last filing:FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2007
Gulf Coast Oil & Gas Inc. - Quarterly Report of Financial Condition
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934.
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2007
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 000-32747
GULF COAST OIL & GAS, INC. (NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER) NEVADA 98-0128688
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
5847 SAN FELIPE, SUITE 1700 HOUSTON, TEXAS 77057
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(713) 821-1731
(ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PAST FIVE YEARS
Check whether the issuer has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: As of November 12, 2007, 538,445,888 shares of common stock.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
SEC2334(9-05) PERSONS WHO ARE TO RESPOND TO THE COLLECTION OF INFORMATION
CONTAINED IN THIS FORM ARE NOT REQUIRED TO RESPOND UNLESS THE
FORM DISPLAYS A CURRENT VALID OMB CONTROL NUMBER.
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GULF COAST OIL & GAS, INC. AND SUBSIDIARY
FORM 10-QSB
FOR THE QUARTER ENDED SEPTEMBER 30, 2007
INDEX
PAGE
PART 1--FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Balance Sheets-- September 30, 2007 and December 31, 2006 3 Statements of Operations - Three and Nine
Months Ending September 30, 2007 and
September 30, 2006, and period from
August 4, 2003 (inception) to
September 30, 2007 4 Statement of Cash Flows-- Three and Nine
Months Ending September 30, 2007 and
September 30, 2006 and period from August
4, 2003 (inception) to September 30, 2007 5 Notes to Consolidated Financial Statements--
September 30, 2007 6ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 15ITEM 3. CONTROLS AND PROCEDURES 16 PART II--OTHER INFORMATIONITEM 1. LEGAL PROCEEDINGS 17ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 17ITEM 3. DEFAULTS UPON SENIOR SECURITIES 17ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 17ITEM 5. OTHER INFORMATION 17ITEM 6. EXHIBITS 17
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PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GULF COAST OIL & GAS, INC. AND SUBSIDIARY
(AN EXPLORATION STAGE COMPANY)
BALANCE SHEETS
SEPTEMBER 30, 2007 AND DECEMBER 31, 2006 SEPTEMBER 30, DECEMBER 31,
ASSETS 2007 2006
----------- -----------
Current Assets
Cash in banks $ 351,777 $ 573,438 Accounts receivable -other -- --
Deferred financing 176,460 176,460
----------- -----------
Total Current Assets 528,237 749,898
Fixed Assets
Office equipment 7,537 7,537
Oil equipment 49,897 --
----------- -----------
57,434 7,537
Less accumulated depreciation (10,320) (4,254)
----------- -----------
47,114 3,283
Other Assets
Oil reserves less accumulated
depletion of $54,969 and $0 677,957 --
Website costs less accumulated
amortization of $1,218 and $1,150 342 450
Deferred financing - Non-current 66,936 199,281
Deposit on interest in unproved oil and gas leases 269,176 912,822
----------- -----------
1,014,411 1,112,553
----------- -----------
Total Assets $ 1,589,762 $ 1,865,734
=========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 62,197 $ 76,812
Due to shareholder 67,119 47,119
Accrued interest 311,846 166,912
Accrued expenses 35,631 35,631
----------- -----------
Total Current Liabilities 476,793 326,474
Long-Term Debt
Notes payable 645,280 1,965,551Derivative Liability Arising From Warrants -- 8,333
Stockholders' Equity
Series A Preferred stock, 1,000,000 shares
authorized, 0 shares outstanding, par value $.001 per share -- --
Common stock, 1,000,000,000 shares authorized,
538,445,888 and 134,878,634 shares
outstanding at respective period ends,
par value $.001 per share 538,446 134,879
Additional contributed capital 7,026,001 6,157,601
Deficit accumulated during exploration stage (7,428,412) (7,050,425)
Accumulated other comprehensive income 281,752 273,419
Stock subscription advances 49,902 49,902
----------- -----------
467,689 (434,624)
----------- -----------
Total Liabilities and Stockholders' Equity 1,589,762 $ 1,865,734
=========== =========== See accompanying notes to financial statements.
