant capital expenditures for which we may not have sufficient funding and if we do obtain additional financing, our existing shareholders may suffer substantial dilution.
We intend to rely on external sources of financing to meet our capital requirements to continue acquiring, exploring and developing oil and gas properties and to otherwise implement our business plan. We plan to obtain such funding through the debt and equity markets, but we cannot assure that we will be able to obtain additional funding when it is required or that it will be available to us on commercially acceptable terms, if at all. In addition, any additional equity financing may involve substantial dilution to our then existing shareholders. Furthermore, additional debt financing could lead to:
- a substantial portion of operating cash flow being dedicated to the payment of principal and interest;
- being more vulnerable to competitive pressures and economic downturns; and
- restrictions on our operations.
9
If sufficient capital resources are not available, we might be forced to curtail our drilling and other activities or be forced to sell some assets on an untimely or unfavorable basis, which would have an adverse effect on our business, financial condition and results of operations.
Our exploratory drilling operations likely will not be successful, our business may fail and investors may lose their entire investment in our company.
There can be no assurance that our future drilling activities will be successful. We may not recover all or any portion of our capital investment in the wells. Unsuccessful drilling activities would have a material adverse effect upon our results of operations and financial condition and would likely result in the ultimate failure of our business operations. The cost of drilling, completing, and operating wells is often uncertain, and a number of factors can delay or prevent drilling operations including: (i) unexpected drilling conditions; (ii) pressure or irregularities in formation; (iii) equipment failures or accidents; (iv) adverse weather conditions; and (v) shortages or delays in availability of drilling rigs and delivery of equipment.
It is unlikely that we will find commercially viable reserves of oil or gas on any of our properties subject to our agreements or any other properties that we acquire rights to in the future. If we do not discover commercially viable reserves of oil and gas, our business would fail and investors would lose all of their investment in our company.
Exploratory drilling involves many risks and we may become liable for pollution or other liabilities, which may have an adverse effect on our financial position.
Drilling operations generally involve a high degree of risk. Hazards such as unusual or unexpected geological formations, power outages, labor disruptions, blow-outs, sour gas leakage, fire, inability to obtain suitable or adequate machinery, equipment or labor, and other risks are involved. We may become subject to liability for pollution or hazards against which we cannot adequately insure or which we may elect not to insure. Incurring any such liability may have a material adverse effect on our financial position and operations.
Shortages of rigs, equipment, supplies and personnel could delay or otherwise adversely affect our cost of operations or our ability to operate according to our business plans.
If drilling activity increases in North Dakota or elsewhere in the United States in general, a shortage of drilling and completion rigs, field equipment and qualified personnel could develop. These costs have recently increased sharply and could continue to do so. The demand for and wage rates of qualified drilling rig crews generally rise in response to the increasing number of active rigs in service and could increase sharply in the event of a shortage. Shortages of drilling and completion rigs, field equipment or qualified personnel could delay, restrict or curtail our exploration and development operations, which could in turn harm our operating results.
10
Our future performance is dependent upon our ability to identify, acquire and develop oil and gas properties. If we fail to do this well, our business may fail.
Our future performance depends upon our ability to identify, acquire and develop oil and gas reserves that are economically recoverable. Our success will depend upon our ability to acquire working and revenue interests in properties upon which oil and gas reserves are ultimately discovered in commercial quantities, and our ability to develop prospects that contain proven oil and gas reserves to the point of production. Without successful acquisition and exploration activities, we will not be able to develop oil and gas reserves or generate revenues. We cannot provide you with any assurance that we will be able to identify and acquire oil and gas reserves on acceptable terms, or that oil and gas deposits will be discovered in sufficient quantities to enable us to recover our exploration and development costs or sustain our business.
The successful acquisition and development of oil and gas properties requires an assessment of recoverable reserves, future oil and gas prices and operating costs, potential environmental and other liabilities, and other factors. Such assessments are necessarily inexact and their accuracy inherently uncertain. In addition, no assurance can be given that our exploitation and development activities will result in the discovery of any reserves. Our operations may be curtailed, delayed or canceled as a result of lack of adequate capital and other factors, such as lack of availability of rigs and other equipment, title problems, weather, compliance with governmental regulations or price controls, mechanical difficulties, unusual or unexpected formations or pressures or work interruptions. In addition, the costs of exploitation and development may materially exceed our initial estimates.
Our business may suffer if we do not attract and retain talented personnel.
Our success will depend in large measure on the abilities, expertise, judgment, discretion, integrity and good faith of our management and other personnel in conducting the business of our company. We have a small management team, and the loss of a key individual or inability attract suitably qualified staff could materially adversely impact our business.
Our success depends on the ability of our management and employees to interpret market and geological data correctly and to interpret and respond to economic market and other conditions in order to locate and adopt appropriate investment opportunities, monitor such investments, and ultimately, if required, to successfully divest such investments. Further, no assurance can be given that our key personnel will continue their association or employment with us or that replacement personnel with comparable skills can be found. We have sought to and will continue to ensure that management and any key employees are appropriately compensated; however, their services cannot be guaranteed. If we are unable to attract and retain key personnel, our business may be adversely affected.
11
Our management team does not have extensive experience in public company matters, which could impair our ability to comply with legal and regulatory requirements.
Our management team has had limited public company management experience or responsibilities, which could impair our ability to comply with legal and regulatory requirements such as the Sarbanes-Oxley Act of 2002 and applicable federal securities laws, including filing required reports and other information required on a timely basis. It may be expensive to implement and effect programs and policies in an effective and timely manner that adequately respond to increased legal, regulatory compliance and reporting requirements imposed by such laws and regulations, and we may not have the resources to do so. Our failure to comply with such laws and regulations could lead to the imposition of fines and penalties and further result in the deterioration of our business.
The oil and gas industry is highly competitive, and we may not have sufficient resources to compete effectively.
The oil and gas industry is highly competitive. We compete with oil and gas companies and other individual producers and operators, many of which have longer operating histories and substantially greater financial and other resources than we do, as well as companies in other industries supplying energy, fuel and other needs to consumers. Our larger competitors, by reason of their size and relative financial strength, can more easily access capital markets than we can and may enjoy a competitive advantage in the recruitment of qualified personnel. They may be able to absorb the burden of any changes in laws and regulation in the jurisdictions in which we do business and handle longer periods of reduced prices for oil and gas more easily than we can. Our competitors may be able to pay more for oil and gas leases and properties and may be able to define, evaluate, bid for and purchase a greater number of leases and properties than we can. Further, these companies may enjoy technological advantages and may be able to implement new technologies more rapidly than we can. Our ability to acquire additional properties in the future will depend upon our ability to conduct efficient operations, evaluate and select suitable properties, implement advanced technologies and consummate transactions in a highly competitive environment.
Complying with environmental and other government regulations could be costly and could negatively impact our production.
Our business is governed by numerous laws and regulations at various levels of government. These laws and regulations govern the operation and maintenance of our facilities, the discharge of materials into the environment and other environmental protection issues. Such laws and regulations may, among other potential consequences, require that we acquire permits before commencing drilling and restrict the substances that can be released into the environment with drilling and production activities. Under these laws and regulations, we could be liable for personal injury, clean-up costs and other environmental and property damages, as well as administrative, civil and criminal penalties. Accordingly, we could be liable, or could be required to cease production on properties, if environmental damage occurs.
12
The costs of complying with environmental laws and regulations in the future may harm our business. Furthermore, future changes in environmental laws and regulations could occur that result in stricter standards and enforcement, larger fines and liability, and increased capital expenditures and operating costs, any of which could have a material adverse effect on our financial condition or results of operations.
The oil and gas exploration and production industry historically is a cyclical industry and market fluctuations in the prices of oil and gas could adversely affect our business. The recent decreases in oil and gas prices have made our exploration program less viable and we have temporarily put our exploration program on hold. If the situation does not improve before we run out of money, we will likely go out of business and investors will lose their entire investment in our company.
Prices for oil and gas tend to fluctuate significantly in response to factors beyond our control. These factors include:
- weather conditions in the United States and wherever our property interests are located;
- economic conditions, including demand for petroleum-based products, in the United States wherever our property interests are located;
- actions by OPEC, the Organization of Petroleum Exporting Countries;
- political instability in the Middle East and other major oil and gas producing regions;
- governmental regulations, both domestic and foreign;
- domestic and foreign tax policy;
- the pace adopted by foreign governments for the exploration, development, and production of their national reserves;
- the price of foreign imports of oil and gas;
- the cost of exploring for, producing and delivering oil and gas;
- the discovery rate of new oil and gas reserves;
- the rate of decline of existing and new oil and gas reserves;
- available pipeline and other oil and gas transportation capacity;
- the ability of oil and gas companies to raise capital;
- the overall supply and demand for oil and gas; and
- the availability of alternate fuel sources.
Changes in commodity prices may significantly affect our capital resources, liquidity and expected operating results. Price changes will directly affect revenues and can indirectly impact expected production by changing the amount of funds available to reinvest in exploration and development activities. Reductions in oil and gas prices not only reduce revenues and profits, but could also reduce the quantities of reserves that are commercially recoverable. Significant declines in prices could result in non-cash charges to earnings due to impairment.
13
Changes in commodity prices may also significantly affect our ability to estimate the value of producing properties for acquisition and divestiture and often cause disruption in the market for oil and gas producing properties, as buyers and sellers have difficulty agreeing on the value of the properties. Price volatility also makes it difficult to budget for and project the return on acquisitions and the development and exploitation of projects. We expect that commodity prices will continue to fluctuate significantly in the future.
We may not identify all of liabilities associated with our property interests or obtain protection from sellers against them, which could cause us to incur losses.
Although we have reviewed and evaluated the North Dakota properties subject to our agreements, such review and evaluation might not necessarily reveal all existing or potential problems. This is also true for any future acquisitions made by us. Inspections may not always be performed on every well, and environmental problems, such as groundwater contamination, are not necessarily observable even when an inspection is undertaken. Even when problems are identified, a seller may be unwilling or unable to provide effective contractual protection against all or part of those problems, and we may assume environmental and other risks and liabilities in connection with the acquired properties.
Title deficiencies could render the leases that we may acquire in the future worthless which could have adverse effects on our financial condition or results of operations.
The existence of a material title deficiency can render a lease worthless and can result in a large expense to our business. It is our practice in acquiring oil and gas leases or undivided interests in oil and gas leases to forgo the expense of retaining lawyers to examine the title to the oil or gas interest to be placed under lease or already placed under lease. Instead, we rely upon the judgment of oil and gas landmen who perform the field work in examining records in the appropriate governmental office before attempting to place under lease a specific oil or gas interest. We do not anticipate that we, or the person or company acting as operator of the wells located on the properties that we may lease in the future, will obtain counsel to examine title to the lease until the well is about to be drilled. As a result, we may be unaware of deficiencies in the marketability of the title to the lease. Such deficiencies may render the lease worthless.
Risks Associated with Our Common Stock
If we issue additional shares in the future, it will result in the dilution of our existing shareholders.
Our certificate of incorporation authorizes the issuance of up to 2,812,500,000 shares of common stock with a par value of $0.001. Our board of directors may choose to issue some or all of such shares to acquire one or more businesses or to provide additional financing in the future. The issuance of any such shares will result in a reduction of the book value and market price of the outstanding shares of our common stock. If we issue any such additional shares, such issuance will cause a reduction in the proportionate ownership and voting power of all current shareholders. Further, such issuance may result in a change of control of our corporation.
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Trading on the OTC Bulletin Board may be volatile and sporadic, which could depress the market price of our common stock and make it difficult for our stockholders to resell their shares.
Our common stock is quoted on the OTC Bulletin Board service of the Financial Industry Regulatory Authority (FINRA). Trading in stock quoted on the OTC Bulletin Board is often thin and characterized by wide fluctuations in trading prices due to many factors that may have little to do with our operations or business prospects. This volatility could depress the market price of our common stock for reasons unrelated to operating performance. Moreover, the OTC Bulletin Board is not a stock exchange, and trading of securities on the OTC Bulletin Board is often more sporadic than the trading of securities listed on a quotation system like Nasdaq or a stock exchange like the American Stock Exchange. Accordingly, our shareholders may have difficulty reselling any of their shares.
Our stock is a penny stock. Trading of our stock may be restricted by the SECs penny stock regulations and FINRAs sales practice requirements, which may limit a stockholders ability to buy and sell our stock.
Our stock is a penny stock. The Securities and Exchange Commission has adopted Rule 15g-9 which generally defines penny stock to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. Our securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and accredited investors. The term accredited investor refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the SEC which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customers account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customers confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchasers written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities. We believe that the penny stock rules discourage investor interest in, and limit the marketability of, our common stock.
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FINRA sales practice requirements may also limit a stockholders ability to buy and sell our stock.
In addition to the penny stock rules promulgated by the Securities and Exchange Commission (see above for a discussion of penny stock rules), FINRA rules require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customers financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not Applicable
ITEM 2. PROPERTIES
Executive Offices and Resident Agent
Since October 2007, we have rented offices on a monthly basis in Williston, North Dakota. On November 7, 2008, we gave notice of termination for that office in order to reduce operational and overhead expenses. Effective on that date, we have used our offices at 2 Sheraton Street in London, UK as our primary and principal executive office, which has been rented since November 2005.
