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EX-32.1 - Dominovas Energy Corpex32-1.txt
EX-31.1 - Dominovas Energy Corpex31-1.txt

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE
    ACT OF 1934

                For the quarterly period ended February 29, 2012

                                       or

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934

            For the transition period from __________ to __________

                       Commission File Number: 000-51736


                          WESTERN STANDARD ENERGY CORP.
             (Exact name of registrant as specified in its charter)

            Nevada                                               20-5854735
 (State or other jurisdiction                                 (I.R.S. Employer
of incorporation or organization)                            Identification No.)

403 Enclave Circle #309, Costa Mesa, CA                            92626
(Address of principal executive offices)                         (Zip Code)

                               Tel: (888) 267-5629
              (Registrant's telephone number, including area code)

              (Former name, former address and former fiscal year,
                          if changed since last report

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark whether the registrant has submitted  electronically  and
posted on its corporate Web site, if any, every  Interactive  Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (ss.232.405 of
this chapter)  during the  preceding 12 months (or for such shorter  period that
the registrant was required to submit and post such files). Yes [X] No [ ]

Indicate by check mark whether the registrant is a large  accelerated  filer, an
accelerated filer, a non-accelerated  filer, or a smaller reporting company. See
the definitions of "large accelerated  filer,"  "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer [ ]                        Accelerated filer [ ]

Non-accelerated filer [ ]                          Smaller reporting company [X]
(Do not check if a smaller reporting company)

Indicate by check mark whether the  registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [X] No [ ]

                APPLICABLE ONLY TO ISSUERS 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  Sections  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 ISSUERS:

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock, as of the latest  practicable date: 192,136 shares of common stock
outstanding as at February 29, 2012.