-3-
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GULF COAST OIL & GAS, INC. AND SUBSIDIARY
(AN EXPLORATION STAGE COMPANY) STATEMENT OF OPERATIONS
FOR THREE AND NINE MONTHS ENDING SEPTEMBER 30, 2007 AND SEPTEMBER 30, 2006, AND FROM AUGUST 4, 2003 (INCEPTION)
TO SEPTEMBER 30, 2007 (UNAUDITED) QUARTER QUARTER NINE-MONTHS NINE-MONTHS
ENDING ENDING ENDING ENDING
SEPTEMBER SEPTEMBER SEPTEMBER SEPTEMBER SINCE
30, 2007 30, 2006 30, 2007 30, 2006 INCEPTION
------------- ------------- ------------- ------------- -------------
Revenues
Sales $ 24,706 $ -- $ 175,382 $ -- $ 175,382
Interest income 2,946 8,644 11,698 23,814 40,763
------------- ------------- ------------- ------------- -------------
27,652 8,644 187,080 23,814 216,145
Cost of Sales Exploration Costs 18,323 -- 54,969 -- 214,594
------------- ------------- ------------- ------------- -------------
Gross Profit 9,329 8,644 132,111 23,814 1,551
Expenses
Administrative 173,831 153,574 510,097 389,505 7,287,056
------------- ------------- ------------- ------------- ------------- (164,502) (144,930) (377,986) (365,691) 7,285,505
------------- ------------- ------------- ------------- -------------
Other income and expenses Loss on sale of fixed assets -- -- -- -- (684)
Gain on settlement of debt -- -- -- -- 67,693
Foreign exchange (loss) gain -- -- -- -- (16,689)
------------- ------------- ------------- ------------- -------------
-- -- -- -- 50,320
------------- ------------- ------------- ------------- -------------Loss from continuing operations (164,502) (144,930) (377,986) (365,691) (7,235,185)
------------- ------------- ------------- ------------- -------------Discontinued operations
Mineral rights abandoned -- -- -- -- (193,226)
------------- ------------- ------------- ------------- -------------Net Loss (164,502) (144,930) (377,986) (365,691) (7,428,411)
------------- ------------- ------------- ------------- -------------Other Comprehensive Income
281,752
Decrease in fair value of derivatives -- (7,643) 8,333 (7,643)
------------- ------------- ------------- ------------- -------------
Net Comprehensive Income/(Loss) (164,502) $ (152,573) (369,653) $ (373,334) $ (7,146,659)
------------- ------------- ------------- ------------- -------------
Net loss per share $ (0.00) $ (0.00) $ (0.00) $ (0.00)
Other comprehensive income per share -- $ (0.00) $ (0.00) $ (0.00)Average shares outstanding 246,608,888 119,685,603 192,329,798 119,585,396 See accompanying notes to financial statements.
-4-
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GULF COAST OIL & GAS, INC. AND SUBSIDIARY
(AN EXPLORATION STAGE COMPANY) STATEMENT OF CASH FLOWS
FOR THE THREE AND NINE MONTHS ENDING SEPTEMBER
30, 2007 AND SEPTEMBER 30, 2006, AND PERIOD
FROM AUGUST 4, 2003 (INCEPTION) TO SEPTEMBER
30, 2007 (UNAUDITED)
QUARTER QUARTER NINE-MONTHS NINE-MONTHS
ENDING ENDING ENDING ENDING
SEPTEMBER SEPTEMBER SEPTEMBER SEPTEMBER SINCE
30, 2007 30, 2006 30, 2007 30, 2006 INCEPTION
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss for the period $ (164,503) $ (144,930) $ (377,987) (365,691) $(7,428,412)
Adjustments to reconcile net earnings to net
cash provided (used) by operating activities:
Depreciation 2,022 689 6,066 689 21,377
Amortization 62,478 6,240 187,422 31,766 231,827
Services paid by stock -- -- 1,700 -- 5,447,795
Mineral rights abandoned -- -- -- -- 195,226
Changes in Current assets and liabilities:
(Increase) decrease in Accounts receivable -
other -- -- -- 731 --
(Increase) in Deferred financing -- 24,954 -- (237,038) (135,000)
(Decrease) Increase in Accounts payable (5) (2,001) (14,619) (3,359) 62,193
Increase in Due to shareholder 4,500 -- 20,000 -- 43,983
Increase in Accrued interest 46,654 -- 144,934 -- 311,846
(Decrease) Increase in Accrued expenses -- 37,000 -- 37,000 58,767
----------- ----------- ----------- ----------- -----------
NET CASH (USED) BY
OPERATING ACTIVITIES (48,854) (78,048) (32,484) (535,902) (1,190,398)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Mineral rights -- -- -- -- (91,534)
Purchase of Interest in unproved oil and gas
leases -- (528,322) (139,177) (790,822) (1,051,999)
Purchase of Website costs -- -- -- -- (27,519)
Purchase of Fixed assets -- (3,987) -- (3,987) (24,267)
----------- ----------- ----------- ----------- -----------
NET CASH (USED) BY
INVESTING ACTIVITIES -- -- (139,177) (794,809) (1,195,319)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on Notes payable (50,000) -- (50,000) -- (50,000)