Our office is pursuant to a standard month to month office services agreement. We believe this office space is sufficient to meet our needs for the foreseeable future.
Our resident agent for service of process is Business First Formations, Inc., 2470 Wrondel Way Ste 114, Reno, NV 89502
Oil and Gas Properties
Undeveloped Acreage
As of December 14, 2009, we have a total of 14 oil and gas leases with a 100% working interest, in addition to 16 oil and gas leases with royalty interests that range from 3% up to 4.5% . All the leases are in North Dakota. The following table shows our undeveloped acreage and minimum remaining terms of leases and concessions. By “undeveloped acreage,” we mean those lease acres on which wells have not been drilled or completed to a point that would permit the production of commercial quantities of oil and gas regardless of whether or not such acreage contains proved reserves.
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Property |
Type |
Approximate |
Expires |
100% of one oil and gas lease in Slope County, North Dakota |
US Government Bureau of Land Management Lease |
640 |
January 2011 |
100% of thirteen oil and gas leases in Stark County, North Dakota |
Private Leases |
1,120 |
Between July and October, 2010 |
100% of seven oil and gas leases in Stark County, North Dakota, making up the Bakken prospect |
Private Leases |
1,000 |
Between July and August, 2010 |
A 3% royalty interest in five oil and gas leases in Stark County, North Dakota |
Private Leases |
0 |
March 2011 |
A 4.5% royalty interest in eleven oil and gas leases in Stark County, North Dakota |
State Leases |
0 |
November 2010 |
Total |
|
2,760 |
|
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Lodgepole Reef Oil Prospects - Stark and Slope Counties, North Dakota
We purchased a working interest in seven Lodgepole Reef prospects within the proven Williston Basin for an acquisition cost of $142,690 as follows:
(1) |
On November 9, 2007, we entered into a Farmout Agreement with Oil For America LLC whereby we received a 100% working interest after payout in the oil and gas leases of two Lodgepole Reef prospects in Stark County for cash consideration of $40,000. Both prospects are three year paid up leases with a 17% landowners royalty and a 12.5% back-in working interest for Oil For America after royalty payout. If we drill both prospects, Oil For America has agreed to identify eight additional Lodgepole Reef prospects for us under the same terms. | |
(2) |
On December 11, 2007, we entered into a Farmout agreement with CPC whereby we received a 100% working interest after payout in the oil and gas leases of four Lodgepole Reef prospects in Slope County for cash consideration of $80,000. Each prospect is a three year paid-up lease with a 20% landowners royalty and a 20% back-in working interest for CPC after royalty payout. | |
(3) |
On April 17, 2008, we entered into a memorandum of understanding with Oil For America whereby we will receive a 100% working interest after payout in the Rocheford 27-1 Lodgepole Reef prospect in Stark County for cash consideration of $22,690. This amount was paid following verification by a third party geologist of the potential oil and gas reserves involved. It is expected this prospect will involve three year paid-up leases with a 17% landowners royalty and a 12.5% back-on working interest for Oil For America after royalty payout. On November 15, 2009 we entered into a memorandum of understanding with Oil For America whereby we agreed to sell the Rocheford 27-1 Lodgepole Reef prospect in Stark County for cash consideration of $25,000, reserving a 3% over-riding royalty for ourselves. The leases were assigned back to Oil for America on November 23, 2009. |
State Lease Prospects, Stark County, North Dakota
On November 3, 2008, we entered into a letter of intent with East Dickinson Oil and Gas Co. for the assignment of 11 State of North Dakota four year oil & gas exploration leases located in and around Dickinson, North Dakota, amounting to approximately 775 acres. Nine of the Leases have a 12.5% royalty and two of the Leases have a 16.7% royalty, all payable to the State. A total of $10,000 was paid for the 11 leases, which were immediately assigned to the Company. On September 18, 2009 we entered into a memorandum of understanding with Oil For America whereby we agreed to sell the 11 State Lease prospects in Stark County for cash consideration of $13,500, reserving a 4.5% over-riding royalty for ourselves. The leases were assigned back to Oil for America on September 18, 2009.
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Bakken Shale oil prospects Stark County, North Dakota
On May 6, 2008, we entered into a memorandum of understanding with Oil For America to identify and acquire up to 4 of 1,280 acre Bakken prospects at a cost yet to be determined. The Company exercised its option on one of the 1,280 acre Bakken prospects and paid $40,000 to OFA on July 31, 2008 as part of this leasing operation with an estimated total cost of $160,000. The Company will have a 100% working interest, subject only to landowner royalties and a 20% back-in working interest for OFA after royalty payout. On October 10, 2008, the leases contained herein were legally assigned to the Company.
In addition to the above prospective properties, we intend to acquire additional oil and gas interests in the future. Management believes that future growth of our company will primarily occur through the acquisition of oil and gas properties following extensive due diligence by our company. However, we may elect to proceed through collaborative agreements, joint venture agreements or other agreements with other experts in the oil and gas industry in order to share expertise and reduce operating costs. The analysis of new property interests will be undertaken by or under the supervision of our management, advisory board and board of directors. Although the oil and gas industry is currently very competitive, management believes that many undervalued prospective properties are available for acquisition and exploration purposes.
Since we are an exploration stage company, there is no assurance that a commercially viable oil and gas reserve exists on any of our property interests, and a great deal of additional exploration will be required before a final evaluation of the economic and legal feasibility for our future expansion is determined. To date, we have not discovered an economically viable oil and gas reserve on any of our property interests, and there is no assurance that we will discover one.
Our plan of operation is to conduct exploration work on each of our property interests in order to ascertain whether any possess commercially exploitable oil and gas reserves. There can be no assurance that such oil and gas reserves exist on any of our property interests.
Even if we complete our proposed exploration programs on our property interests and we are successful in identifying an oil and gas reserve, we will have to spend substantial funds on further drilling and engineering studies before we will know whether we have a commercially viable oil and gas reserve.
Starbuck East Shallow Gas Prospect Valley County, Montana
On August 22, 2007, we acquired rights to this prospect by issuing 1,500,000 of our common shares valued at $450,000 through the assignment of a farmout agreement that Power Energy Enterprises SA had with Coastal Petroleum Company. The Starbuck East prospect is approximately 42,000 acres in Valley County, Montana. The leases, which make up Starbuck East are owned by Coastal Petroleum Company of Apalachicola, Florida.
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On August 30, 2007 we entered into a farmout agreement directly with Coastal Petroleum regarding this prospect, which provides that we may:
(1) |
drill four step out wells as soon as possible following completion of a successful test well, of which there is no assurance; | |
(2) |
complete a reserve study; | |
(3) |
obtain financing based upon the reserve study to complete the development of the field; and, | |
(4) |
install pipelines needed to carry the gas to transmission lines. |
Under this agreement, we paid 100% of the costs of the test well and associated lease rentals, in return for 100% of the working interest before payout on the test well and 80% of the working interest of the test well after payout.
In October, 2007, we paid $384,000 to Coastal Petroleum for test well drilling and lease rentals following receipt of the required drilling permits from the United States Bureau of Land Management. Additional payments of $97,824 were made from November 2007 to July 2008 for test well activities and a geological engineering report regarding preliminary verification of potential gas resources. On October 21, 2008, a final payment of $26,726 was made to Coastal Petroleum for test well completion costs.
The terms of the farmout agreement required that we pay $1,000,000 to Coastal Petroleum, within 30 days of test well completion, in order to purchase a 50% undivided working interest in all leases owned by Coastal Petroleum. This purchase price was to be paid to Coastal Petroleum in five installments of $200,000 each over the drilling period of the four step-out wells. We and Coastal Petroleum would each be required to pay 50% of the drilling cost of those wells and share revenues equally. We were also given the option to pay Coastal Petroleum a non-refundable $50,000 to extend the election period from 30 to 60 days following test well completion. This amount was to be applied against the first installment of $200,000.
On November 5, 2008, Coastal Petroleum informed us that completion efforts on the Federal 1-19 well were finished, and we were given 30 days to elect to purchase the leases in Starbuck East for $1,000,000. We were advised by Coastal Petroleum that the results of the exploration efforts were inconclusive. We determined that the purchase of the leases was not in the best interests of the company and chose not to purchase them.
We estimated that the next stage of exploration on Starbuck East would require an additional $1,000,000, which would be used to drill three wells, a gathering system, and a tap in to the Northern Border pipeline, the nearest major supply pipeline located approximately 8 miles from the property. This would have been in addition to the $1,000,000 lease acquisition cost payable to Coastal Petroleum, for a total estimated $2,000,000.
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Consequently, we decided not to elect to purchase the leases on Starbuck East, and not to pay $1,000,000 to acquire 50% of the leases held by Coastal Petroleum. As a result, we were required to write off our full investment in leases and drilling operations on the Starbuck East prospect, and we took a one-time impairment charge of $960,551.
ITEM 3. LEGAL PROCEEDINGS
We know of no material, existing or pending legal proceedings against our company, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial stockholder, is an adverse party or has a material interest adverse to our interest.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market information
Our common stock is quoted on the OTC Bulletin Board under the symbol WSEG. The following table shows the quarterly range of high and low bid information for our common stock over the fiscal quarters for the last two fiscal years as quoted on the OTC Bulletin Board. The bid prices represent quotations by dealers without adjustments for retail mark-ups, mark-downs or commissions and may not represent actual transactions. Investors should not rely on historical prices of our common stock as an indication of its future price performance.
The last sale price of our common stock as reported on Yahoo! Finance on December 8, 2009, was $0.02 per share.
Quarter Ended | Bid High | Bid Low | ||||
08/31/2009 | $ | 0.042 | $ | 0.016 | ||
05/29/2009 | $ | 0.047 | $ | 0.03 | ||
02/27/2009 | $ | 0.055 | $ | 0.015 | ||
11/28/2008 | $ | 0.185 | $ | 0.045 | ||
08/29/2008 | $ | 0.52 | $ | 0.16 | ||
05/30/2008 | $ | 0.86 | $ | 0.402 | ||
02/29/2008 | $ | 0.63 | $ | 0.30 | ||
11/30/2007 | $ | 0.60 | $ | 0.00 |
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Transfer Agent
Our shares of common stock are in registered form. Our transfer agent for our common stock is the Nevada Agency and Trust Company at 50 West Liberty Street, Suite 880, Reno, NV 89501, Tel: 775-322-0626 Fax: 775-322-5623
Holders of Common Stock
As of December 2, 2009, we have 25 registered shareholders holding 92,136,022 shares of our common stock.
Dividends
We have never declared or paid any cash dividends or distributions on our capital stock. We currently intend to retain our future earnings, if any, to support operations and to finance expansion and therefore we do not anticipate paying any cash dividends on our common stock in the foreseeable future.
Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities
On September 17, 2008 we issued 1,000,000 units of our securities at a price of $0.15 per unit to one offshore investor pursuant to a private placement subscription agreement dated September 17, 2008. Each unit consists of one share of our common stock and one warrant to purchase additional shares of common stock at a price of $0.30 per warrant share for a period of three years. The investor is an accredited investor, and in issuing the shares we relied on the exemption from the registration requirements of the Securities Act of 1933, as amended, provided by Section 4(2) of the Act and/or by Rule 506 of Regulation D promulgated thereunder.
On February 16, 2009 we issued 600,000 units of our securities at a price of $0.05 per unit to one offshore investor pursuant to a private placement subscription agreement dated February 16, 2009. Each unit consists of one share of our common stock and one warrant to purchase additional shares of common stock at a price of $0.10 per warrant share for a period of three years. The investor is an accredited investor, and in issuing the shares we relied on the exemption from the registration requirements of the Securities Act of 1933, as amended, provided by Section 4(2) of the Act and/or by Rule 506 of Regulation D promulgated thereunder.
On June 23, 2009 we issued 500,000 units of our securities at a price of $0.03 per unit to one offshore investor pursuant to a private placement subscription agreement dated February 16, 2009. Each unit consists of one share of our common stock and one warrant to purchase additional shares of common stock at a price of $0.06 per warrant share for a period of three years. The investor is an accredited investor, and in issuing the shares we relied on the exemption from the registration requirements of the Securities Act of 1933, as amended, provided by Section 4(2) of the Act and/or by Rule 506 of Regulation D promulgated thereunder.
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Purchases of Equity Securities by the Issuer and Affiliated Purchasers
The following table is a summary of purchases made by or on behalf of our company or any "affiliated purchaser," of shares or other units of any class of the our equity securities that is registered by the issuer pursuant to section 12 of the Exchange Act.
(a) | (b) | (c) | (d) | |
Period |
Total Number of Shares (or Units) Purchased |
Average Price Paid per Share (or Unit) |
Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs |
Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs |
Nil | Nil | Nil | Nil | Nil |
ITEM 6 SELECTED FINANCIAL DATA
Not applicable.
ITEM 7 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
The following discussion should be read in conjunction with our financial statements and the related notes that appear elsewhere in this annual report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward looking statements. Factors that could cause or contribute to such differences include those discussed below and elsewhere in this annual report on Form 10-K.
Our audited financial statements are stated in United States Dollars and are prepared in accordance with United States Generally Accepted Accounting Principles.