TABLE OF CONTENTS PART I - FINANCIAL INFORMATION................................................ 3 ITEM 1. FINANCIAL STATEMENTS................................................. 3 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................................ 7 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK...........12 ITEM 4T. CONTROLS AND PROCEDURES..............................................12 PART II - OTHER INFORMATION...................................................13 ITEM 1. LEGAL PROCEEDINGS....................................................13 ITEM 1A. RISK FACTORS.........................................................13 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS..........20 ITEM 3. DEFAULTS UPON SENIOR SECURITIES......................................20 ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS.................20 ITEM 5. OTHER INFORMATION....................................................20 ITEM 6. EXHIBITS.............................................................21 SIGNATURES....................................................................23 2
PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Western Standard Energy Corp. (An Exploration Stage Company) BALANCE SHEETS -------------------------------------------------------------------------------- February 29, August 31, 2012 2011 ------------ ------------ (Unaudited) ASSETS $ -- $ -- ------------ ------------ LIABILITIES CURRENT LIABILITIES Accounts payable and accrued liabilities $ 102,563 $ 81,002 Notes payable 60,000 60,000 ------------ ------------ 162,563 141,002 STOCKHOLDERS' DEFICIT COMMON STOCK Authorized: 200,000,000 common shares with par value of $0.001 Issued and outstanding: 192,136 common shares 192 192 ADDITIONAL PAID IN CAPITAL 4,670,033 4,670,033 SUBSCRIPTION RECEIVABLE (125) (125) DEFICIT ACCUMULATED DURING EXPLORATION STAGE (4,832,663) (4,811,102) ------------ ------------ (162,563) (141,002) ------------ ------------ $ -- $ -- ============ ============ The accompanying notes are an integral part of these financial statements 3
Western Standard Energy Corp. (An Exploration Stage Company) STATEMENTS OF OPERATIONS (unaudited) -------------------------------------------------------------------------------- Cumulative from Three months Three months Six months Six months October 16, 2003 ended ended ended ended (Inception) to February 29, February 28, February 29, February 28, February 29, 2012 2011 2012 2011 2012 ------------ ------------ ------------ ------------ ------------ EXPENSES Advertising and promotion $ -- $ -- $ -- $ -- $ 48,670 Audit and accounting fees 500 12,000 5,833 12,000 287,201 Depreciation -- -- -- -- 12,280 Consulting fees and expenses -- -- -- -- 17,916 Foreign exchange (gain) loss -- -- -- -- 23,786 Gain on disposal of oil and gas properties -- -- -- -- (5,810) Gain on settlement of debt -- -- -- -- (104,992) Interest expense 4,385 2,815 8,178 5,587 62,542 Interest income -- -- -- -- (3,716) Investor communications and transfer agent 4,560 420 7,550 500 510,343 Legal fees -- 1,680 -- 1,679 234,697 Office and general administration -- -- -- -- 196,422 Product development -- -- -- -- 876,451 Salaries and management fees -- -- -- -- 1,283,083 Stock-based compensation -- -- -- -- 104,366 Travel and entertainment -- -- -- -- 193,807 Web and graphic design -- -- -- -- 129,716 Write-down of assets and liabilities-net -- -- -- -- (34,650) Write-down of oil and gas property -- -- -- -- 1,000,551 ------------ ------------ ------------ ------------ ------------ 9,445 16,915 21,561 19,766 4,832,663 ------------ ------------ ------------ ------------ ------------ NET LOSS $ (9,445) $ (16,915) $ (21,561) $ (19,766) $ (4,832,663) ============ ============ ============ ============ ============ LOSS PER SHARE - BASIC AND DILUTED $ (0.05) $ (0.09) $ (0.11) $ (0.10) ============ ============ ============ ============ WEIGHTED AVERAGE NUMBER OF COMMON STOCK OUTSTANDING - BASIC AND DILUTED 192,136 192,136 192,136 192,136 ============ ============ ============ ============ The accompanying notes are an integral part of these financial statements 4
Western Standard Energy Corp. (An Exploration Stage Company) STATEMENTS OF CASH FLOWS (unaudited) -------------------------------------------------------------------------------- Cumulative from Six months Six months October 16, 2003 ended ended (Inception) to February 29, February 28, February 29, 2012 2011 2012 ------------ ------------ ------------ CASH FLOW FROM OPERATING ACTIVITIES Net loss $ (21,561) $ (19,766) $ (4,832,663) Non-cash items included in net loss Impairment of oil and gas properties -- -- 960,551 Gain on disposal of oil and gas properties -- -- (5,809) Interest 8,178 -- 13,772 Write-down of accounts payable -- -- 30,374 Write-down of assets and liabilities, net -- -- (4,276) Write-down of oil and gas properties -- -- 40,000 Depreciation -- -- 12,280 Gain on settlement of debt -- -- (104,992) Stock issued for service -- -- 104,366 Changes in non-cash working capital Receivables -- -- (1,070) Prepaid expenses -- -- 31,650 Accounts payable and accrued liabilities 13,383 19,766 36,137 ------------ ------------ ------------ NET CASH USED IN OPERATING ACTIVITIES -- -- (3,719,378) ------------ ------------ ------------ INVESTING ACTIVITIES Purchase of equipment -- -- (20,287) Expenditures on oil and gas properties -- -- (703,242) Proceeds on sale of oil and gas properties -- -- 38,500 ------------ ------------ ------------ NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES -- -- (685,029) ------------ ------------ ------------ FINANCING ACTIVITIES Due to related parties -- -- 1,307,771 Note payable -- -- 60,000 Issuance of common shares for cash -- -- 2,685,000 Bank indebtedness -- -- -- Net cash acquired on recapitalization -- -- 351,636 ------------ ------------ ------------ NET CASH FROM FINANCING ACTIVITIES -- -- 4,404,407 ------------ ------------ ------------ INCREASE IN CASH -- -- -- Cash, beginning -- -- -- ------------ ------------ ------------ CASH, ENDING $ -- $ -- $ -- ============ ============ ============ SUPPLEMENTARY INFORMATION CASH PAID FOR: Interest $ -- $ -- $ 34,382 Income tax $ -- $ -- $ -- ============ ============ ============ NON-CASH FINANCING AND INVESTING ACTIVITIES Forgiveness of debt $ -- $ -- $ 24,000 Loans settled with oil and gas propery interest $ -- $ -- $ 214,138 Loans converted to common shares $ -- $ -- $ 879,842 Oil and gas property purchased for common shares $ -- $ -- $ 450,000 ============ ============ ============ The accompanying notes are an integral part of these financial statements 5