Proceeds from Notes payable -- -- -- -- 2,000,000
Sale of Common stock/convertible debentures -- -- -- 2,000,000 737,400
Stock subscription advances -- -- -- -- 49,902
----------- ----------- ----------- ----------- -----------
NET CASH PROVIDED BY
FINANCING ACTIVITIES (50,000) -- (50,000) 2,000,000 2,737,302
----------- ----------- ----------- ----------- -----------
NET INCREASE IN CASH (98,854) (610,357) (221,661) 669,289 351,585
CASH FROM OTISH DIAMOND MERGER -- -- -- -- 192
CASH AT BEGINNING OF PERIOD 450,631 1,314,070 573,438 34,424 --
----------- ----------- ----------- ----------- -----------
CASH AT END OF PERIOD $ 351,777 $ 703,713 $ 351,777 $ 703,713 $ 351,777
=========== =========== =========== =========== =========== See accompanying notes to financial statements.
-5-
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GULF COAST OIL & GAS, INC. AND SUBSIDIARY
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
September 30, 2007
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
HISTORY
Otish Mountain Diamond Company (formerly First Cypress, Inc.), a Nevada corporation, was organized on September 14, 1999. From inception to September 30, 2003, the Company had not generated any revenues and was considered a development stage enterprise, as defined in Financial Accounting Standards Board No. 7. The Company was in the process of developing an internet computer software program known as EngineMax. Essentially, software development was suspended in November 2002 due to cash flow constraints. In October 2002, the Company acquired certain items constituting the "Money Club Financial" business concept and business plan. Due to the Company's inability to raise the necessary equity capital to further the Money Club Financial business concept, no monies were spent furthering the business concept from the date of acquisition to September 30, 2003. The Company discontinued its involvement in these operations in the third quarter of 2003.
On November 30, 2003, the Company successfully acquired 100% of Otish Mountain Diamond Corp. ("Otish Corp."). The business activities of Otish Corp. became the business activities of the Company. In connection with the merger the capitalization of the Company was amended to reflect a 220:1 reverse stock split and to increase the authorized capital to 600,000,000 shares, consisting of 500,000,000 common shares with a par value of $0.001, and 100,000,000 preferred shares with a par value of $0.001. Also, 1,000,000 shares of a Serial A Preferred were issued for services rendered. Finally, the then president of the Company entered into two agreements with the Company; one, assumed all the known liabilities of the company, and the second, agreed to convert debt owed the president of $236,000 into 236,000 shares of Company common stock.
The Company's income statement at the date of merger was as follows:
Revenues $ -0-
Expenses:
Exploration costs $ 36,293
Administrative $ 136,284
Net Loss $ 172,577
Otish Mountain Diamond Corp. was incorporated in the state of Nevada on August 4, 2003. The Company was formerly engaged in the mining and exploration business and had mineral rights in the Otish Mountain and Superior Craton regions of Canada.
On November 30, 2003, the Company declared a 1 for 220 reverse stock split. On July 13, 2005, the Company declared a 3 for 1 forward stock split. All shares amount referenced in these footnotes represent the share equivalents after taking into account, to the extent applicable, the effect of the reverse
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GULF COAST OIL & GAS, INC. AND SUBSIDIARY
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
September 30, 2007
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
stock split and the forward stock split. All share amounts in the financial statements have also been adjusted retroactively for the reverse and forward stock split.
In August and November 2003, the Company issued 40,909 shares of its common stock and paid $77,745 for mineral rights in the Otish Mountain and Superior Craton regions of Quebec, Canada.
In the first quarter of 2004 the Company issued 60,900,150 shares of common stock for services valued at $5,180,053. Valuation was based on the approximate trading value of the Company's shares on the date issued.