In addition to the prospective properties described above, we intend to acquire additional oil and gas interests in the future pending recovery of the North American economy. Management believes that future growth of our company will primarily occur through the acquisition of oil and gas properties following extensive due diligence. However, we may elect to proceed through collaborative agreements, joint venture agreements or other agreements with other experts in the oil and gas industry in order to share expertise and reduce operating costs. The analysis of new property interests will be undertaken by or under the supervision of our management, advisory board and board of directors. Although the oil and gas industry is currently very competitive, management believes that many undervalued prospective properties are available for acquisition and exploration purposes.
Since we are an exploration stage company, there is no assurance that a commercially viable oil and gas reserve exists on any of our property interests, and a great deal of additional exploration will be required before a final evaluation of the economic and legal feasibility for our future
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expansion is determined. To date, we have not discovered an economically viable oil and gas reserve on any of our property interests, and there is no assurance that we will discover one.
Our plan of operation is to conduct exploration work on each of our property interests in order to ascertain whether any possess commercially exploitable oil and gas reserves. There can be no assurance that such oil and gas reserves exist on any of our property interests.
Even if we complete our proposed exploration programs on our property interests and we are successful in identifying an oil and gas reserve, we will have to spend substantial funds on further drilling and engineering studies before we will know whether we have a commercially viable oil and gas reserve.
Liquidity
Anticipated Cash Requirements
Over the next 12 months, we have estimated our minimum cash requirements as follows:
Operating Expenses | |||
Management and consulting fees | $ | 153,000 | |
Professional fees | 52,000 | ||
General, administration and all other expenses | 60,000 | ||
$ | 265,000 | ||
Oil and gas acquisition and exploration expenditures | 50,000 | ||
Total | $ | 315,000 |
For the 12 months ended August 31, 2009, we recorded a net operating loss of $1,437,460 and have an accumulated deficit of $4,713,338 since inception. As at August 31, 2009, we had cash of ($1,604) and for the next 12 months, management estimates minimum cash requirements of $1,000,000 to fund our on-going operations and planned oil and gas acquisition and exploration activities. Accordingly, we do not have sufficient funds to meet our plan of operation over the next 12 months and will need to obtain further financing.
Our financial condition for the years ended August 31, 2009 and 2008 and the changes between those periods for the respective items are summarized as follows:
Working Capital
Our working capital position as at August 31, 2009 compared to August 31, 2008 and the cash flows for the years then ended are summarized below:
12 months Ended August 31 | ||||||
2009 | 2008 | |||||
Current Assets | $ | 1,872 | $ | 98,233 | ||
Current Liabilities | (244,669 | ) | (89,106 | ) | ||
Working Capital (Deficiency) | $ | (242,797 | ) | $ | 9,127 |
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The decrease in our working capital position was primarily due to the accrual of operating expenses.
Cash Flows
12 Months Ended August 31 | |||||||
2009 | 2008 | ||||||
Net cash used in Operating Activities | $ | (393,509 | ) | $ | (1,183,507 | ) | |
Net cash used in Investing Activities | (38,727 | ) | (670,041 | ) | |||
Net cash provided by Financing Activities | 360,705 | 1,920,000 | |||||
Increase (Decrease) in Cash during the Year | $ | (71,531 | ) | $ | 66,452 | ||
Cash, Beginning of Year | 69,927 | 3,475 | |||||
Cash, End of Year | $ | (1,604 | ) | $ | 69,927 |
During the years ended August 31, 2009 and 2008:
(i) |
We used net cash in operating activities in the amount of $393,509 and 1,183,507 respectively due to the approximate equivalent amount of net losses incurred in both years. | |
(ii) |
We invested cash of $38,727 substantially all related to the acquisition and exploration of various oil and gas prospects in 2009 compared to $670,041 in 2008 due to a decline in activity during the period. | |
(iii) |
We received net cash from various private placement equity financings in the amount of $360,705 in 2009 compared to $1,920,000 in 2008. |
Results of Operations
The following summary of our results of operations should be read in conjunction with our audited financial statements for the year ended August 31, 2009 and 2008 which are included herein.
12 Months Ended August 31 | ||||||
2009 | 2008 | |||||
Revenue | $ | Nil | $ | Nil | ||
Expenses | ||||||
Impairment of oil and gas properties | $ | 960,551 | 0 | |||
Management and consulting fees | 227,766 | $ | 379,069 | |||
Professional fees | 106,083 | 158,139 | ||||
General and office administration | 105,918 | 187,990 | ||||
Investor relations, transfer agent and media | 37,142 | 408,391 | ||||
Product development | 0 | 0 | ||||
Total expenses | $ | 1,437,460 | $ | 1,133,589 | ||
Net Loss | $ | (1,437,460 | ) | $ | (1,133,589 | ) |
Oil and gas acquisition and exploration expenditures | $ | 38,727 | $ | 664,515 |
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Revenue
We have not earned any revenues since our inception and we do not anticipate earning revenues until such time as we have begun commercial production from our oil and gas prospects. We are currently in the exploration stage of our business and we can provide no assurances that we will discover commercially exploitable resources on our properties, or if such resources are discovered, that we will be able to begin commercial production.
Expenses
Our operating expenses for the year ended August 31, 2009 compared to the same period in 2008 increased by the net amount of $303,871 primarily due to unsuccessful well completion operations in the Starbuck East prospect in Valley County, Montana, a $960,551 impairment cost on our oil and gas leases.
Going Concern
The audited financial statements accompanying this report have been prepared on a going concern basis, which implies that our company will continue to realize its assets and discharge its liabilities and commitments in the normal course of business. Our company has not generated revenues since inception, has never paid any dividends and is unlikely to pay dividends or generate earnings in the immediate or foreseeable future. The continuation of our company as a going concern is dependent upon: (i) the continued financial support from our shareholders; (ii) the ability of our company to continue raising necessary equity financing to achieve its operating objectives; (iii) confirmation of the resource value of our oil and gas prospects; and (iv) the eventual attainment of profitable operations. As at August 31, 2009, our company has working capital of ($1,604) and has accumulated losses of $4,713,338 since inception.
Our independent auditors included an explanatory paragraph in their annual report on our financial statements for the year ended August 31, 2009 regarding concerns about our ability to continue as a going concern. In addition, our financial statements contain further note disclosures in this regard. The continuation of our business plan is dependent upon our ability to continue raising sufficient new capital from equity or debt markets in order to fund our on-going operating losses and oil and gas acquisition and exploration activities. The issuance of additional equity securities could result in a significant dilution in the equity interests of our current stockholders.
Application of Critical Accounting Policies
Basis of presentation
The unaudited interim consolidated financial statements of Western Standard have been prepared in accordance with generally accepted accounting principles for interim financial reporting and the rules and regulations of the Securities and Exchange Commission. They do not include all information and footnotes required by United States generally accepted accounting principles for complete financial statements. However, except as disclosed herein, there have been no material changes in the information disclosed in the notes to the financial statements for the year ended
26
August 31, 2009 included in our Annual Report on From 10-K filed with the Securities and Exchange Commission. In the opinion of management, all adjustments considered necessary for fair presentation, consisting solely of normal recurring adjustments, have been made.
Use of estimates and assumptions
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. We base our estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are readily apparent from other sources. The actual results experienced by us may differ materially from our estimates. To the extent there are material differences, future results may be affected. Estimates used in preparing these financial statements include the carrying value of oil and gas properties, and the fair value of stock-based compensation.
Oil and gas properties
We utilize the full cost method to account for our investment in unproven oil and gas properties. Accordingly, all costs associated with acquisition, exploration and development of oil and gas reserves, including such costs as leasehold acquisition costs, capitalized interest costs relating to unproven properties, geological expenditures, tangible and intangible development costs (including direct internal costs), are capitalized into the full cost pool. When we commence production from established proven oil and gas reserves, capitalized costs, including estimated future costs to develop the reserves and estimated abandonment costs, will be depleted on the units-of-production method using estimates of proven reserves. Investments in unproved properties and major development projects, including capitalized interest if any, are not depleted until proven reserves associated with the projects can be determined. If the future exploration of unproven properties are determined to be uneconomical, the amount of such properties is added to the capital costs to be depleted. As of August 31, 2009, all of our oil and gas properties were unproven and excluded from depletion.
The capitalized costs included in the full cost pool are subject to a ceiling test, which limits such costs to the aggregate of the estimated present value, using a 10% discount rate, of the future net revenues from the proven reserves, based on current economic and operating conditions plus the lower of cost and estimated net realizable value of unproven properties.
Sales of proven and unproven properties are accounted for as adjustments of capitalized costs with no gain or loss recognized, unless such adjustments would significantly alter the relationship between capitalized costs and proven reserves of oil and gas, in which case the gain or loss is recognized in the statement of operations.
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Long-Lived Assets
In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, the carrying value of intangible assets and other long-lived assets is reviewed on a regular basis for the existence of facts or circumstances that may suggest impairment. We recognize impairment when the sum of the expected undiscounted future cash flows is less than the carrying amount of the asset. Impairment losses, if any, are measured as the excess of the carrying amount of the asset over its estimated fair value.
Stock-based compensation
We have adopted the fair value recognition provisions of SFAS No. 123R, Share Based Payments, whereby compensation expense is recognized for all share-based payments based on the fair value at monthly vesting dates, estimated in accordance with the provisions of SFAS 123R.
All transactions in which goods and services are the consideration received for the issuance of equity instruments are accounted for based on fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. Equity instruments issued to Advisory Board members and the cost of the services received as consideration are measured and recognized based on the fair value of the equity instruments issued.
We have not adopted a stock option plan and therefore no stock-based compensation has been recorded to date for stock options.
Foreign Currency Translation
Our functional and reporting currency is the United States dollar and of our United Kingdom subsidiary is the Pound Sterling. The financial statements of the subsidiary are translated to United States dollars in accordance with SFAS No. 52 Foreign Currency Translation using period-end rates of exchange for assets and liabilities, and average rates of exchange for the period for revenues and expenses. Foreign currency transaction gains (losses) and translation gains (losses) are both included in current operations. We have not, to the date of these unaudited interim financial statements, entered into derivative instruments to offset the impact of foreign currency fluctuations.
Recent accounting pronouncements
Our companys management does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, will have a material effect on the accompanying unaudited interim financial statements.
In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities, an Amendment of FASB Statement No. 133 (SFAS 161). SFAS 161 amends and expands the disclosure requirements of FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities
28
as amended (SFAS 133), to provide enhanced disclosures about how and why an entity uses derivative instruments; how derivative instruments and related hedged items are accounted for under SFAS 133; and how derivative instruments and related hedged items affect an entitys financial position, financial performance, and cash flows. SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after May 31, 2009, with early application encouraged. We have reached the conclusion that this will have no impact on our consolidated financial statements.
In May 2008, the FASB issued Statement of Financial Accounting Standards No. 162, The Hierarchy of Generally Accepted Accounting Principles (SFAS 162). SFAS 162 identifies a consistent framework, or hierarchy, for selecting accounting principles to be used in preparing financial statements that are presented in conformity with U.S. generally accepted accounting principles for nongovernmental entities. SFAS 162 is effective 60 days following the SECs approval of the Public Company Accounting Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles. We have reached the conclusion that this will have no impact on our consolidated financial statements.
In June 2008, the FASB issued FASB Staff Position No. EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities (FSP EITF 03-6-1). FSP EITF 03-6-1 establishes that unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities as defined in Emerging Issues Task Force (EITF) Issue No. 03-6, Participating Securities and the Two-Class Method under FASB Statement No. 128, and should be included in the computation of earnings per share pursuant to the two-class method as described in Statement of Financial Accounting Standards No. 128, Earnings per Share. FSP EITF 03-6-1 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those years. All prior-period earnings per share data presented shall be adjusted retrospectively to conform to the provisions of FSP EITF 03-6-1. Early application is not permitted. We are currently evaluating the impact that the adoption of FSP EITF 03-6-1 will have on its consolidated financial statements.
In September 2008, the FASB issued two separate but related exposure drafts: (1) Proposed Statement of Financial Accounting Standards, Accounting for Transfers of Financial Assets an amendment of FASB Statement No. 140, and (2) Proposed Statement of Financial Accounting Standards, Amendments to FASB Interpretation No. 46(R) (together, the proposed Statements). The proposed Statements would remove the concept of a qualifying special-purpose entity (QSPE) from SFAS 140 and the exceptions from applying FIN 46R to QSPEs. The proposed Statements would be effective as of the beginning of a reporting entitys fiscal year that begins after November 15, 2009. We have reached the conclusion that this will have no impact on our consolidated financial statements.
In November 2008, the Financial Accounting Standards Board (the FASB) voted on the effective date and other amendments of proposed FASB Staff Position FAS 140-e and FIN 46(R)-e, Disclosures about Transfers of Financial Assets and Interests in Variable Interest Entities (FSP FAS 140-e and FIN 46R-e). FSP FAS 140-e and FIN 46R-e would amend
29
SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities as amended (SFAS 140) and FASB Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities (FIN 46R) to require enhanced disclosures by public entities about transfers of financial assets and interests in variable interest entities, and provide users of the financial statements with greater transparency about a transferors continuing involvement with transferred financial assets and an enterprises involvement with variable interest entities. The disclosures required by FSP FAS 140-e and FIN 46R-e will be effective for reporting periods (interim and annual) ending after December 15, 2008. We have reached the conclusion that this will have no impact on our consolidated financial statements.