Western Standard Energy Corp. (An Exploration Stage Company) NOTES TO THE FINANCIAL STATEMENTS February 29, 2012 -------------------------------------------------------------------------------- 1. BASIS OF PRESENTATION The following interim unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the rules and regulations of the Securities and Exchange Commission. Accordingly, these financial statements do not include all of the disclosures required by generally accepted accounting principles for complete financial statements. These interim unaudited financial statements should be read in conjunction with the Company's audited financial statements for the year ended August 31, 2011. In the opinion of management, the interim unaudited financial statements furnished herein include all adjustments, all of which are of a normal recurring nature, necessary for a fair statement of the results of the interim period presented. Operating results for the six-month period ended February 29, 2012 are not necessarily indicative of the results that may be expected for the year ending August 31, 2012. RECENT ACCOUNTING PRONOUNCEMENTS Recent pronouncements with future effective dates are either not applicable or are not expected to be significant to the financial statements of the Company. 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD-LOOKING STATEMENTS This quarterly report contains forward-looking statements that relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as "may", "should", "expects", "plans", "anticipates", "believes", "estimates", "predicts", "potential" or "continue" or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled "Risk Factors" that may cause our or our industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results. Our financial statements are stated in United States Dollars (US$) unless otherwise stated and are prepared in accordance with United States Generally Accepted Accounting Principles. In this quarterly report, unless otherwise specified, all references to "common shares" refer to the common shares in our capital stock. As used in this quarterly report, the terms "we", "us", "our" and "Western Standard" mean Western Standard Energy Corp., and our wholly-owned subsidiary, Western Standard Energy Limited, unless otherwise indicated. CORPORATE OVERVIEW We are an exploration stage company engaged in the acquisition, exploration, and, if warranted, development of prospective oil and gas properties. We were incorporated in the State of Nevada on February 2, 2005 under the name Comtrix Inc. From incorporation until June 2005, our operating activities consisted primarily of developing fingerprint recognition products for residential buildings in China. Our management investigated opportunities and challenges in the business of developing fingerprint recognition products and security for residential buildings in China and determined that the business did not present the best opportunity for our company to realize value for our shareholders. Accordingly, we abandoned this business plan and focused on the identification of other suitable business opportunities and/or business combinations. On June 23, 2006, we executed a letter of intent with Lusora Corp. wherein the existing shareholders of Lusora Corp. agreed to exchange issued and outstanding shares of its common stock for the same number of shares of our company. Also effective June 23, 2006, we changed our name from "Comtrix Inc." to "Lusora Healthcare Systems Inc." In addition, effective June 23, 2006 we effected a 25 for one forward stock split of our authorized, issued and outstanding common stock. As a result, our authorized capital increased from 75,000,000 shares of common stock with a par value of $0.001 to 1,857,000,000 shares of common stock with a par value of $0.001. Effective September 7, 2007, we changed our name from "Lusora Healthcare Systems Inc." to "Western Standard Energy Corp" when we decided to change the focus of our business plan from wireless personal security and monitoring systems to acquisition and exploration in the oil and gas industry. In addition on September 7, 2007, we effected a 1.5 for one stock split of our authorized and issued and outstanding common stock. As a result, our authorized capital increased from 1,875,000,000 shares of common stock with a par value of $0.001 to 2,812,500,000 shares of common stock with a par value of $0.001. 7
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. Effective February 3, 2010, the Company effected a one thousand to one (1000:1) reverse stock split of shares of common stock. As a result, the Company's authorized capital decreased from 2,812,500,000 shares of common stock to 2,812,500 shares of common stock and its issued and outstanding shares of common stock decreased from 92,136,022 shares of common stock to 92,136 shares of common stock. The reverse stock split became effective with FINRA's Over-the-Counter Bulletin Board at the opening for trading on February 4, 2010 under the new stock symbol "WSEGD", the "D" will be removed 20 business days from February 4, 2010. Our new CUSIP number is 959590 209. On February 16, 2010, the Company issued 100,000 shares of its common stock to Monaco Capital Inc., a Belize company, at a price per share of $0.00125 pursuant to a private placement subscription agreement. Following completion of the private placement, Monaco now owns 100,000 of the Company's common shares, which constitutes 52% of the Company's issued and outstanding common stock. On April 14, 2010 the stockholders approved a resolution to increase the Company's authorized share capital from 2,812,500 shares of common stock to 200,000,000 shares of common stock. OIL AND GAS PROPERTIES At February 29, 2012 the Company had no oil and gas interests. We intend to acquire oil and gas interests in the future. Management believes that future growth of our Company will primarily occur through the acquisition of oil and gas properties following extensive due diligence by our Company. However, we may elect to proceed through collaborative agreements, joint venture agreements or other agreements with other experts in the oil and gas industry in order to share expertise and reduce operating costs. The analysis of new property interests will be undertaken by or under the supervision of our management, advisory board and board of directors. Although the oil and gas industry is currently very competitive, management believes that many undervalued prospective properties are available for acquisition and exploration purposes. PLAN OF OPERATIONS AND CASH REQUIREMENTS OVER THE NEXT 12 MONTHS The following discussion should be read in conjunction with our quarterly financial statements and related notes contained herein. 