During the third quarter of 2004 the Company issued 7,902,000 shares of common stock to liquidate $263,400 of advances.
On January 13, 2005, the Company changed its name to Gulf Coast Oil & Gas, Inc.
On April 15, 2005, the Company settled an accounts payable debt of $232,120 for 696,360 shares of common stock.
On May 2, 2005, the Company received $100,000 for 1,665,000 shares of common stock.
On May 26, 2005, the Company settled a current period debt of $5,000 for 300,000 of common stock.
On June 17, 2005, the Company received $100,000 for 1,200,000 shares of common stock.
On July 17, 2005, the Company received $50,000 for 625,000 shares of common stock.
On August 15, 2005, the Company issued 300,000 shares of common stock for consulting services valued at $24,000.
On September 26, 2005, the Company received $50,000 for 625,000 shares of common stock.
On November 14, 2006, the Company issued 1,500,000 shares of common stock for consulting services valued at $24,000.
On December 31, 2006, the Company issued 500,000 shares of common stock for consulting services valued at $11,000.
On January 1, 2007, the Company issued 1,700,000 shares of common stock for consulting services valued at $1,700.
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GULF COAST OIL & GAS, INC. AND SUBSIDIARY
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
September 30, 2007
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
FINANCIAL STATEMENT PRESENTATION
The Company was a shell at the time of the acquisition having only $192 in assets; the acquisition was treated as a reverse merger whereby the acquired company is treated as the acquiring company for accounting purposes.
AN EXPLORATION STAGE COMPANY
The Company is an Exploration Stage Company since it is engaged in the search for mineral deposits, which are not in the development or productions stage. As an exploration stage company the Company will present, Since Inception, results on its statements of operations, stockholders' equity and cash flows.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all short-term debt securities purchased with a maturity of three months or less to be cash equivalents. There was no cash paid during the periods for interest or taxes.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost. Maintenance, repairs and renewals are expensed as incurred. Depreciation of property and equipment is provided for over their estimated useful lives, which range from three to five years, using the straight-lined method.
WEBSITE DEVELOPMENT COSTS
The Company has expended $1,500 in Website Development Costs, for internal use software. These costs are being amortized over a three year estimated life.
MINERAL RIGHTS
The Company uses the "full costs method" of accounting for its mineral reserves.
Under this method of accounting, properties are divided into cost centers. The Company presently has two cost centers. All acquisition, exploration, and development costs for properties within each cost center are capitalized when incurred. The Company intends to deplete these costs equally over the estimated units to be recovered from the properties. These costs were written off at December 31, 2004 as part of the cost of mineral rights abandoned.
DEPOSIT ON INTEREST IN UNPROVED OIL AND GAS LEASES
On June 8, 2005, the Company paid $100,000 to acquire, subject to lease availability, a 75% working interest in oil and gas leases in Louisiana. Under the terms of the agreement the Company will pay 100% of the costs of acquisition, exploration and development of the leases, the lease are subject to overriding royalties, and has one year to submit the remaining portion of the total costs. In the event the leases are unavailable, the funds advanced, less expense incurred will be returned to the Company.
-8-
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GULF COAST OIL & GAS, INC. AND SUBSIDIARY
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
September 30, 2007
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
In August 2006, the Company paid $30,000 to renew the lease in Louisiana for two additional years.
On May 9, 2006, the Company paid a deposit of $262,500 on oil and gas property (the Weil 8-C) in Corpus Christi Texas. Under the agreement, the Company acquired an undivided 28% working interest and a 21% net revenue interest in the Weil 8-C well for a 46.66% billing interest.
On August 1, 2006, the Company paid $104,533 to hookup the 8-C to bring the well production ready. The facility had not been placed into service at December 31, 2006. When placed into service the asset will be moved from investments to fixed assets and depreciated on a straight-line basis over a seven year life.
On August 15, 2006, the Company paid a deposit of $108,251 on oil & gas property, namely, the Weil 3-C, in Corpus Christi, Texas. Under the agreement, the Company acquired an undivided 28% working interest and a 21% net revenue interest in the Weil 3-C well for a 46.66% billing interest.
On August 31, 2006, The Company paid a deposit of $134,520.78 on oil & gas property, namely, the Weil 7-C, in Corpus Christi, Texas. Under the agreement, the Company acquired an undivided 28% working interest and a 21% net revenue interest in the Well 7-C well for a 46.66% billing interest.