Off-Balance Sheet Arrangements
We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial position, revenues and expenses, results of operations, liquidity, capital expenditures or capital resources that are material to stockholders.
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors of Western Standard Energy Corp.
We have audited the accompanying consolidated balance sheets of Western Standard Energy Corp. (an exploration stage company) as of August 31, 2009 and 2008 and the related consolidated statements of operations, stockholders deficit and cash flows for the years then ended and the period from October 16, 2003 (Inception) to August 31, 2009. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of Western Standard Energy Corp. as of August 31, 2009 and 2008 and the results of its operations and its cash flows for the years then ended and the period from October 16, 2003 (Inception) to August 31, 2009 in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has not generated revenues since inception, has incurred losses in developing its business, and further losses are anticipated. The Company requires additional funds to meet its obligations and the costs of its operations. These factors raise substantial doubt about the Companys ability to continue as a going concern. Managements plans in this regard are described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ DMCL
DALE MATHESON CARR-HILTON LABONTE LLP
CHARTERED ACCOUNTANTS
Vancouver, Canada
December 14 , 2009
F-1
WESTERN STANDARD ENERGY CORP.
(An Exploration Stage
Company)
CONSOLIDATED BALANCE SHEETS
August 31, | August 31, | |||||
2009 | 2008 | |||||
ASSETS | ||||||
CURRENT ASSETS | ||||||
Cash | $ | - | $ | 69,927 | ||
Other receivables | 535 | 1,885 | ||||
Prepaid expenses | 1,337 | 26,421 | ||||
1,872 | 98,233 | |||||
OIL AND GAS PROPERTIES, unproven | 192,691 | 1,114,515 | ||||
EQUIPMENT, net | - | 5,728 | ||||
$ | 194,563 | $ | 1,218,476 | |||
LIABILITIES | ||||||
CURRENT LIABILITIES | ||||||
Bank indebtedness | $ | 1,604 | $ | - | ||
Accounts payable and accrued liabilities | 51,352 | 59,106 | ||||
Due to related parties | 191,713 | 30,000 | ||||
244,669 | 89,106 | |||||
STOCKHOLDERS' EQUITY (DEFICIT) | ||||||
COMMON STOCK | ||||||
Authorized: | ||||||
2,812,500,000 common shares with a par value of $0.001 | ||||||
Issued and outstanding: | ||||||
92,136,022 common shares (August 31, 2008 - 90,036,022) | 92,136 | 90,036 | ||||
ADDITIONAL PAID IN CAPITAL | 4,463,029 | 4,270,129 | ||||
OBLIGATION TO ISSUE SHARES | 108,067 | 45,083 | ||||
DEFICIT ACCUMULATED DURING EXPLORATION STAGE | (4,713,338 | ) | (3,275,878 | ) | ||
(50,106 | ) | 1,129,370 | ||||
$ | 194,563 | $ | 1,218,476 |
The accompanying notes are an integral part of these consolidated financial statements.
F-2
WESTERN STANDARD ENERGY CORP.
(An Exploration Stage
Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
Cumulative from | |||||||||
October 16, 2003 | |||||||||
Years Ended August 31, | (Inception) to | ||||||||
2009 | 2008 | August 31, 2009 | |||||||
OPERATING EXPENSES | |||||||||
Advertising and promotion | $ | 161 | $ | 8,884 | $ | 48,670 | |||
Audit and accounting fees | 62,558 | 97,499 | 235,368 | ||||||
Depreciation | 1,736 | 1,123 | 12,280 | ||||||
Consulting fees and expenses | 1,333 | 16,583 | 17,916 | ||||||
Foreign exchange loss | 9,759 | 6,921 | 20,838 | ||||||
Impairment of oil and gas properties | 960,551 | - | 960,551 | ||||||
Interest expense | 3,196 | 11,812 | 35,012 | ||||||
Interest income | (165 | ) | (947 | ) | (3,716 | ) | |||
Investor communications and transfer agent | 22,715 | 327,228 | 484,931 | ||||||
Legal fees | 43,525 | 60,640 | 201,931 | ||||||
Office and general administration | 24,763 | 27,951 | 192,789 | ||||||
Product development | - | - | 876,451 | ||||||
Salaries and management fees | 226,433 | 362,486 | 1,228,677 | ||||||
Stock-based compensation | 56,833 | 45,083 | 104,366 | ||||||
Travel and entertainment | 9,796 | 117,537 | 193,807 | ||||||
Web and graphic design | 14,266 | 81,163 | 127,981 | ||||||
Write-down of assets and liabilities - net | - | (30,374 | ) | (24,514 | ) | ||||
NET LOSS | $ | 1,437,460 | $ | 1,133,589 | $ | 4,713,338 | |||
NET LOSS PER SHARE - basic and diluted | $ | 0.02 | $ | 0.01 | |||||
WEIGHTED AVERAGE NUMBER OF COMMON | |||||||||
SHARES OUTSTANDING - BASIC AND DILUTED | 91,399,036 | 88,073,697 |
The accompanying notes are an integral part of these consolidated financial statements.
F-3
WESTERN STANDARD ENERGY CORP.
(An Exploration Stage
Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Cumulative from | |||||||||
October 16, 2003 | |||||||||
Years Ended August 31, | (Inception) to | ||||||||
2009 | 2008 | August 31, 2009 | |||||||
CASH FLOW FROM OPERATING ACTIVITIES | |||||||||
Net loss | $ | (1,437,460 | ) | $ | (1,133,589 | ) | $ | (4,713,338 | ) |
Non-cash items included in net loss | |||||||||
Impairment of oil and gas properties | 960,551 | 960,551 | |||||||
Write-down of accounts payable | - | 30,374 | 30,374 | ||||||
Write-down of assets | - | - | 5,860 | ||||||
Depreciation | 1,736 | 1,123 | 12,280 | ||||||
Stock issued for services | 56,833 | 45,083 | 104,366 | ||||||
Changes in non-cash working capital | |||||||||
Other receivables | 1,350 | (1,885 | ) | (535 | ) | ||||
Prepaid expenses | 25,084 | (22,870 | ) | 30,313 | |||||
Accounts payable and accrued liabilities | (1,603 | ) | (101,743 | ) | (56,398 | ) | |||
Net cash used in operating activities | (393,509 | ) | (1,183,507 | ) | (3,626,527 | ) | |||
CASH FLOW FROM INVESTING ACTIVITIES | |||||||||
Purchase of equipment | - | (5,526 | ) | (20,287 | ) | ||||
Expenditures on oil and gas properties | (38,727 | ) | (664,515 | ) | (703,242 | ) | |||
Net cash used in investing activities | (38,727 | ) | (670,041 | ) | (723,529 | ) | |||
CASH FLOW FROM FINANCING ACTIVITIES | |||||||||
Increase in bank indebtedness | 1,604 | - | 1,604 | ||||||
Unpaid amounts from related parties | 165,705 | 30,000 | 1,311,816 | ||||||
Issuance of common shares for cash | 195,000 | 1,890,000 | 2,685,000 | ||||||
Net cash acquired on recapitalization | - | - | 351,636 | ||||||
Net cash provided by financing activities | 362,309 | 1,920,000 | 4,348,452 | ||||||
INCREASE (DECREASE) IN CASH | (69,927 | ) | 66,452 | (1,604 | ) | ||||
CASH, BEGINNING | 69,927 | 3,475 | - | ||||||
CASH, ENDING | $ | - | $ | 69,927 | - | ||||
SUPPLEMENTARY INFORMATION | |||||||||
Cash paid for: | |||||||||
Interest | $ | 1,733 | $ | 11,812 | $ | 33,549 | |||
Income taxes | $ | - | $ | - | $ | - | |||
Non-cash financing and investing activities: | |||||||||
Loans converted to common stock | $ | - | $ | - | $ | 879,842 | |||
Oil and gas property purchased for common stock | $ | - | $ | - | $ | 450,000 |
The accompanying notes are an integral part of these consolidated financial statements.
F-4
WESTERN STANDARD ENERGY CORP.
(An Exploration Stage Company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
FOR THE PERIOD FROM OCTOBER 16, 2003 TO AUGUST 31, 2009
Additional | Obligation | Total | ||||||||||||||||
Common Stock | Paid-in | to Issue | Accumulated | Stockholders' | ||||||||||||||
Shares | Amount | Capital | Shares | Deficit | Deficit | |||||||||||||
Balance - October 16, 2003 (Date of Inception) | - | $ | - | $ | - | $ | - | $ | - | $ | - | |||||||
Issuance of stock at $0.001 per share | 2 | - | ||||||||||||||||
Net loss | (150,261 | ) | (150,261 | ) | ||||||||||||||
Balance - August 31, 2004 | 2 | - | - | - | (150,261 | ) | (150,261 | ) | ||||||||||
Issuance of stock for services at $0.001 per share | 26,999,999 | 27,000 | (9,000 | ) | 18,000 | |||||||||||||
Issuance of stock for services at $0.001 per share | 562,500 | 563 | (188 | ) | 375 | |||||||||||||
Net loss | (491,574 | ) | (491,574 | ) | ||||||||||||||
Balance August 31, 2005 | 27,562,500 | 27,562 | (9,187 | ) | - | (641,835 | ) | (623,460 | ) | |||||||||
Issuance of stock for services at $0.001 per share | 4,500,000 | 4,500 | (1,500 | ) | 3,000 | |||||||||||||
Issuance of stock for loan conversions at $0.0335 per share | 2,812,500 | 2,813 | 91,498 | 94,310 | ||||||||||||||
Issuance of stock for loan conversions at $0.0676 per share | 11,625,000 | 11,625 | 773,907 | 785,532 | ||||||||||||||
Net loss | (336,776 | ) | (336,776 | ) | ||||||||||||||
Balance August 31, 2006 | 46,500,000 | 46,500 | 854,717 | - | (978,611 | ) | (77,394 | ) | ||||||||||
Cancellation of shares returned to treasury at $0.001 per share | -1,387,500 | (1,388 | ) | 463 | (925 | ) | ||||||||||||
Issuance of stock for cash at $0.0005 per share | 93,750,000 | 93,750 | (43,750 | ) | 50,000 | |||||||||||||
Issuance of stock under private placement for cash at $0.333 per share | 600,000 | 600 | 199,400 | 200,000 | ||||||||||||||
Issuance of stock under private placement for cash at $0.667 per share | 862,500 | 863 | 574,138 | 575,000 | ||||||||||||||
Cancellation of shares | -54,862,500 | (54,863 | ) | 54,863 | ||||||||||||||
Recapitalization adjustment | (305,127 | ) | (305,127 | ) | ||||||||||||||
Issuance of stock under private placement for cash at $0.667 per share | 450,000 | 450 | 299,550 | 300,000 | ||||||||||||||
Issuance of stock under private placement for cash at $0.379 per share | 528,170 | 528 | 199,472 | 200,000 | ||||||||||||||
Issuance of stock under private placement for cash at $0.238 per share | 419,463 | 419 | 99,581 | 100,000 | ||||||||||||||
Issuance of stock for assignment of farmout agreement at $0.30 per share | 1,500,000 | 1,500 | 448,500 | 450,000 | ||||||||||||||
Net loss | (1,163,678 | ) | (1,163,678 | ) | ||||||||||||||
Balance August 31, 2007 | 88,360,133 | 88,360 | 2,381,805 | - | (2,142,289 | ) | 327,876 | |||||||||||
Issuance of stock under private placement for cash of $0.26 per share | 576,923 | 577 | 149,423 | 150,000 | ||||||||||||||
Cancellation of stock | (3,234,368 | ) | (3,234 | ) | 3,234 | - | ||||||||||||
Issuance of stock under private placement for cash of $0.40 per share | 1,600,000 | 1,600 | 638,400 | 640,000 | ||||||||||||||
Issuance of stock under private placement for cash of $0.50 per share | 1,500,000 | 1,500 | 748,500 | 750,000 | ||||||||||||||
Issuance of stock under private placement for cash of $0.30 per share | 833,334 | 833 | 249,167 | 250,000 | ||||||||||||||
Issuance of stock under private placement for cash of $0.25 per share | 400,000 | 400 | 99,600 | 100,000 | ||||||||||||||
Obligation to issue shares | - | - | - | 45,083 | - | 45,083 | ||||||||||||
Net loss | - | - | - | - | (1,133,589 | ) | (1,133,589 | ) | ||||||||||
Balance August 31, 2008 | 90,036,022 | $ | 90,036 | $ | 4,270,129 | $ | 45,083 | $ | (3,275,878 | ) | $ | 1,129,370 | ||||||
Issuance of stock under private placement for cash of $0.15 per share | 1,000,000 | 1,000 | 149,000 | 150,000 | ||||||||||||||
Issuance of stock under private placement for cash of $0.05 per share | 600,000 | 600 | 29,400 | 30,000 | ||||||||||||||
Issuance of stock under private placement for cash of $0.03 per share | 500,000 | 500 | 14,500 | 15,000 | ||||||||||||||
Obligation to issue shares | 62,984 | 62,984 | ||||||||||||||||
Net loss | (1,437,460 | ) | (1,437,460 | ) | ||||||||||||||
Balance August 31, 2009 | 92,136,022 | $ | 92,136 | $ | 4,463,029 | $ | 108,067 | $ | (4,713,338 | ) | $ | (50,106 | ) |
The accompanying notes are an integral part of these consolidated financial statements.