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 quarterly report on Form 10-Q. ANTICIPATED CASH REQUIREMENTS Over the next twelve months we anticipate incurring costs related to professional fees, general and administrative expenses and oil and gas acquisition and exploration expenditures. As at February 29, 2012, we had cash on hand of $Nil and we will need to obtain financing to meet our plan of operations over the next 12 months. While we believe we will be able to meet our cash requirements over the next 12 months through funds to be loaned to or invested in us by our stockholders, management or other investors, there can be no assurance that additional financing will be available when needed or, if available, on commercially reasonable terms. If we are not able to obtain additional financing on a timely basis, we may not be able to meet our obligations as they come due and may be forced to scale down or perhaps even cease business operations. 8
LIQUIDITY AND CAPITAL RESOURCES The table below shows our working capital position at both February 29, 2012 and our August 31, 2011 year-end: February 29, 2012 August 31, 2011 ----------------- --------------- Current Assets $ Nil $ Nil Current Liabilities (162,563) (141,002) Working Capital (Deficiency) $(162,563) $(141,002) Our working capital deficiency increased by $21,561 during the six months ended February 29, 2012 primarily due to accrued interest payable and accounting and audit fees. The table below shows changes in our cash position for the six months ended February, 2012 and 2011: CASH FLOWS 6 Months Ended February 29/28 2012 2011 ------ ------ Net cash used in Operating Activities $ -- $ -- Net cash provided by (used in) Investing Activities -- -- Net cash provided by Financing Activities -- -- Increase (decrease) in cash for the period -- -- Cash, beginning of period -- -- Cash, end of period $ -- $ -- During the six months ended February 29, 2012, our cash position remained Nil. RESULTS OF OPERATION The summary of our results of operations below should be read in conjunction with our unaudited interim financial statements for the six months ended February 29, 2012 included herein. Revenues 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 plan 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 The following summary of our results of operations should be read in conjunction with out financial statements for the six month period ended February 29, 2012 which are included herein. Our operating results for the six months ended February 29, 2012, for the six months ended February 28, 2011 and the changes between those periods for the respective items are summarized as follows: 9
Change Between Six Month Period Ended Six months Six months February 29, 2012 Ended Ended and February 29, February 28, February 28, 2012 2011 2011 -------- -------- -------- $ $ $ Accounting, audit and legal (5,833) (13,679) 7,846 Interest expense (8,178) (5,587) (2,591) Other (7,550) (500) (7,050) Net loss for the period (21,561) (19,766) (1,795) ACCOUNTING, AUDIT AND LEGAL The $7,846 decrease in accounting, audit and legal fees for the six months ended February 29, 2012 was primarily due to a decrease in accounting fees. INTEREST EXPENSE The $2,591 increase in interest expense was due to an increase in interest charged on loans OTHER EXPENSE The $7,050 increase in other charges was mainly due to an increase in transfer agent expenses. 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. GOING CONCERN These 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 February 29, 2012, the Company was in the exploration stage; has incurred a net loss of $21,561 for the six months ended February 29, 2012 [2011 - $19,766] and at February 29, 2012 had a deficit accumulated of $4,832,663 [2011 - $4,811,102]. The Company has no revenue and has an accumulated deficit and negative working capital of $162,563 as at February 29, 2012. The audited financial statements included in our annual report on Form 10-K were 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 Our independent auditors included an explanatory paragraph in their annual report on our financial statements for the year ended August 31, 2011 regarding concerns about our ability to continue as a going concern. In addition, our year-end financial statements contain further note disclosures in this regard. The continuation of our business plan is dependent upon our ability to continue 10
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 expenditures. 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 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 August 31, 2011 included in our Annual Report on From 10-K filed with the Securities and Exchange Commission. The unaudited interim financial statements should be read in conjunction with the financial statements included in Form 10-K. In the opinion of management, all adjustments considered necessary for fair presentation, consisting solely of normal recurring adjustments, have been made. Operating results for the six months ended February 29, 2012 are not necessarily indicative of the results that may be expected for the year ending August 31, 2012. 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. At February 29, 2012 the Company had no oil and gas interests. 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. 11
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. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not Applicable. ITEM 4T. CONTROLS AND PROCEDURES DISCLOSURE CONTROLS AND PROCEDURES As required by paragraph (b) of Rules 13a-15 or 15d-15 under the Securities Exchange Act of 1934, as amended, we are required to maintain and our management is required to evaluate the effectiveness of our Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act). Our management with the participation of our principal executive officer and principal financial officer evaluated the effectiveness of our Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this Quarterly report on Form 10-Q. Based on this evaluation, our management determined that our Company's disclosure controls and procedures were effective as of February 29, 2012. 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 officer and our principal accounting officer, as appropriate, to allow timely decisions regarding required disclosure. 12
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. CERTIFICATIONS Certifications 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 quarterly report on Form 10-Q. PART II - OTHER INFORMATION ITEM 1. 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 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. 13