On September 19, 2006, the Company paid $135,948.57 to bring the 3-C and 7-C wells into production as well as convert both the 2-C and 6-C wells on property to Salt Water disposal wells. It is the intent of the Company to offer Salt Water disposal services to neighboring companies as a side revenue generating service. In the first quarter of 2007, all the wells, except the Louisiana wells, generated revenues. Accordingly $49,897 was transferred to depreciable assets and $732,926 to Oil reserves.
USE OF ESTIMATES
The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
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GULF COAST OIL & GAS, INC. AND SUBSIDIARY
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
September 30, 2007
NOTE 2 - MINERAL RIGHTS
Otish Mountain Diamond Corporation
On August 19, 2003 the Company purchased the mineral rights for 60,933 acres in the Otish Mountain and Superior Craton regions of Quebec, Canada. The claims were purchased for $42,506 and 17,045 shares of common stock. The Company is required to spend a minimum of $135 CDN per mining claim on exploration before the expiration date of each claim. The Company is required to spend $105 CDN per claim maintenance/renewal fee to the appropriate governmental authority before the expiration date of the mining claim. If the Company fails to meet its obligations under this agreement the seller has the option to make the expenditures and to reassume title to the mining claims.
On November 4, 2003 the Company purchased the mineral rights for 775 acres in the Otish Mountain region of Quebec, Canada. The Claims were purchased for $1,855 and 3409 shares of common stock. The Company is required to pay a 2% royalty of the net smelter returns and a 2% royalty on the gross overriding royalty as defined in the agreement. The Company shall also pay to the seller $5,000 CDN minimum annual advance royalty beginning on November 1, 2004 and each year thereafter. The Company is also required to keep the property in good standing for 1 year or the seller shall be entitled to reacquire the claims.
On November 4, 2003 the Company entered into a joint venture agreement for the mineral rights for 15,361 acres in the Otish Mountain region of Quebec, Canada.
The investment was $33,383 and 20454 shares of common stock. The Company paid the required claim tax/renewal fees of $12,495 CDN by the due date of November 27, 2003. The Company was required to make a minimum advanced royalty payment of $15,000 CDN once mining stage began. Royalties were subject to underlying royalties of 2% of the net smelter returns and 2% of the gross overriding royalty as defined in the agreement. The Company's total outlay for the joint venture was not to exceed $375,000 CDN. The Company owned 45% of the joint venture.
At December 31, 2004 the Company decided to abandon the above mineral rights.
The balance of the rights and the net book value of the website development costs were expensed. The total amount written off was $195,226.
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GULF COAST OIL & GAS, INC. AND SUBSIDIARY
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
September 30, 2007
NOTE 3 - DEPOSIT ON INTEREST IN UNPROVED OIL AND GAS LEASES
On June 8, 2005, the Company paid $100,000 to acquire, subject to lease availability, a 75% working interest in oil and gas leases in Louisiana. Under the terms of the agreement the Company will pay 100% of the costs of acquisition, exploration and development of the leases, the leases are subject to overriding royalties, and has one year to submit the remaining portion of the total costs. In the event the leases are unavailable, the funds advanced, less expenses incurred will be returned to the Company.
In August 2006, the Company paid $30,000 to renew the lease in Louisiana for two additional years.
On May 9, 2006, the Company paid a deposit of $262,500 on oil and gas property (the Weil 8-C) in Corpus Christi, Texas. Under the agreement, the Company acquired an undivided 28% working interest and a 21% net revenue interest in the Weil 8-C well for a 46.66% billing interest.
On August 1, 2006, the Company paid $104,533 to hookup the 3-C to bring the well production ready. The facility had not been placed into service at December 31, 2006. When placed into service the asset will be moved from investments to fixed assets and depreciated on a straight-line basis over a seven year life.
On August 15, 2006, the Company paid a deposit of $108,251 on oil & gas property, namely, the Weil 3-C, in Corpus Christi, Texas. Under the agreement, the Company acquired an undivided 28% working interest and a 21% net revenue interest in the Weil 3-C well for a 46.66% billing interest.
On August 31, 2006, the Company paid a deposit of $134,520.78 on oil & gas property, namely, the 7-C in Corpus Christi Texas. Under the agreement, the Company acquired an undivided 28% working interest and a 21% net revenue interest in the Weil 7-C well for a 46.66% billing interest.