F-5
WESTERN STANDARD ENERGY CORP.
(An Exploration Stage
Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
August 31,
2009
1. NATURE OF BUSINESS AND CONTINUANCE OF OPERATIONS
Western Standard Energy Corp. (the Company) (formerly Lusora Healthcare Systems Inc. and before that Comtrix Inc) was incorporated on February 2, 2005 under the laws of the State of Nevada. Effective June 23, 2006, the Company merged with Lusora Corp., a private Nevada corporation, for the sole purpose of effecting a name change to Lusora Healthcare Systems Inc. to better reflect the intended future direction and business of the Company at that time.
On November 30, 2006, the Company acquired 100% of the issued and outstanding common stock of Lusora, Inc, a private Nevada company incorporated on October 16, 2003, and its wholly-owned subsidiary, Lusora Limited (name changed to Western Standard Energy Limited on September 7, 2008), a private United Kingdom company incorporated on November 1, 2005, pursuant to a share exchange agreement entered into with the shareholders of Lusora, Inc. Both companies were involved in the design and development of a wireless personal security and response system for elderly persons to enable relatives and professional care givers to stay in contact from remote locations. After closing of the Share Exchange Agreement, the Lusora, Inc shareholders held 54.4% of the issued and outstanding common shares of the Company. Accordingly, the transaction was accounted for as a recapitalization of Lusora, Inc, which is similar to a reverse acquisition, whereby Lusora, Inc is treated as the accounting parent (legal subsidiary) and the Company is treated as the accounting subsidiary (legal parent). This meant that Lusora, Inc, the acquired entity, was regarded as the predecessor and continuing entity as of November 30, 2006.
On September 7, 2007, the Company merged with its newly incorporated subsidiary, Western Standard Energy Corp., a private Nevada corporation, for the sole purpose of effecting a name change to Western Standard Energy Corp. to better reflect the intended future direction and business of the Company. Consequently, the Company became an independent oil and gas exploration company aiming to secure and develop a portfolio of oil and gas properties throughout the United States.
In addition, on September 7, 2007, the Company affected a one and one-half for one forward stock split (1.5:1) of its authorized, issued and outstanding common stock resulting in all share and per share information in these financial statements being presented on a retroactive basis as if the stock split took place at the beginning of all periods presented.
On November 7, 2007, the Company merged with its subsidiary, Lusora, Inc, to simplify the administration of its United States operations into one corporate entity.
Going concern
These consolidated financial statements
have been prepared in accordance with United States generally accepted
accounting principles, on a going concern basis, which contemplates the
realization of assets and the satisfaction of liabilities and commitments in the
normal course of business. As at August 31, 2009, the Company was in the
exploration stage; had a working capital deficiency of $242,797; and has
incurred losses since inception of $4,713,338. Further losses are anticipated in
the development of its business and there can be no assurance that the Company
will be able to achieve or maintain profitability. The continuing operations of
the Company and the recoverability of the carrying value of its assets depends
upon the ability of the Company to obtain necessary financing to fund its
on-going working capital requirements and exploration activities, and upon
future profitable operations. The accompanying
F-6
financial statements do not include any adjustments relative to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result from the outcome of this uncertainty. There is no assurance that equity or debt capital will be available as necessary to meet the Companys capital requirements or, if the capital is available, that it will be on terms acceptable to the Company. The issuances of additional equity securities by the Company may result in significant dilution in the equity interests of its current shareholders. Obtaining commercial loans, assuming those loans would be available, will increase the Company's liabilities and future cash commitments. If the Company is unable to obtain financing in the amounts and on terms deemed acceptable, the business and future success may be adversely affected.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation and consolidation
These
consolidated financial statements and related notes are presented in accordance
with generally accepted accounting principles in the United States of America
(US GAAP) and are expressed in US dollars. The Company is in the exploration
stage and has not realized any revenues from its planned operations to date.
These financial statements include the accounts of the Company and its
wholly-owned United Kingdom subsidiary, Western Standard Energy Limited. All
inter-company transactions and account balances have been eliminated on
consolidation.
Use of estimates and assumptions
The preparation of
financial statements in conformity with US GAAP requires the Company to make
estimates, judgments and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities as of the
date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates, judgments and assumptions. The actual results experienced by the
Company may differ materially from the Companys estimates. To the extent there
are material differences, future results may be affected. Estimates used in
preparing these financial statements include the carrying value of oil and gas
properties and the fair value of stock-based compensation.
Financial instruments
The carrying amounts of the
Companys financial instruments, which include cash, bank indebtedness other
receivables, accounts payable and amounts due to related parties, approximated
their fair values at August 31, 2009 and 2008, due to the short-term nature of
these instruments.
Oil and gas properties
The Company utilizes the full
cost method to account for its investment in oil and gas properties.
Accordingly, all costs associated with acquisition, exploration and development
of oil and gas reserves, including such costs as leasehold acquisition costs,
capitalized interest costs relating to unproven properties, geological
expenditures, tangible and intangible development costs (including direct
internal costs), are capitalized into the full cost pool. When the Company
commences production from established proven oil and gas reserves, capitalized
costs, including estimated future costs to develop the reserves and estimated
abandonment costs, will be depleted on the units-of-production method using
estimates of proven reserves. Investments in unproved properties and major
development projects, including capitalized interest if any, are not depleted
until proven reserves associated with the projects can be determined. If the
future, exploration of unproven properties are determined to be uneconomical,
the amount of such properties is added to the capital costs to be depleted. As
of August 31, 2009, all of the Companys oil and gas properties were unproven
and excluded from depletion.
F-7
The capitalized costs included in the full cost pool are subject to a ceiling test, which limits such costs to the aggregate of the estimated present value, using a 10% discount rate, of the future net revenues from the proven reserves, based on current economic and operating conditions plus the lower of cost and estimated net realizable value of unproven properties.
Sales of proven and unproven properties are accounted for as adjustments of capitalized costs with no gain or loss recognized, unless such adjustments would significantly alter the relationship between capitalized costs and proven reserves of oil and gas, in which case the gain or loss is recognized in the statement of operations.
Equipment
Equipment is recorded at cost less
accumulated depreciation. Depreciation is computed on the basis of cost less
residual value over its estimated useful life of four years from the date of
acquisition.
Foreign currency translation
The functional and
reporting currency of the Company is the United States dollar. The financial
statements of the United Kingdom subsidiary are translated into United States
dollars in accordance using period-end rates of exchange for assets and
liabilities, and period-average rates of exchange for revenues and expenses.
Foreign currency transaction gains (losses) and translation gains (losses) are
included in current operations. The Company has not, to the date of these
financials statements, entered into derivative instruments to offset the impact
of foreign currency fluctuations.
Income taxes
The Company uses the liability method
of accounting for income taxes. Under this method, deferred tax assets and
liabilities are determined based on temporary differences between the financial
statement and tax basis of assets and liabilities and net operating loss and
credit carry forwards using enacted tax rates in effect for the year in which
the differences are expected to reverse. The effect of a change in tax rates on
deferred tax assets and liabilities is recognized in income in the year that
includes the enactment date. Valuation allowances are established when it is
more likely than not that some portion of the deferred tax assets will not be
realized.
Loss per share
Basic loss per share is calculated by
dividing net loss by the weighted average number of shares outstanding during
the year. Diluted loss per share gives effect to all potentially dilutive common
shares outstanding during the period. The computation of diluted loss per share
does not assume conversion, exercise or contingent exercise of securities that
would have an anti-dilutive effect on loss per share.
Comprehensive income (loss)
Comprehensive income
(loss) is defined as the change in equity of a business enterprise during a
period from transactions and other events and circumstances from non-owner
sources. Other than reported net income (loss), comprehensive income (loss)
includes foreign currency translation adjustments and unrealized gains and
losses on available-for-sale investments, which are disclosed in the
accompanying consolidated statements of stockholders deficit as comprehensive
income (loss).
Goodwill, Other Intangibles and Long-Lived Assets
The Company evaluates impairment by comparing the estimated fair value
of each reporting unit to its carrying value. The Company estimates fair value
using the income approach of discounting future cash flows. The carrying value
of intangible assets and other long-lived assets are reviewed on a regular basis
for the existence of facts or circumstances that may suggest impairment. At
August 31, 2009, the Company has recognized an impairment of its oil and gas
properties (see Note 3).
F-8
Asset retirement obligations
The Company records the
fair value of an asset retirement obligation as a liability in the period in
which it incurs an obligation associated with the retirement of tangible
long-lived assets resulting from the acquisition, construction, development
and/or normal use of these assets. At August 31, 2009, no asset retirement
obligation has been recognized.
Share-based compensation
The Company accounts for
share-based compensation using the fair value-based method and compensation cost
is recognized over the period that service is required in order to receive the
benefit.
New accounting pronouncement and Policies
Other than
as described below, no new accounting pronouncement issued or effective during
the fiscal year has had or is expected to have a material impact on the
consolidated financial statements.
Business Combinations
In December 2007, there
was new guidance issued on business combinations. The guidance revises the
method of accounting for a number of aspects of business combinations, including
acquisition costs, contingencies, the impacts of partial and step-acquisitions
(including the valuation of net assets attributable to non-acquired minority
interests) and post acquisition exit activities of acquired businesses. The new
guidance will be effective for us beginning September 1, 2009 primarily
affecting the accounting for subsequent acquisitions. Management does do not
believe the adoption of the new guidance will have a material effect on the
financial position, results of operations or cash flows of the Company.
3. OIL AND GAS PROPERTIES
The Companys unproven oil and gas properties are as follows:
August 31, | August 31, | |||||
2009 | 2008 | |||||
(a) Starbuck East Shallow Gas Prospect, | ||||||
Valley County, Montana | ||||||
Acquisition costs | $ | 450,000 | $ | 450,000 | ||
Exploration costs | 510,551 | 481,824 | ||||
960,551 | 931,824 | |||||
Less: Provision for impairment | (960,551 | ) | - | |||
- | 931,824 | |||||
(b) Lodgepole Reef Oil and Gas Prospects, | ||||||
Stark and Slope Counties, North Dakota | ||||||
Acquisition costs | 152,691 | 142,691 | ||||
(c) Bakken Oil Shale Prospects, | ||||||
Stark County, North Dakota | ||||||
Acquisition costs | 40,000 | 40,000 | ||||
Total Costs | $ | 192,691 | $ | 1,114,515 |
F-9
(a) Starbuck East Shallow Gas Prospects - Valley County, Montana
In October 2008, the Company paid an additional $28,727 to Coastal Petroleum Company (CPC) for test well completion. Test well did not confirm commercial gas quantities in the target formation. Since the Company was unable to reach an agreement with CPC to modify the terms of the farmout agreement, the Company decided not to drill a second test well and accordingly considered its interest in the Starbuck East Shallow Gas Prospects to be impaired.
(b) Lodgepole Reef-Bakken Oil and Gas Prospects - Stark and Slope Counties, North Dakota
The Company purchased a working interest in seven Lodgepole Reef oil prospects, one Bakken oil-shale prospect and eleven gas prospects within the Williston Basin of North Dakota for a total acquisition cost of $152,691 as follows:
(i) During the year ended March 31, 2008, Company paid $40,000 to Oil For America LLC (OFA) for the assignment of two leases in the Lodgepole Reef prospects of Stark County. The leases are paid-up for three years and the Company is entitled to a 100% working interest subject only to 17.5% landowner royalty and a 12.5% back-in working interest for OFA after royalty payout. If the Company drills both lease prospects, OFA has agreed to identify eight additional Lodgepole Reef prospects for the Company under the same terms.
During the year ended April 30, 2008, the Company paid $80,000 to CPC for the assignment of four leases in the Lodgepole Reef prospects of Slope County. The leases are paid-up for three years and the Company is entitled to a 100% working interest subject only to 20% landowner royalty and a 20% back-in working interest for CPC after royalty payout.
(ii) On April 26, 2008, the Company paid $22,691 to OFA for the assignment of five leases in Stark County. The leases are paid-up for three years and the Company is entitled to a 100% working interest subject only to 17% landowner royalty and a 12.5% back-in working interest for OFA after royalty payout. Subsequent to August 31, 2009, the Company transferred all of these leases back to OFA for proceeds of $25,000 plus a 3% overriding royalty on future production from most but not all of the leases.
(iii) On November 6, 2008, the Company paid $10,000 to East Dickinson Oil and Gas Company (EDOG) for the assignment of eleven leases, of which nine have a 12.5% royalty and two have a 16.7% royalty, all payable to the State of North Dakota. Subsequent to August 31, 2009, the Company sold all of these leases back to EDOG for proceeds of $13,500 plus a 4.5% overriding royalty on future production.
(c) Bakken Oil-Shale Prospects Stark County, North Dakota
On July 31, 2008, the Company exercised its option on one of four Bakken Reef lease prospects in Stark County and paid $40,000 to OFA. This lease is paid-up for three years and the Company is entitled to a 100% working interest subject only to 5% landowner royalties and a 20% back-in working interest for OFA after royalty payout.