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. 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 $4,832,663 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 and our management expects acquisitions and exploration expenditures and operating expenses to increase substantially over the next 12 months. 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 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 approximately one third 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 the last half of 2008 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 14
concerns about the stability of financial markets generally and the solvency of borrowers specifically, the cost of accessing the credit markets has increased as many lenders have raised interest rates, enacted tighter lending standards or altogether ceased to provide funding to borrowers. Due to these capital and credit market conditions, we cannot be certain that funding will be available to us in amounts or on terms that we believe are acceptable. 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 programs 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 make capital expenditures far in excess of our existing capital resources to acquire and explore oil and gas properties. We intend to rely on external sources of financing to meet our capital requirements to continue acquiring, exploring and developing oil and gas properties and to otherwise implement our business plan. We plan to obtain such funding through the debt and equity markets, but we cannot assure that we will be able to obtain additional funding when it is required or that it will be available to us on commercially acceptable terms, if at all. In addition, any additional equity financing may involve substantial dilution to our then existing shareholders. Furthermore, additional debt financing could lead to: * a substantial portion of operating cash flow being dedicated to the payment of principal and interest; * being more vulnerable to competitive pressures and economic downturns; and * restrictions on our operations. If sufficient capital resources are not available, we might be forced to curtail our drilling and other activities or be forced to sell some assets on an untimely or unfavorable basis, which would have an adverse effect on our business, financial condition and results of operations. OUR MINERAL RIGHT ACQUISITION, EXPLORATION AND DRILLING OPERATIONS LIKELY WILL NOT BE SUCCESSFUL, OUR BUSINESS MAY FAIL AND INVESTORS MAY LOSE THEIR ENTIRE INVESTMENT IN OUR COMPANY. There can be no assurance that we can acquire interests in mineral rights in order to conduct exploration activities and no assurance that any future exploration and drilling activities will be successful. We may not recover all or any portion of our capital investment in such activities. Unsuccessful acquisition, exploration and drilling activities would have a material adverse effect upon our results of operations and financial condition and would likely result in the ultimate failure of our business operations. Further, the cost of drilling, completing, and operating wells is often uncertain, and a number of factors can delay or prevent drilling operations including: (i) unexpected 15
drilling conditions; (ii) pressure or irregularities in formation; (iii) equipment failures or accidents; (iv) adverse weather conditions; and (v) shortages or delays in availability of drilling rigs and delivery of equipment. It is unlikely that we will find commercially viable reserves of oil or gas on any properties that we acquire rights to in the future. If we do not discover commercially viable reserves of oil and gas, our business would fail and investors would lose all of their investment in our Company. EXPLORATORY DRILLING INVOLVES MANY RISKS AND WE MAY BECOME LIABLE FOR POLLUTION OR OTHER LIABILITIES, WHICH MAY HAVE AN ADVERSE EFFECT ON OUR FINANCIAL POSITION. Drilling operations generally involve a high degree of risk. Hazards such as unusual or unexpected geological formations, power outages, labor disruptions, blow-outs, sour gas leakage, fire, inability to obtain suitable or adequate machinery, equipment or labor, and other risks are involved. We may become subject to liability for pollution or hazards against which we cannot adequately insure or which we may elect not to insure. Incurring any such liability may have a material adverse effect on our financial position and operations. SHORTAGES OF RIGS, EQUIPMENT, SUPPLIES AND PERSONNEL COULD DELAY OR OTHERWISE ADVERSELY AFFECT OUR COST OF OPERATIONS OR OUR ABILITY TO OPERATE ACCORDING TO OUR BUSINESS PLANS. If drilling activity increases in the regions in which we acquire future property rights, a shortage of drilling and completion rigs, field equipment and qualified personnel could develop. These costs have recently increased sharply and could continue to do so. The demand for and wage rates of qualified drilling rig crews generally rise in response to the increasing number of active rigs in service and could increase sharply in the event of a shortage. Shortages of drilling and completion rigs, field equipment or qualified personnel could delay, restrict or curtail our exploration and development operations, which could in turn harm our operating results. OUR FUTURE PERFORMANCE IS DEPENDENT UPON OUR ABILITY TO IDENTIFY, ACQUIRE AND DEVELOP OIL AND GAS PROPERTIES. IF WE FAIL TO DO THIS WELL, OUR BUSINESS MAY FAIL. Our future performance depends upon our ability to identify, acquire and develop oil and gas reserves that are economically recoverable. Our success will depend upon our ability to acquire working and revenue interests in properties upon which oil and gas reserves are ultimately discovered in commercial quantities, and our ability to develop prospects that contain proven oil and gas reserves to the point of production. Without successful acquisition and exploration activities, we will not be able to develop oil and gas reserves or generate revenues. We cannot provide you with any assurance that we will be able to identify and acquire oil and gas reserves on acceptable terms or that oil and gas deposits will be discovered in sufficient quantities to enable us to recover our exploration and development costs or sustain our business. The successful acquisition and development of oil and gas properties requires an assessment of recoverable reserves, future oil and gas prices and operating costs, potential environmental and other liabilities, and other