On September 19, 2006, the Company paid $135,948.57 to bring the 3-C and 7-C wells into production as well as convert both the 2-C and 6-C wells on property to Salt Water disposal wells. It is the intent of the Company to offer Salt Water disposal services to neighboring companies as a side revenue generating service. In the first quarter of 2007, all the wells, except the Louisiana wells, generated revenues. Accordingly $49,897 was transferred to depreciable assets and $732,926 to Oil reserves.
In the first quarter of 2007, all the wells, except the Louisiana wells generated revenues. Accordingly $49,897 was transferred to depreciable assets and $732,926 to Oil reserves. During the second quarter of 2007, the Company invested $139,177 in the Corpus Christi project to improve the efficiency of the wells.
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GULF COAST OIL & GAS, INC. AND SUBSIDIARY
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
September 30, 2007
NOTE 4 - NOTES PAYABLE
On February 1, 2006, the Company entered into a Securities Purchase Agreement with Cornell Capital Partners, L.P., Certain Wealth, Ltd., and TAIB Bank, B.S.C.
pursuant to which the Buyers agreed to purchase secured convertible debentures in the principal amount of $2,000,000. On February 2, 2006 the Company sold and issued $1,000,000 in principal amount of Debentures to the Buyers. In connection with the Securities Purchase Agreement, the Company issued Cornell Capital five-year warrants to purchase 30,000,000 shares of our common stock at the following exercise prices: 7,500,000 at $0.02 per share, 7,500,000 at $0.03 per share, 5,000,000 at $0.04 per share, 5,000,000 at $0.05 per share, and 5,000,000 at $0.06 per share.
The debentures are convertible at the option of the Buyers any time up to maturity into shares of the Company's common stock. The debentures have a three-year term and accrue interest at 10% per year. All unpaid interest and principal are due on or before February 1, 2009.
On April 5, 2006, the Company sold the balance, $1,000,000, of the secured convertible debentures. The terms and conditions are the same. The debentures have a three-year term and accrue interest at 10% per year. All unpaid interest and principal are due on or before April 5, 2009.
On September 14, 2006, the Company exchanged 892,857 shares of common stock for the retirement of $20,000 of convertible notes payable.
In the fourth quarter of 2006, the Company exchanged 12,448,984 shares of common stock for the retirement of $12,449 of convertible notes payable.
In the first quarter of 2007, the Company exchanged 21,301,587 shares of common stock for the retirement of $170,000 of convertible notes payable.
In the second quarter of 2007, the Company exchanged 88,728,878 shares of common stock for the retirement of $277,049 of convertible notes payable.
In the third quarter of 2007, the Company exchanged 291,837,000 shares of common stock for the retirement of $823,222 of convertible notes payable.
Maturities of long term debt at December 31, 2006 were as follows:
2006 $ -0-
2007 $ -0-
2008 $ -0-
2009 $ 1,965,551
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GULF COAST OIL & GAS, INC. AND SUBSIDIARY
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
September 30, 2007
NOTE 5 - DERIVATIVE LIABILITY ARISING FROM WARRANTS
The Company accounts for debt with embedded conversion features and warrant issues in accordance with EITF 98-5: ACCOUNTING FOR CONVERTIBLE SECURITIES WITH BENEFICIAL CONVERSION FEATURES OR CONTINGENCY ADJUSTABLE CONVERSION and EITF No.
00-27: APPLICATION OF ISSUE NO 98-5 TO CERTAIN CONVERTIBLE INSTRUMENTS.
Conversion features determined to be beneficial to the holder are valued at fair value and recorded to additional paid in capital. The Company determines the fair value to be ascribed to the detachable warrants issued with the convertible debentures utilizing the BLACK-SCHOLES method. Any discount derived from determining the fair value to the debenture conversion features and warrants is amortized to financing cost over the life of the debenture. The unamortized discount, if any, upon the conversion of the debentures is expensed to financing cost on a pro rata basis.
Debt issue with the variable conversion features are considered to be embedded derivatives and are accountable in accordance with FASB 133; ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. The fare value of the embedded derivative is recorded to derivative liability. This liability is required to be marked each reporting period. The resulting discount on the debt is amortized to interest expense over the life of the related debt.