F-10
4. RELATED PARTY TRANSACTIONS
At August 31, 2009, the Company owed $191,713 (August 31, 2008 - $30,000) to related parties. The amounts are unsecured, non-interest bearing and have no fixed terms of repayment. During the year ended August 31, 2009, $226,433 (2008 - $362,486) in salaries and management fees paid to directors and officers were accrued and charged to the consolidated statement of operations.
All related party transactions are conducted in the ordinary course of business and measured at the exchange amount, which is the consideration established and agreed to by the related parties.
5. COMMON STOCK
(a) Common Shares
At August 31, 2009, the authorized common stock of the Company was 2,812,500,000 voting shares with $0.001 par value of which 92,136,022 were issued and outstanding after giving effect to a one and one-half for one forward stock split (1.5:1) of its authorized, issued and outstanding common stock on September 7, 2007.
During the year ended August 31, 2008, the changes in common stock were as follows:
(i) | On September 10, 2007, 576,923 units were issued at a price of $0.26 per unit for cash consideration of $150,000 under a private placement agreement. Each unit consists of one common share and one non-transferable share purchase warrant entitling the holder to purchase one additional common share at $0.39 per share for a period of three years. No value was attributed to the warrants issued as part of this unit placement. |
|
(ii) | On September 27, 2007 and October 18, 2007, the Company cancelled a total of 3,234,368 common shares held by two former employees following their resignations from the previous business of wireless personal security and response systems. |
|
(iii) | On October 10, 2007, 1,100,000 units were issued at a price of $0.40 per unit for cash consideration of $440,000 under a private placement agreement. Each unit consists of one common share and one non-transferable share purchase warrant entitling the holder to purchase one additional common share at $0.60 per share for a period of two years. No value was attributed to the warrants issued as part of this unit placement. |
|
(iv) | On November 5, 2007, 500,000 units were issued at a price of $0.40 per unit for cash consideration of $200,000 under a private placement agreement. Each unit consists of one common share and one non-transferable share purchase warrant entitling the holder to purchase one additional common share at $0.60 per share for a period of two years. No value was attributed to the warrants issued as part of this unit placement. |
|
(v) | On December 24, 2007, 200,000 units were issued at a price of $0.50 per unit for cash consideration of $100,000 under a private placement agreement. Each unit consists of one common share and one non-transferable share purchase warrant entitling the holder to purchase one additional common share at $0.75 per share for a period of three years. No value was attributed to the warrants issued as part of this unit placement. |
|
(vi) | On February 1, 2008, 500,000 units were issued at a price of $0.50 per unit for cash consideration of $250,000 under a private placement agreement. Each unit consists of one |
F-11
common share and one non-transferable share purchase warrant entitling the holder to purchase one additional common share at $0.75 per share for a period of three years. No value was attributed to the warrants issued as part of this unit placement. |
||
(vii) | On March 14, 2008, 300,000 units were issued at a price of $0.50 per unit for cash consideration of $150,000 under a private placement agreement. Each unit consists of one common share and one non-transferable share purchase warrant entitling the holder to purchase one additional common share at $0.75 per share for a period of three years. No value was attributed to the warrants issued as part of this unit placement. |
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(viii) | On April 15, 2008, the Company entered into a one year Share Issuance Agreement allowing the subscriber to advance up to $15,000,000 to the Company in multiples of $100,000 to $250,000 in exchange for units of the Company. Each unit will consist of one common share and one common share purchase warrant exercisable for a period of three years at a price that is 200% of the original unit price (Price). The Price will be variable and equal to 80% of the volume weighted average closing price of the Companys common shares for the ten banking days immediately preceding the date of notice from the Company of a specific advance. |
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(ix) | On April 30, 2008, 500,000 units were issued at a price of $0.50 per unit for cash consideration of $250,000 under a private placement agreement. Each unit consists of one common share and one non-transferable share purchase warrant entitling the holder to purchase one additional common share at $0.75 per share for a period of three years. No value was attributed to the warrants issued as part of this unit placement. |
|
(x) | On June 11, 2008, 500,000 units were issued at a price of $0.30 per unit for cash consideration of $150,000 under the May 6, 2008 Share Issuance Agreement described in Note 5(viii) above. Each unit consists of one common share and one non-transferable share purchase warrant entitling the holder to purchase one additional common share at $0.60 per share for a period of three years. No value was attributed to the warrants issued as part of this unit placement. |
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(xi) | As a partial financing fee regarding the placement agent agreement dated July 14, 2008. The Company issued a retainer of 150,000 warrants exercisable into 150,000 common shares of the Company at a price of $0.31 per warrant for a period of two years and valued at $24,434 using the Black-Scholes option pricing model. |
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(xii) | On July 22, 2008, 333,334 units were issued at a price of $0.30 per unit for cash consideration of $100,000 under the May 6, 2008 Share Issuance Agreement described in Note 5(viii) above. Each unit consists of one common share and one non-transferable share purchase warrant entitling the holder to purchase one additional common share at $0.60 per share for a period of 3 years. No value was attributed to the warrants issued as part of this unit placement. |
|
(xiii) | On August 4, 2008, 400,000 units were issued at a price of $0.25 per unit for cash consideration of $100,000 under the May 6, 2008 Share Issuance Agreement described in Note 5(viii) above. Each unit consists of one common share and one non-transferable share purchase warrant entitling the holder to purchase one additional common share at $0.50 per share for a period of 3 years. No value was attributed to the warrants issued as part of this unit placement. |
F-12
During the year ended August 31, 2009, the changes in common stock were as follows:
(i) | Effective September 19, 2008, 1,000,000 units were issued at a price of $0.15 per unit for cash consideration of $150,000. Each unit consists of one common share and one non- transferable share purchase warrant entitling the holder to purchase one additional common share at $0.30 per share for a period of three years. No value was attributed to the warrants issued as part of this unit placement. |
|
(ii) | Effective February 17, 2009, 600,000 units were issued at a price of $0.05 per unit for cash consideration of $30,000. Each unit consists of one common share and one non-transferable share purchase warrant entitling the holder to purchase one additional common share at $0.10 per share for a period of three years. No value was attributed to the warrants issued as part of this unit placement. |
|
(iii) | Effective June 23, 2009, 500,000 units were issued at a price of $0.03 per unit for cash consideration of $15,000. Each unit consists of one common share and one non-transferable share purchase warrant entitling the holder to purchase one additional common share at $0.06 per share for a period of three years. No value was attributed to the warrants issued as part of the unit placement. |
(b) Obligation to Issue Shares
At August 31, 2009, the Company had an obligation to issue 1,805,000 shares as follows:
$ | Shares | |||||
For stock-based compensation to a former 3-person advisory board | $ | 101,917 | 1,500,000 | |||
For debt settlement with a former consultant | 6,150 | 305,000 | ||||
$ | 108,067 | 1,805,000 |
The above stock-based compensation was accrued as an obligation to issue shares based on month end share prices calculated from the commencement date of the respective agreements. Since there was no performance commitment under these agreements, the measurement date occurred when the advisory boards performance was completed.
F-13
(c) Share Purchase Warrants
At August 31, 2009 the Company had 8,557,890 share purchase warrants outstanding (August 31, 2008 7,320,390) entitling the holder to purchase common shares on a one-for-one basis. The following table provides continuity of the share purchase warrants issued and outstanding during the year ended August 31, 2009:
Number of | Number of | |||||||||||||||||
Shares | Shares | |||||||||||||||||
Exercise | Issuable at | Issued | Issuable at | |||||||||||||||
Issue Date | Expiry Date | Price | August 31, 2008 | Expired | August 31, 2009 | |||||||||||||
Sept 25, 2006 | Sept 25, 2008 | $1.33 | 750,000 | (750,000 | ) | - | ||||||||||||
Nov 9, 2006 | Nov 9, 2008 | $1.33 | 112,500 | (112,500 | ) | - | ||||||||||||
Feb 15, 2007 | Feb 15, 2010 | $1.00 | 450,000 | 450,000 | ||||||||||||||
May 17, 2007 | May17, 2010 | $0.57 | 528,170 | 528,170 | ||||||||||||||
Jul 24, 2007 | Jul 24, 2010 | $0.36 | 419,463 | 419,463 | ||||||||||||||
Sept 10, 2007 | Sept 10, 2010 | $0.39 | 576,923 | 576,923 | ||||||||||||||
Oct 10, 2007 | Oct 10, 2010 | $0.60 | 1,100,000 | 1,100,000 | ||||||||||||||
Nov 5, 2007 | Nov 5, 2010 | $0.60 | 500,000 | 500,000 | ||||||||||||||
Dec 24, 2007 | Dec 24, 2010 | $0.75 | 200,000 | 200,000 | ||||||||||||||
Feb 1, 2008 | Feb 1, 2011 | $0.75 | 500,000 | 500,000 | ||||||||||||||
Mar 14, 2008 | Mar 14, 2011 | $0.75 | 300,000 | 300,000 | ||||||||||||||
Apr 30, 2008 | Apr 30, 2011 | $0.75 | 500,000 | 500,000 | ||||||||||||||
Jun 11, 2008 | Jun 11, 1011 | $0.60 | 500,000 | 500,000 | ||||||||||||||
Jul 17, 2008 | Jul 17, 2010 | $0.31 | 150,000 | 150,000 | ||||||||||||||
Jul 22, 2008 | Jul 22, 2011 | $0.60 | 333,334 | 333,334 | ||||||||||||||
Aug 4, 2008 | Aug 4, 2011 | $0.50 | 400,000 | 400,000 | ||||||||||||||
Sept 19, 2008 | Sept 19, 2011 | $0.30 | 1,000,000 | 1,000,000 | ||||||||||||||
Feb 17, 2009 | Feb 17, 2012 | $0.10 | 600,000 | 600,000 | ||||||||||||||
Jun 23, 2009 | Jun 23, 2012 | $0.06 | 500,000 | 500,000 | ||||||||||||||
Totals | 7,320,390 | 2,100,000 | (862,500 | ) | 8,557,890 |
The weighted average exercise price and remaining life of the share purchase warrants is $0.51 and 1.3 years, respectively.
F-14
6. INCOME TAXES
The parent Company is subject to income taxes in the US and its wholly-owned subsidiary is subject to income taxes in the United Kingdom. As of August 31, 2009, both the Company and its subsidiary had accumulated non-capital loss carry-forwards of approximately $3,940,000 of which $3,524,000 pertained to the US and $416,000 to the UK. These losses are available to reduce taxable income in future taxation years and begin to expire in 2024 after a carry forward period of 20 years. The Company is required to compute the deferred tax benefits from non-capital loss carry-forwards. However, due to the uncertainty of realization of these loss carry-forwards, a full valuation allowance has been provided against this deferred tax asset.
At August 31, 2009 and 2008, the components of the deferred tax asset, the statutory tax rate, the effective tax rate and the elected amount of the valuation allowance are shown below:
August 31, | August 31, | |||||
2009 | 2008 | |||||
Non-capital tax loss carry forwards | $ | 3,940,000 | $ | 3,523,000 | ||
Statutory tax rate | 35% | 35% | ||||
Effective tax rate | - | - | ||||
Deferred tax asset | 1,379,000 | 1,233,000 | ||||
Less: valuation allowance | (1,379,000 | ) | (1,233,000 | ) | ||
Net deferred tax asset | $ | | $ | |
7. SUBSEQUENT EVENTS
(i) Effective September 18, 2009, the Company re-assigned eleven gas prospect leases in North Dakota to East Dickinson Oil and Gas Company for proceeds of $13,500 plus a 4.5% overriding royalty on future production, if any, realizing a gain of $3,500 over original cost.
(ii) Effective November 15, 2009, the Company re-assigned five Lodgepole Reef oil prospect leases in North Dakota back to OFA for proceeds of $25,000 plus a 3% overriding royalty on future production from most of the leases, if any.
(iv) Subsequent to August 31, 2009, the Company reached an agreement to settle its obligation to issue shares in the amount of $108,067 in exchange for payment of $3,075 cash.
Subsequent events were evaluated up to the date of the Companys filing on December 14, 2009.
F-15
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL MATTERS
None
ITEM 9A(T). CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
As required by paragraph (b) of Rules 13a-15 or 15d-15 under the Exchange Act, our management, with the participation of our principal executive and principal financial officer, evaluated our companys disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this Annual Report on Form 10-K. Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our company's reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in our company's reports filed under the Exchange Act is accumulated and communicated to our principal executive and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Based on its evaluation, our management concluded that as of the end of the period covered by this Annual Report on Form 10-K, our disclosure controls and procedures were not effective.
These deficiencies were as follows:
(1) |
lack of an outside director on our board of directors and accordingly lack of a functioning independent audit committee; | |
(2) |
inadequate internal controls over purchase of goods and services and related disbursements primarily due to the inadequate segregation of duties inherent in a small company with a small staff; | |
(3) |
insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of both US GAAP and SEC guidelines; and, | |
(4) |
non-existence of either a written code of ethics or a whistle-blower policy. |
31
Managements Report on Internal Control over Financial Reporting.