factors. Such assessments are necessarily inexact and their accuracy inherently uncertain. In addition, no assurance can be given that our exploitation and development activities will result in the discovery of any reserves. Our operations may be curtailed, delayed or cancelled as a result of lack of adequate capital and other factors, such as lack of availability of rigs and other equipment, title problems, weather, compliance with governmental regulations or price controls, mechanical difficulties, unusual or unexpected formations or pressures or work interruptions. In addition, the costs of exploitation and development may materially exceed our initial estimates. OUR BUSINESS MAY SUFFER IF WE DO NOT ATTRACT AND RETAIN TALENTED PERSONNEL. Our success will depend in large measure on the abilities, expertise, judgment, discretion, integrity and good faith of our management and other personnel in conducting the business of our company. We have a small management team, and the loss of a key individual or inability attract suitably qualified staff could materially adversely impact our business. Our success depends on the ability of our management and employees to interpret market and geological data correctly and to interpret and respond to economic market and other conditions in order to locate and adopt appropriate investment opportunities, monitor such investments, and ultimately, if required, to 16
successfully divest such investments. Further, no assurance can be given that our key personnel will continue their association or employment with us or that replacement personnel with comparable skills can be found. We have sought to and will continue to ensure that management and any key employees are appropriately compensated; however, their services cannot be guaranteed. If we are unable to attract and retain key personnel, our business may be adversely affected. OUR MANAGEMENT TEAM DOES NOT HAVE EXTENSIVE EXPERIENCE IN PUBLIC COMPANY MATTERS, WHICH COULD IMPAIR OUR ABILITY TO COMPLY WITH LEGAL AND REGULATORY REQUIREMENTS. Our management team has had limited public company management experience or responsibilities, which could impair our ability to comply with legal and regulatory requirements such as the SARBANES-OXLEY ACT OF 2002 and applicable federal securities laws, including filing required reports and other information required on a timely basis. It may be expensive to implement and effect programs and policies in an effective and timely manner that adequately respond to increased legal, regulatory compliance and reporting requirements imposed by such laws and regulations, and we may not have the resources to do so. Our failure to comply with such laws and regulations could lead to the imposition of fines and penalties and further result in the deterioration of our business. THE OIL AND GAS INDUSTRY IS HIGHLY COMPETITIVE, AND WE MAY NOT HAVE SUFFICIENT RESOURCES TO COMPETE EFFECTIVELY. The oil and gas industry is highly competitive. We compete with oil and gas companies and other individual producers and operators, many of which have longer operating histories and substantially greater financial and other resources than we do, as well as companies in other industries supplying energy, fuel and other needs to consumers. Our larger competitors, by reason of their size and relative financial strength, can more easily access capital markets than we can and may enjoy a competitive advantage in the recruitment of qualified personnel. They may be able to absorb the burden of any changes in laws and regulation in the jurisdictions in which we do business and handle longer periods of reduced prices for oil and gas more easily than we can. Our competitors may be able to pay more for oil and gas leases and properties and may be able to define, evaluate, bid for and purchase a greater number of leases and properties than we can. Further, these companies may enjoy technological advantages and may be able to implement new technologies more rapidly than we can. Our ability to acquire properties in the future will depend upon our ability to conduct efficient operations, evaluate and select suitable properties, implement advanced technologies and consummate transactions in a highly competitive environment. COMPLYING WITH ENVIRONMENTAL AND OTHER GOVERNMENT REGULATIONS COULD BE COSTLY AND COULD NEGATIVELY IMPACT OUR PRODUCTION. Our business is governed by numerous laws and regulations at various levels of government. These laws and regulations govern the operation and maintenance of our facilities, the discharge of materials into the environment and other environmental protection issues. Such laws and regulations may, among other potential consequences, require that we acquire permits before commencing drilling and restrict the substances that can be released into the environment with drilling and production activities. Under these laws and regulations, we could be liable for personal injury, clean-up costs and other environmental and property damages, as well as administrative, civil and criminal penalties. Accordingly, we could be liable, or could be required to cease production on properties, if environmental damage occurs. The costs of complying with environmental laws and regulations in the future may harm our business. Furthermore, future changes in environmental laws and regulations could occur that result in stricter standards and enforcement, larger fines and liability, and increased capital expenditures and operating costs, any of which could have a material adverse effect on our financial condition or results of operations. 17
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. 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 THE LIABILITIES ASSOCIATED WITH OUR PROPERTY INTERESTS OR OBTAIN PROTECTION FROM SELLERS AGAINST THEM, WHICH COULD CAUSE US TO INCUR LOSSES. Although we intend to review and evaluate any future property acquisitions, such review and evaluation might not necessarily reveal all existing or potential problems. Inspections may not always be performed on every well, and environmental problems, such as groundwater contamination, are not necessarily observable even when an inspection is undertaken. Even when problems are identified, a seller may be unwilling or unable to provide effective contractual protection against all or part of those problems, and we may assume environmental and other risks and liabilities in connection with the acquired properties. TITLE DEFICIENCIES COULD RENDER THE LEASES THAT WE MAY ACQUIRE IN THE FUTURE WORTHLESS WHICH COULD HAVE ADVERSE EFFECTS ON OUR FINANCIAL CONDITION OR RESULTS OF OPERATIONS. The existence of a material title deficiency can render a lease worthless and can result in a large expense to our business. It is our practice in acquiring oil and gas leases or undivided interests in oil and gas leases to forgo the expense of retaining lawyers to examine the title to the oil or gas interest to be placed under lease or already placed under lease. Instead, we rely upon the judgment of oil and gas landmen who perform the field work in examining records in the appropriate governmental office before attempting to place under lease a specific oil or gas interest. We do not anticipate that we, or the person or company acting as operator of the wells located on the properties that we may lease in the future, will obtain counsel to examine title to the lease until the well is about to be drilled. As a result, we may be unaware of deficiencies in the marketability of the title to the lease. Such deficiencies may render the lease worthless. 18