NOTE 6 - SERIES A PREFERRED STOCK
Each share of preferred has 15 votes compared to each share of common, which has only one vote. In the second quarter 2004 all outstanding shares of Preferred Stock were redeemed for $1,000.
NOTE 7 - RELATED PARTIES
The Company owes its present President $67,119 and $47,119 for compensation and expense reimbursement at September 30, 2007 and December 31, 2006, respectively.
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GULF COAST OIL & GAS, INC. AND SUBSIDIARY
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
September 30, 2007
NOTE 8 - GOING CONCERN
The Company has not generated significant revenues or profits to date. This factor among others may indicate the Company will be unable to continue as a going concern. The Company's continuation as a going concern depends upon its ability to generate sufficient cash flow to conduct its operations and its ability to obtain additional sources of capital and financing. Management feels the revenue flow from the wells will generate the necessary working capital needed in 2007. Management also feels with the revenues and related income there will be an increase in the Company's stock price thereby causing a portion of the outstanding warrants to be exercised and thereby raising additional capital.
The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
LIQUIDITY AND FINANCIAL CONDITION
At September 30, 2007, cash and cash equivalents were $ 351,777, a decrease of $221,661 over December 31, 2006. Total liabilities at September 30, 2007 were $1,589,762, of which $476,793 were current liabilities. The remainder of the liabilities relate to the February and April, 2006 issuance of $2,000,000 of convertible debentures (the "Convertible Debentures") to three investors and recognition of a derivative liability arising from the warrants issued in that transaction.
In the second and third quarters of 2006, the Company acquired interests in three exploratory oil and gas wells located within one mile of each other in Corpus Christi, Texas. Each of the three wells is currently in production. As of September 30, 2007, the Company had recognized revenues of $175,382 relating to this production.
As of September 30, 2007 we had a working capital surplus of $51,444, as compared to a working capital surplus of $423,424 at December 31, 2006. The decrease in working capital is attributable to an increase in accrued interest on the Convertible Debentures and a decrease in cash. The decrease in cash is largely attributable to expenditures in connection with the Corpus Christi Project made to improve the project's salt water disposal and therefore increase the efficiency of production.
The Company believes that revenues from oil and gas production will be sufficient to meet its overhead expenses for at least the next twelve months.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2007
COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2006
REVENUES
The Company did not generate any revenues in the nine months ended September 30, 2006 (other than interest income). The revenues for the nine months ending September 30, 2007 were $187,080, consisting of $175,382 from distributions from the Company's interest in three producing oil and gas wells in Corpus Christi, Texas and interest income of $11,698.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses during the nine months ended September 30, 2007 increased to $510,097 from $389,505 in the same period in 2006. This increase was primarily due to an increase in salaries and consulting fees as the Company is now implementing its business plan and increased amortization and depreciation costs.
NET GAIN/LOSS TO COMMON SHAREHOLDERS
Net operating loss to common shareholders was ($377,986) or ($0.00) per share for the nine months ended September 30, 2007 as compared to a net operating loss of ($365,691) or ($0.00) for the nine months ended September 30, 2006. The increase in net loss primarily results from the Company's increase in general and administrative costs set forth above.
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ACCUMULATED DEFICIT
Since inception, we have incurred substantial operating losses and may incur substantial additional operating losses over the next several years. As of September 30, 2007, our accumulated deficit was ($7,428,412).
ITEM 3. CONTROLS AND PROCEDURES
As of September 30, 2007, an evaluation was carried out under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of disclosure controls and procedures. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that the Company file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. No changes in the Company's internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting, including any corrective actions with regard to significant deficiencies and material weaknesses, occurred during the third quarter of fiscal 2007 or subsequent to the date of the evaluation by its management thereof.
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PART II.
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. UNREGISTERED SALES OF SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
(a) The following Exhibits are filed as part of this Report or incorporated herein by reference:
31.1 Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002.
32.1 Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 302 of the Sarbanes Oxley Act of 2002.
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SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: November 19, 2007 GULF COAST OIL & GAS, INC.
BY: /s/ Rahim Rayani
------------------------------------------
Rahim Rayani
Chief Executive Officer and President
(Principal Executive Officer) BY: /s/ Rahim Rayani
-------------------------------------------
Rahim Rayani
Chief Financial Officer
(Principal Financial and
Accounting Officer)
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