Our companys management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) for our company. Our companys internal control over financial reporting is designed to provide reasonable assurance, not absolute assurance, regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States of America. Internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our companys assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles in the United States of America, and that our companys receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions and that the degree of compliance with the policies or procedures may deteriorate.
Our Management, including our principal executive officer and principal financial officer, conducted an evaluation of the design and operation of our internal control over financial reporting as of August 31, 2009 based on the criteria set forth in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. This evaluation included review of the documentation of controls, evaluation of the design effectiveness of controls, testing of the operating effectiveness of controls and a conclusion on this evaluation. Based on this evaluation, our management concluded that there are weaknesses in our internal controls over financial reporting. As is indicative of many small companies, the lack of segregation of duties and effective risk assessment were identified as areas where weaknesses existed. Our company is taking steps to augment and improve the design of our internal controls over financial reporting.
The weaknesses identified included inadequate security, inadequate restricted access to systems and insufficient disaster recovery plans. Management has also identified material weaknesses in our internal control processes over procurement and disbursements, primarily related to lack of segregation of duties.
This report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Managements report was not subject to attestation by our companys registered public accounting firm pursuant to temporary rules of the SEC that permit our company to provide only management's report in this Annual Report on Form 10-K.
32
During the period covered by this annual report on Form 10-K, we have not been able to remediate the weaknesses identified above. We plan to implement changes in internal control over financial reporting during our fiscal year ending August 31, 2010 in order to mitigate existing weaknesses.
Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during our last fiscal quarter that have materially affected or are reasonably likely to materially affect, our internal control over financial reporting.
The term internal control over financial reporting is defined as a process designed by, or under the supervision of, our principal executive and principal financial officer, or persons performing similar functions, and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of our financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
1. |
pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; | |
2. |
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and, | |
3. |
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements. |
Certificates
Certificates with respect to disclosure controls and procedures and internal control over financial reporting under Rules 13a-14(a) or 15d-14(a) of the Exchange Act are attached to this Annual Report on Form 10-K.
ITEM 9B OTHER INFORMATION
1. |
Effective November 30, 2009, Julian Lee resigned from our board of directors. The resignation was not as a result of any disagreements between our company or our policies. Dan Bauer is now our sole officer and director. |
33
2. |
On September 18, 2009, we entered into an agreement with East Dickinson Oil and Gas Co. to sell a package of 11 State of North Dakota oil & gas exploration leases in and around Dickinson, North Dakota for $13,500. Those leases were originally acquired in November 3, 2008 for $10,000. We attach the agreement as an exhibit to this annual report on Form 10-K. | |
3. |
On November 15, 2009 we entered into an agreement with Oil For America Exploration, LLC to sell the leases making up the Rocheford 27-1 Lodgepole prospect for $25,000, and on November 23, 2009 we assigned those leases to Oil For America Exploration, LLC. Under the same agreement, Oil For America Exploration LLC also has an option to acquire a number of other oil and gas leases from us for $125,000, and if that option is not elected, will expire on December 12, 2009. We attach the agreement as an exhibit to this annual report Form 10-K. |
PART III
ITEM 10 DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Directors and Executive Officers, Promoters and Control Persons
As at the date of this report, our directors and executive officers, their ages, positions held, and duration of such, are as follows:
All directors of our company hold office until the next annual meeting of the Shareholders or until their successors have been elected and qualified. The executive officers of our company are appointed by our board of directors and hold office until their death, resignation or removal from office. Our directors, executive officers and the executive officers of our operating subsidiaries, as well as the positions held, age and duration of appointment for such persons are as follows:
Directors and Officers
Name |
Position Held with our Company |
Age |
Date First Elected or Appointed |
Dan Bauer | President, Secretary, Treasurer and sole Director | 37 | May 18, 2006 |
Significant Employees
Name | Position Held with our Company | Age | Date Appointed |
None |
Family relationships
There are no family relationships between any director, executive officer, or person nominated or chosen by us to become a director or executive officer.
34
Business Experience
The following is a brief account of the education and business experience of our directors and executive officers during at least the past five years, indicating their business experience, principal occupations during the period, and the names and principal businesses of the organizations by which they were employed.
Dan Bauer, Director, President and Chief Executive Officer
Mr. Bauer has been our President and CEO since inception. He has held several senior positions in the technology and telecom industries during the past 12 years. Mr. Bauer has held executive positions with Lusora Inc. since its founding in 2003. Formerly the Chief Executive Officer of Quartez Limited, which Mr. Bauer led through its acquisition in April 2002, turnaround and sale to the UKs largest newspaper publisher, Trinity Mirror plc in April 2003. Prior to his role at Quartez, he was Head of Operator Relations at Hutchison 3G UK Limited during April of 2001 through February 2002; a Director of European Business Development at Commtouch, Inc. from March 2000 through April 2001; and a Senior Project Manager at Retalix Limited from April 1998 through March 2000. Mr. Bauer studied at the University of Western Ontario from 1991 through 1993.
Involvement in Certain Legal Proceedings
Our directors, executive officers and control persons have not been involved in any of the following events during the past five years:
1. |
any Federal bankruptcy or state insolvency petition filed by or against any business or property of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; | |
2. |
any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); | |
3. |
being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; | |
4. |
being the subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any Federal or State authority barring, suspending or otherwise limiting for more than 60 days the right of such person to engage in any activity described in paragraph (f)(3)(i) of this section, or to be associated with persons engaged in any such activity; |
35
5. |
being found by a court of competent jurisdiction in a civil action or by the Commission to have violated any Federal or State securities law, and the judgment in such civil action or finding by the Commission has not been subsequently reversed, suspended, or vacated; or | |
6. |
being found by a court of competent jurisdiction (in a civil action), the Securities and Exchange Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated. |
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Exchange Act requires our executive officers and directors and persons who own more than 10% of a registered class of our equity securities to file with the SEC initial statements of beneficial ownership, reports of changes in ownership and annual reports concerning their ownership of our common stock and other equity securities, on Forms 3, 4 and 5 respectively. Executive officers, directors and greater than 10% shareholders are required by the SEC regulations to furnish us with copies of all Section 16(a) reports that they file.
Based solely on our review of the copies of such forms received by us, or written representations from certain reporting persons, we believe that all filing requirements applicable to our officers, directors and greater than 10% beneficial owners were complied with, with the exception of the following:
Name |
Number of Late Reports |
Number of Transactions Not Reported on a Timely Basis |
Failure to File Requested Forms |
Dan Bauer | Nil | Nil | Nil |
Julian Lee | Nil | Nil | Nil |
Joseph Bauer | Nil | Nil | Nil |
Code of Ethics
We have not yet adopted a Code of Ethics but intend to do so in the near future.
Corporate Governance
Dan Bauer is our sole director and officer. He is not independent as the term is used in
Item 7(d)(3)(iv) of Schedule 14A under the Securities Exchange Act of 1934, as amended. We do not have a standing Nominating, Compensation or Audit Committee.
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Nominating Committee
We do not have standing nominating or compensation committees, or committees performing similar functions. Our board of directors believe that it is not necessary to have a standing compensation committee at this time because the functions of such committee are adequately performed by our board of directors.
Our board of directors also is of the view that it is appropriate for us not to have a standing nominating committee because our board of directors has performed and will perform adequately the functions of a nominating committee. Our board of directors has not adopted a charter for the nomination committee. There has not been any defined policy or procedure requirements for stockholders to submit recommendations or nomination for directors. Our board of directors does not believe that a defined policy with regard to the consideration of candidates recommended by stockholders is necessary at this time because we believe that, given the early stages of our development, a specific nominating policy would be premature and of little assistance until our business operations are at a more advanced level. There are no specific, minimum qualifications that our board of directors believes must be met by a candidate recommended by our board of directors. The process of identifying and evaluating nominees for director typically begins with our board of directors soliciting professional firms with whom we have an existing business relationship, such as law firms, accounting firms or financial advisory firms, for suitable candidates to serve as directors. It is followed by our board of directors review of the candidates resumes and interview of candidates. Based on the information gathered, our board of directors then makes a decision on whether to recommend the candidates as nominees for director. We do not pay any fee to any third party or parties to identify or evaluate or assist in identifying or evaluating potential nominee.
A shareholder who wishes to recommend nominees to our board of directors may do so in writing to our President, Dan Bauer, at the address appearing on the first page of this annual report.
Audit Committee and Audit Committee Financial Expert
We do not have a standing audit committee at the present time. Our board of directors has determined that we do not have a board member that qualifies as an audit committee financial expert as defined in Item 407(d)(5)(ii) of Regulation S-K, nor do we have a board member that qualifies as independent as the term is used in Item 7(d)(3)(iv) of Schedule 14A under the Securities Exchange Act of 1934, as amended.
We believe that an audit committee, including at least one independent director, is an important part of the normal process of oversight in the establishment and monitoring of required internal controls over financial reporting. However, we believe this would be too costly and burdensome and is not completely warranted in our circumstances given the early stage of our development; the fact we have not generated any revenues from operations to date; and funding resources are limited. In the meantime, we believe our board of directors is capable of analyzing and evaluating our financial statements and understanding internal controls and procedures over financial reporting.
37
Other Committees
All proceedings of our board of directors for the year ended August 31, 2009 were conducted by resolutions consented to in writing by our directors and filed with the minutes of the proceedings of the board of directors. Our company currently does not have nominating, compensation or audit committees or committees performing similar functions nor does our company have a written nominating, compensation or audit committee charter. Our board of directors believes it is not necessary to have such committees for the reasons indicated above.
Our company does not have any defined policy or procedural requirements for shareholders to submit recommendations or nominations for directors. Our directors believe that, given the stage of our development, a specific nominating policy would be premature and of little assistance until our business operations develop to a more advanced level. Our company does not currently have any specific or minimum criteria for the election of nominees to the Board of Directors and we do not have any specific process or procedure for evaluating such nominees. Our board of directors will assess all candidates, whether submitted by management or shareholders, and make recommendations for election or appointment.
A shareholder who wishes to communicate with our board of directors may do so by directing a written request addressed to our President, Dan Bauer, at the address appearing on the first page of this annual report.
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation
The particulars of compensation paid to the following persons:
(a) |
our principal executive officer; | |
(b) |
each of our two most highly compensated executive officers who were serving as executive officers at the end of the years ended August 31, 2009 and 2008; and | |
(c) |
up to two additional individuals for whom disclosure would have been provided under (b) but for the fact that the individual was not serving as our executive officer at the end of the most recently completed financial year, |
who we will collectively refer to as the named executive officers, for our year ended August 31, 2009, are set out in the following summary compensation table:
38
Name and Principal Position |
Year |
Salary ($) |
Bonus ($) |
Stock Awards ($) |
Option Awards ($) |
Non-Equity Incentive Plan Compensation ($) |
Nonqualified
Deferred Compensation Earnings ($) |
All Other Compensation ($) |
Total ($) |
(a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | (i) | (j) |
Dan Bauer, President, CEO, CFO, Treasurer & Secretary |
2009 2008 |
$188,411 $250,178 |
Nil Nil |
Nil Nil |
Nil Nil |
Nil Nil |
Nil Nil |
25,618 28,029 |
214,029 278,075 |
Julian Lee former CFO 1 |
2009 2008 |
$3,000 $36,000 |
Nil Nil |
Nil Nil |
Nil Nil |
Nil Nil |
Nil Nil |
Nil Nil |
$3,000 $36,000 |
There are no arrangements or plans in which we provide pension, retirement or similar benefits for directors or executive officers. Our directors and executive officers may receive stock options at the discretion of our board of directors in the future. We do not have any material bonus or profit sharing plans pursuant to which cash or non-cash compensation is or may be paid to our directors or executive officers, except that stock options may be granted at the discretion of our board of directors from time to time. We have no plans or arrangements in respect of remuneration received or that may be received by our executive officers to compensate such officers in the event of termination of employment (as a result of resignation, retirement, change of control) or a change of responsibilities following a change of control.
Employment Contracts
Other than as described below, we are not party to any employment contracts with our directors and officers.
In the spring of 2008, we entered into agreements with three Advisory Board members for a combined total of 500,000 common shares of the Company and 250,000 stock options per year in lieu of cash, renewable on an annual basis by mutual consent. The granting of stock options depends upon the approval and implementation of a stock option plan for the Company. Effective November 30, 2009, all three advisory board members resigned, waiving their right to have shares and/or stock options. The resignations were not as a result of any disagreements between our company or policies.
Director Compensation Policy
Directors of our company may be paid for their expenses incurred in attending each meeting of the directors. In addition to expenses, directors may be paid a sum for attending each meeting of the directors or may receive a stated salary as director. No payment precludes any director from serving our company in any other capacity and being compensated for such service. During the year ended August 31, 2009, we did not pay any compensation or grant any stock options to our directors.
___________________________________________
1 Mr.
Lee resigned as CFO on September 30, 2008
39
Name |
Fees earned or paid in cash ($) |
Stock awards ($) |
Option awards ($) |
Non-equity incentive plan compensation ($) |
Nonqualified deferred compensation earnings ($) |
All other compensation ($) |
Total ($) |
(a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) |
Dan Bauer | Nil | Nil | Nil | Nil | Nil | Nil | Nil |
Julian Lee 2 | Nil | Nil | Nil | Nil | Nil | Nil | Nil |
Outstanding equity awards at fiscal year-end
As at August 31, 2009, we had not adopted any equity compensation plan and no stock, options, or other equity securities were awarded to our executive officers except as listed below.