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 constating documents authorize the issuance of up to 200,000,000 shares of common stock with a par value of $0.001. Our board of directors may choose to issue some or all of such shares to acquire one or more businesses or to provide additional financing in the future. The issuance of any such shares will result in a reduction of the book value and market price of the outstanding shares of our common stock. If we issue any such additional shares, such issuance will cause a reduction in the proportionate ownership and voting power of all current shareholders. Further, such issuance may result in a change of control of our corporation. TRADING ON THE OTC BULLETIN BOARD MAY BE VOLATILE AND SPORADIC, WHICH COULD DEPRESS THE MARKET PRICE OF OUR COMMON STOCK AND MAKE IT DIFFICULT FOR OUR STOCKHOLDERS TO RESELL THEIR SHARES. Our common stock is quoted on the OTC Bulletin Board service of the Financial Industry Regulatory Authority ("FINRA"). Trading in stock quoted on the OTC Bulletin Board is often thin and characterized by wide fluctuations in trading prices due to many factors that may have little to do with our operations or business prospects. This volatility could depress the market price of our common stock for reasons unrelated to operating performance. Moreover, the OTC Bulletin Board is not a stock exchange, and trading of securities on the OTC Bulletin Board is often more sporadic than the trading of securities listed on a quotation system like NASDAQ or a stock exchange like the American Stock Exchange. Accordingly, our shareholders may have difficulty reselling any of their shares. OUR STOCK IS A PENNY STOCK. TRADING OF OUR STOCK MAY BE RESTRICTED BY THE SEC'S PENNY STOCK REGULATIONS AND FINRA'S SALES PRACTICE REQUIREMENTS, WHICH MAY LIMIT A STOCKHOLDER'S ABILITY TO BUY AND SELL OUR STOCK. Our stock is a penny stock. The Securities and Exchange Commission has adopted Rule 15g-9 which generally defines "penny stock" to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. Our securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and "accredited investors". The term "accredited investor" refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the SEC which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer's account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer's confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities. We believe that the penny stock rules discourage investor interest in, and limit the marketability of, our common stock. 19
FINRA SALES PRACTICE REQUIREMENTS MAY ALSO LIMIT A STOCKHOLDER'S ABILITY TO BUY AND SELL OUR STOCK. In addition to the "penny stock" rules promulgated by the Securities and Exchange Commission (see above for a discussion of penny stock rules), FINRA rules require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer's financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares. ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS None ITEM 3. DEFAULTS UPON SENIOR SECURITIES None ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS None ITEM 5. OTHER INFORMATION On December 22, 2009, we entered into a loan agreement with a corporation and an individual, whereby the Company agreed to issue a note payable in exchange for proceeds of $60,000. The note bears interest at 11% per annum, secured by the assets of the Company and is payable on demand. At February 29, 2012, the Company owed $60,000 (2010 - $60,000) on the note and $26,395 (2011 - $18,519) in accrued interest. In addition, the note holders have paid expenses on behalf of the Company totaling $68,533 (2011 - 55,983) as of February 29, 2012 which is included in accounts payable and accrued liabilities. As part of the Company's agreement on December 17, 2009 with a former director in which the Company assigned certain oil and gas properties in the Lodgepole Reef-Bakken Oil and Gas Prospects in return for forgiveness of outstanding debt, the Company also assigned to such director the Company's U.K. subsidiary, Western Standard Energy Limited. At November, 30 2011, the Company had no subsidiaries. On February 16, 2010, Western Standard Energy Corp. (the "Western Standard" or the "Company") issued 100,000 shares of its common stock to Monaco Capital Inc. ("Monaco") at a price per share of $0.00125 pursuant to a private placement subscription agreement dated February 12, 2010. The shares were issuant pursuant to Regulation S of the Securities Act of 1932 on the basis that the investor represented to the Company that they were not a "US person" as such term is defined in Regulation S. Following completion of the private placement Monaco now owns 100,000 of the Company's common shares, which constitutes 52% of the Company's issued and outstanding common stock as of February 22, 2010. The subscription funds for the placement came from working capital of Monaco. Monaco, a Belize company, is a merchant bank specializing in small-cap growth opportunities. Its management has many years of marketing and financial management expertise and a track record of success in identifying promising enterprises and enabling their growth. The Company intends to seek further financing from Monaco as it develops its future business plans. The Company does not know of any arrangements of Monaco, including any pledge by any person of securities of the Company, the operation of which may at a subsequent date result in a change in control or election of directors of the Company. During 2010, the Company adopted a stock option plan known as the 2010 Equity Compensation Plan, where up to 5,000,000 options may be granted. The plan was approved by the shareholders of the Company at special meeting of the shareholders held on April 14, 2010. We have not granted any stock options under the plan as at February 29, 2012. 20
On December 15, 2011 Peter Jenks resigned as our President, Chief Executive Officer, Chief Financial Officer, Secretary, Treasurer and Director. As a result of the resignation, the Company appointed Steven Cook as our new President, Chief Executive Officer, Chief Financial Officer, Secretary, Treasurer and Director. ITEM 6. EXHIBITS Exhibits required by Item 601 of Regulation S-K: Exhibit No. Description ----------- ----------- (3) ARTICLES OF INCORPORATION AND BY-LAWS 3.1 Articles of Incorporation (attached as an exhibit to our Registration Statement on Form SB-2, filed on November 2, 2005) 3.2 Bylaws (attached as an exhibit to our Registration Statement on Form SB-2, filed on November 2, 2005) 3.3 Articles of Merger (attached as an exhibit to our current report on Form 8-K filed on June 28, 2006) 3.4 Certificate of Change (attached as an exhibit to our current report on Form 8-K filed on June 28, 2006) 3.5 Certificate of Change (attached as an exhibit to our current report on Form 8-K filed on July 7, 2007) 3.6 Articles of Merger (attached as an exhibit to our current report on Form 8-K filed on July 7, 2007) 3.7 Articles of Merger (attached as an exhibit to our annual report on Form 10-KSB filed on December 14, 2007) (4) INSTRUMENTS DEFINING RIGHTS OF SECURITY HOLDERS, INCLUDING INDENTURES 4.1 Specimen ordinary share certificate (attached as an exhibit to our Registration Statement on Form SB-2, filed on November 2, 2005) (10) MATERIAL CONTRACTS 10.1 Form of Subscription Agreement (attached as an exhibit to our current report on Form 8-K filed on September 26, 2006) 10.2 Promissory Note (attached as an exhibit to our current report on Form 8-K filed on October 3, 2006) 10.3 Lease Agreement (attached as an exhibit to our current report on Form 8-K filed on November 29, 2006) 10.4 Form of Subscription Agreement (attached as an exhibit to our current report on Form 8-K filed on November 29, 2006) 10.5 Share Exchange Agreement (attached as an exhibit to our current report on Form 8-K filed on November 29, 2006) 10.6 Share Issuance Agreement with Global (attached as an exhibit to our current report on Form 8- K filed on May 15, 2007) 10.7 Letter of Intent (attached as an exhibit to our current report on Form 8-K filed on May 17, 2007) 10.8 Private Placement Subscription Agreement (attached as an exhibit to our current report on Form 8-K filed on May 23, 2007) 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) 21
10.17 Letter from Western Standard Energy Corp. to Coastal Petroleum Company, dated November 28, 2007 (attached as an exhibit to our current report on Form 8-K filed on December 11, 2007) 10.18 Assignment Agreement between Coastal Petroleum Company and Western Standard Energy Corp., dated November 7, 2007 (attached as an exhibit to our current report on Form 8-K filed on December 11, 2007) 10.19 Farmout Agreement between Oil For America and Western Standard Energy Corp., dated November 9, 2007 (attached as an exhibit to our current report on Form 8-K filed on December 11, 2007) 10.20 Assignment Agreement between Oil For America and Western Standard Energy Corp., dated November 7, 2007 (attached as an exhibit to our current report on Form 8-K filed on December 11, 2007) 10.21 Farmout Agreement between Coastal Petroleum Company and Western Standard Energy Corp., dated December 11, 2007 (attached as an exhibit to our annual report on Form 10-KSB filed on December 14, 2007) 10.22 Assignment Agreement between Coastal Petroleum Company and Western Standard Energy Corp., dated December 12, 2007 (attached as an exhibit to our annual report on Form 10-KSB filed on December 14, 2007) 10.23 Form of Subscription Agreement dated December 24, 2007 (attached as an exhibit to our quarterly report on Form 10-QSB filed on February 4, 2008) 10.24 Memorandum of Understanding dated January 24, 2008 between Western Standard Energy Corp. and F Cross Resources, LLC (attached as an exhibit to our quarterly report on Form 10-QSB filed on February 4, 2008) 10.25 Memorandum of Intent with Oil For America dated April 17, 2008 (attached as an exhibit to our current report on Form 8-K filed on April 21, 2008) 10.26 Share Issuance Agreement dated May 6, 2008 with Infinity Energy Investments Limited (attached as an exhibit to our current report on Form 8-K filed on May 8, 2008) 10.27 Memorandum of Intent dated May 6, 2008 with Oil for America (attached as an exhibit to our quarterly report on Form 10-QSB filed on July 15, 2008) 10.28 Letter of Intent with East Dickinson Oil and Gas Co. dated October 31, 2008 (attached as an exhibit to our current report on Form 8-K filed on November 10, 2008) 10.29 Assignment Agreement with East Dickinson Oil and Gas Co., dated November 3, 2008 (attached as an exhibit to our annual report on Form 10-K filed on December 15, 2008) 10.30 Assignment Agreement with Stark County Oil & Gas Co., dated November 3, 2008 (attached as an exhibit to our annual report on Form 10-K filed on December 15, 2008) 10.31 Assignment Agreement with East Dickinson Oil & Gas Co., dated September 18, 2009 (attached as an exhibit to our annual report on Form 10-K filed on December 14, 2009) 10.32 Assignment Agreement with Oil For America LLC., dated November 15, 2009 (attached as an exhibit to our annual report on Form 10-K filed on December 14, 2009) 10.33 Loan Agreement dated December 22, 2009 (attached as an exhibit to our current report on Form 8-K filed on December 29, 2009) (31) SECTION 302 CERTIFICATION 31.1* Certification Statement pursuant to Section 302 of the Sarbanes- Oxley Act of 2002 (32) SECTION 906 CERTIFICATION 32.1* Certification Statement pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act Of 2002 99.1 Great Northern Gas Company - Starbuck East Prospect Valley Co., Montana Geological Report dated February 2, 2005 (attached as an exhibit to our current report on Form 8-K filed on May 15, 2008) 99.2 Letter from Richard Robertson dated September 25, 2007 verifying the contents of the February 2, 2005 Geological Report (attached as an exhibit to our current report on Form 8-K filed on May 15, 2008) 101* Interactive data files pursuant to Rule 405 of Regulation S-T. ---------- * filed herewith 22
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. WESTERN STANDARD ENERGY CORP. /s/ Steven Cook -------------------------------------------- Steven Cook President, Secretary, Treasurer and Director Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer Dated: April 13, 2012 23