Option awards | Stock awards | ||||||||
Name |
Number of securities underlying unexercised options (#) exercisable |
Number of securities underlying unexercised options (#) unexercisable |
Equity incentive plan awards: Number of securities underlying unexercised unearned options (#) |
Option exercise price ($) |
Option expiration date |
Number of shares or units of stock that have not vested (#) |
Market value of shares of units of stock that have not vested ($) |
Equity incentive plan awards: Number of unearned shares, units or other rights that have not vested (#) |
Equity incentive plan awards: Market or payout value of unearned shares, units or other rights that have not vested ($) |
(a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | (i) | (j) |
Dan Bauer | Nil | Nil | Nil | Nil | Nil | Nil | Nil | Nil | Nil |
Julian Lee | Nil | Nil | Nil | Nil | Nil | Nil | Nil | Nil | Nil |
Option exercises and stock vested table.
None of our directors, officers or employees has exercised their stock options.
OPTION EXERCISES AND STOCK VESTED | ||||
OPTION AWARDS | STOCK AWARDS | |||
Name (a) |
Number of Shares Acquired on Exercise (#) (b) |
Value Realized on Exercise ($) (c) |
Number of Shares Acquired on Vesting (#) (d) |
Value Realized on Vesting ($) (e) |
Dan Bauer | Nil | Nil | Nil | Nil |
Julian Lee | Nil | Nil | Nil | Nil |
Re-pricing of Options/SARS
None.
__________________________________________
2
Mr. Lee resigned as director on November 30, 2009
40
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Securities authorized for issuance under equity compensation plans
We have not adopted a stock option plan and have not granted any stock options.
Equity Compensation Plan Information | |||
Plan category |
Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) |
Weighted-average exercise price of outstanding options, warrants and rights (b) |
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) |
Equity compensation plans approved by security holders |
Nil |
Nil |
Nil |
Equity compensation plans not approved by security holders |
Nil |
Nil |
Nil |
Total | Nil | Nil | Nil |
Security ownership of certain beneficial owners
Name and address of | Amount and nature of | Percent of | ||
Title of class | beneficial owner | beneficial ownership | class 3 | |
common | Joseph Bauer | 11,625,000 | direct | 12.62% |
stock | 46 Arnheim Wharf | |||
London England E14 3VQ |
Security ownership of management
Name and address of | Amount and nature of | Percent of | |
Title of class | beneficial owner | beneficial ownership | class 3 |
common | Dan Bauer | 27,512,500 | 29.86% |
stock | 111 Second Avenue West | ||
Williston ND 58801 |
In the following tables, we have determined the number and percentage of shares beneficially owned in accordance with Rule 13d-3 of the Exchange Act based on information provided to us by our controlling shareholder, executive officers and directors, and this information does not necessarily indicate beneficial ownership for any other purpose. In determining the number of shares of our common stock beneficially owned by a person and the percentage ownership of that person, we include any shares as to which the person has sole or shared voting power or investment power, as well as any shares subject to warrants or options held by that person that are currently exercisable or exercisable within 60 days.
________________________________________
3
Percentage of ownership is based on 92,136,022 common shares issued and
outstanding as of December 2, 2009.
41
Changes in control
None.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Transactions with related persons
None of the following parties has, since our date of incorporation, had any material interest, direct or indirect, in any transaction with us or in any presently proposed transaction that has or will materially affect us, other than as noted in this section:
(i) |
Any of our directors or officers; | |
(ii) |
Any person proposed as a nominee for election as a director; | |
(iii) |
Any person who beneficially owns, directly or indirectly, shares carrying more than 5% of the voting rights attached to our outstanding shares of common stock; | |
(iv) |
Any of our promoters; and | |
(v) |
Any member of the immediate family (including spouse, parents, children, siblings and in- laws) of any of the foregoing persons. |
Pension, Retirement or Similar Benefit Plans
There are no arrangements or plans in which we provide pension, retirement or similar benefits for directors or executive officers. We have no material bonus or profit sharing plans pursuant to which cash or non-cash compensation is or may be paid to our directors or executive officers, except that stock options may be granted at the discretion of the Board of Directors or a committee thereof.
We have no plans or arrangements in respect of remuneration received or that may be received by our executive officers to compensate such officers in the event of termination of employment (as a result of resignation, retirement, change of control) or a change of responsibilities following a change of control, where the value of such compensation exceeds $60,000 per executive officer.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
Audit Fees
For the years ended August 31, 2009 and 2008, the aggregate fees billed by Dale Matheson Carr-Hilton Labonte LLP for professional services rendered for the quarterly reviews and annual audit of our consolidated financial statements included in our quarterly reports on Form 10Q and our annual report on Form 10-K were:
42
Year Ended
August 31, 2009 |
Year Ended August 31, 2008 | |
Audit Fees and Audit Related Fees | $28,000 | |
Income Tax Fees | Nil | |
All Other Fees | Nil | |
Total | $28,000 |
Policy on Pre-Approval by Audit Committee of Services Performed by Independent Auditors
We do not use Dale Matheson for financial information system design and implementation. These services, which include designing or implementing a system that aggregates source data underlying the financial statements or generates information that is significant to our financial statements, are provided internally or by other service providers. We do not engage Dale Matheson to provide compliance outsourcing services.
Effective May 6, 2003, the Securities and Exchange Commission adopted rules that require that before Dale Matheson is engaged by us to render any auditing or permitted non-audit related service, the engagement be:
- approved by our audit committee (which consists of our entire board of directors); or
- entered into pursuant to pre-approval policies and procedures established by the board of directors, provided the policies and procedures are detailed as to the particular service, the board of directors is informed of each service, and such policies and procedures do not include delegation of the board of directors' responsibilities to management.
The board of directors pre-approves all services provided by our independent auditors. All of the above services and fees were reviewed and approved by the board of directors either before or after the respective services were rendered.
The board of directors has considered the nature and amount of fees billed by Dale Matheson and believes that the provision of services for activities unrelated to the audit is compatible with maintaining Dale Mathesons independence.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
Exhibits required by Item 601 of Regulation S-K:
Exhibit No. |
Description |
(3) |
Articles of Incorporation and By-laws |
3.1 |
Articles of Incorporation (attached as an exhibit to our Registration Statement on Form SB-2, filed on November 2, 2005) |
3.2 |
Bylaws (attached as an exhibit to our Registration Statement on Form SB-2, filed on November 2, 2005) |
43
Exhibit No. |
Description |
3.3 |
Articles of Merger (attached as an exhibit to our current report on Form 8-K filed on June 28, 2006) |
3.4 |
Certificate of Change (attached as an exhibit to our current report on Form 8-K filed on June 28, 2006) |
3.5 |
Certificate of Change (attached as an exhibit to our current report on Form 8-K filed on July 7, 2007) |
3.6 |
Articles of Merger (attached as an exhibit to our current report on Form 8-K filed on July 7, 2007) |
3.7 |
Articles of Merger (attached as an exhibit to our annual report on Form 10-KSB filed on December 14, 2007) |
(4) |
Instruments defining rights of security holders, including indentures |
4.1 |
Specimen ordinary share certificate (attached as an exhibit to our Registration Statement on Form SB-2, filed on November 2, 2005) |
(10) |
Material Contracts |
10.1 |
Form of Subscription Agreement (attached as an exhibit to our current report on Form 8-K filed on September 26, 2006) |
10.2 |
Promissory Note (attached as an exhibit to our current report on Form 8-K filed on October 3, 2006) |
10.3 |
Lease Agreement (attached as an exhibit to our current report on Form 8-K filed on November 29, 2006) |
10.4 |
Form of Subscription Agreement (attached as an exhibit to our current report on Form 8-K filed on November 29, 2006) |
10.5 |
Share Exchange Agreement (attached as an exhibit to our current report on Form 8-K filed on November 29, 2006) |
10.6 |
Share Issuance Agreement with Global (attached as an exhibit to our current report on Form 8- K filed on May 15, 2007) |
10.7 |
Letter of Intent (attached as an exhibit to our current report on Form 8-K filed on May 17, 2007) |
10.8 |
Private Placement Subscription Agreement (attached as an exhibit to our current report on Form 8-K filed on May 23, 2007) |
10.9 |
Office Lease and Services Agreement (attached as an exhibit to our quarterly report on Form 10- QSB filed on July 16, 2007) |
10.10 |
Assignment Agreement between Power Energy Enterprises SA and Lusora Healthcare Systems Inc. (attached as an exhibit to our current report on Form 8-K filed on September 4, 2007) |
10.11 |
Farmout Agreement between Coastal Petroleum Company and Lusora Healthcare Systems Inc. (attached as an exhibit to our current report on Form 8-K filed on September 4, 2007) |
10.12 |
Private Placement Subscription Agreement (attached as an exhibit to our current report on Form 8-K filed on October 16, 2007) |
10.13 |
Warrant Certificate (attached as an exhibit to our current report on Form 8-K filed on October 16, 2007) |
10.14 |
Private Placement Subscription Agreement (attached as an exhibit to our current report on Form 8-K filed on November 11, 2007) |
10.15 |
Warrant Certificate (attached as an exhibit to our current report on Form 8-K filed on November 11, 2007) |
10.16 |
Memorandum of Understanding with Coastal Petroleum, dated November 29, 2007, signed December 4 (attached as an exhibit to our current report on Form 8-K filed on December 11, 2007) |
10.17 |
Letter from Western Standard Energy Corp. to Coastal Petroleum Company, dated November 28, 2007 (attached as an exhibit to our current report on Form 8-K filed on December 11, 2007) |
10.18 |
Assignment Agreement between Coastal Petroleum Company and Western Standard Energy Corp., dated November 7, 2007 (attached as an exhibit to our current report on Form 8-K filed on December 11, 2007) |
10.19 |
Farmout Agreement between Oil For America and Western Standard Energy Corp., dated November 9, 2007 (attached as an exhibit to our current report on Form 8-K filed on December 11, 2007) |
10.20 |
Assignment Agreement between Oil For America and Western Standard Energy Corp., dated November 7, 2007 (attached as an exhibit to our current report on Form 8-K filed on December 11, 2007) |
10.21 |
Farmout Agreement between Coastal Petroleum Company and Western Standard Energy Corp., dated December 11, 2007 (attached as an exhibit to our annual report on Form 10-KSB filed on December 14, 2007) |
44
Exhibit No. |
Description |
10.22 | Assignment Agreement between Coastal Petroleum Company and Western Standard Energy Corp., dated December 12, 2007 (attached as an exhibit to our annual report on Form 10-KSB filed on December 14, 2007) |
10.23 | Form of Subscription Agreement dated December 24, 2007 |
10.24 | Memorandum of Understanding dated January 24, 2008 between Western Standard Energy Corp. and F Cross Resources, LLC (attached as an exhibit to our quarterly report on Form 10-QSB filed on February 4, 2008) |
10.25 | Memorandum of Intent with Oil For America dated April 17, 2008 (attached as an exhibit to our current report on Form 8-K filed on April 21, 2008) |
10.26 | Share Issuance Agreement dated May 6, 2008 with Infinity Energy Investments Limited (attached as an exhibit to our current report on Form 8-K filed on May 8, 2008) |
10.27 | Memorandum of Intent dated May 6, 2008 with Oil for America (attached as an exhibit to our quarterly report on Form 10-QSB filed on July 15, 2008) |
10.28 | Letter of Intent with East Dickinson Oil and Gas Co. dated October 31, 2008 (attached as an exhibit to our current report on Form 8-K filed on November 10, 2008) |
10.29 | Assignment Agreement with East Dickinson Oil and Gas Co., dated November 3, 2008 (attached as an exhibit to our annual report on Form 10-K filed on December 15, 2008) |
10.30 | Assignment Agreement with Stark County Oil & Gas Co., dated November 3, 2008 (attached as an exhibit to our annual report on Form 10-K filed on December 15, 2008) |
10.31* | Assignment Agreement with East Dickinson Oil & Gas Co., dated September 18, 2009 |
10.32* | Assignment Agreement with Oil For America LLC., dated November 15, 2009 |
(21) | List of Subsidiaries |
21.1 | Western Standard Energy Limited, incorporated in the UK |
(31) | Section 302 Certification |
31.1* | Certification Statement pursuant to Section 302 of the Sarbanes- Oxley Act of 2002 |
(32) | Section 906 Certification |
32.1* | |
99.1 | Great Northern Gas Company Starbuck East Prospect Valley Co., Montana Geological Report dated February 2, 2005 (attached as an exhibit to our current report on Form 8-K filed on May 15, 2008) |
99.2 | Letter from Richard Robertson dated September 25, 2007 verifying the contents of the February 2, 2005 Geological Report (attached as an exhibit to our current report on Form 8-K filed on May 15, 2008) |
*filed herewith
45
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
WESTERN STANDARD ENERGY CORP.
By:
/s/ Dan Bauer
Dan Bauer
President, CEO,
CFO, Secretary, Treasurer and Director
Principal Executive Officer,
Principal Financial Officer and Principal Accounting Officer
Dated: December 14, 2009