As filed with the Securities and Exchange Commission on ______________, 2000
Registration No. 33-______
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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Form SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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TIDELANDS OIL & GAS CORPORATION
(Name of small business issuer in its charter)
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Nevada 4923 66-0549380
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
---------------------
13330 Leopard St., Ste. 26 13330 Leopard St., Ste. 26
Corpus Christi, TX 78410 Corpus Christi, TX 78410
(361) 241-2244 (361) 241-2244
(Address and telephone number of (Address of principal place
principal executive office) of business)
Michael Ward, President
13330 Leopard St., Ste. 26
Corpus Christi, TX 78410
(Name, address and telephone number of agent for service)
----------------------------
COPIES TO:
Gregory M. Wilson, Esq.
18610 East 32nd Ave.
Greenacres, WA 99016
Tel (509) 891-8373
Fax (509) 891-8382
Counsel to Issuer
Approximate Date of Proposed Sale to the Public.
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to
Rule 415 under the Securities Act of 1933, check the following box.|X|
CALCULATION OF REGISTRATION FEE
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Title of Each Class of Number of Proposed Proposed Amount of
Securities to be Shares Maximum Maximum Registration
Registered to be Offering Aggregate Fee
Registered Price Per Offering
Share(1) Price(1)
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Common Stock, $0.001
par value (1) 25,000,000 $ 0.375 $ 9,375,000 $ 2,475.00
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Common Stock, $0.001
par value (1) (2) 2,500,000 $ 0.375 $ 937,500 $ 247.50
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Common Stock, $0.001
par value (3) 1,500,000 $ 0.297 $ 445,500 $ 117.61
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Total Registration
and Fee 29,000,000 $ 2,840.11
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(1) In accordance with Rule 457(c) , the aggregate offering price of shares of
common stock of Tidelands is estimated solely for the purposes of calculating
the registration fees payable pursuant hereto, as determined in accordance with
Rule 457(c), using the average of the high and low sales price reported by the
OTC Bulletin Board for the Common Stock on December 19 2000, which was $0.375
per share and, with respect to shares of common stock of Tidelands issuable upon
exercise of outstanding warrants, the higher of (1) such average sales price or
(2) the exercise price of such warrants.
(2) Issuable upon the exercise of common stock purchase warrants issuable to
Swartz Private Equity, LLC. The warrants are issuable to Swartz from time to
time when Tidelands exercises its put right to sell shares of common stock to
Swartz. The exercise price of a warrant will be equal to the market price for
the put on the date that Tidelands exercises its put right to sell shares of its
common stock to Swartz. The warrants are subject to downward adjustment under
certain circumstances.
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(3) Issuable upon the exercise of common stock purchase warrants issued to
Swartz Private Equity, LLC, on September 7, 2000. The exercise price of the
warrants is initially $0.297 per share , but is subject to downward adjustment
under certain circumstances. On each six month anniversary of the date of
issuance, Tidelands will calculate a reset exercise price that will be equal to
the lowest closing bid price of the common stock for the five trading days
ending on the six month anniversary date. The exercise price will be equal to
the lowest reset exercise price determined on any six month anniversary of the
date of issuance preceding the date on which the warrant is exercised, subject
to anti-dilution adjustments.
Pursuant to Rule 416 under the Securities Act, such additional number of shares
of Common Stock subject to the Warrants are also being registered to cover any
adjustment resulting from stock splits, stock dividends or similar transactions.
The indeterminate number of additional shares shall be issuable pursuant to Rule
416 to prevent dilution resulting from stock splits, stock dividends or similar
transactions.
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with section 8(a) of the
securities act, or until the registration statement shall become effective on
such date as the commission, acting pursuant to said section 8(a), may
determine.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
SUBJECT TO COMPLETION, DATED ______________, 2000
[Logo of Tidelands Oil & Gas Corporation]
PROSPECTUS
TIDELANDS OIL & GAS CORPORATION
13330 Leopard St., Corpus Christi, TX 78410
The Resale of Shares of Common Stock
The selling price of the shares will be determined by market factors at
the time of their resale.
This prospectus relates to the resale by the selling shareholders of up to
shares of common stock. The selling shareholders may sell the stock from time to
time in the over-the-counter market at the prevailing market price or in
negotiated transactions. With regard to the offered shares,
o up to 25,000,000 shares are issuable to Swartz Private Equity, LLC
based on an Investment Agreement dated as of October 17, 2000, and
o up to 4,000,000 shares are issuable upon the exercise of warrants
issued or issuable to Swartz under the Investment Agreement
We will receive no proceeds from the sale of the shares by the selling
shareholders. However, we may receive up to $20 million dollars of proceeds from
the sale of shares to Swartz, and we may receive additional proceeds from the
sale to Swartz of shares issuable upon the exercise of any warrants that Swartz
may exercise.
Our common stock is quoted on the over-the-counter Electronic Bulletin Board
under the symbol TIDE. On November 20, 2000, the average of the bid and asked
prices of the common stock on the Bulletin Board was $0.30 per share.
Investing in the common stock involves a high degree of risk. You should not
invest in the common stock unless you can afford to lose your entire investment.
See "Risk Factors" beginning on page of this prospectus.
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
Please read this prospectus carefully. It describes our company, finances,
products and services. Federal and state securities laws require us to include
in this prospectus all the important information that you will need to make an
investment decision.
You should rely only on the information contained or incorporated by reference
in this prospectus to make your investment decision. We have not authorized
anyone to provide you with different information. The selling shareholders are
not offering these securities in any state where the offer is not permitted. You
should not assume that the information in this prospectus is accurate as of any
date other than the date on the front page of this prospectus.
Brokers or dealers effecting transactions in the Shares should confirm the
registration of the Shares under the securities laws of the states in which such
transactions occur or the existence of an exemption from such registration, or
should cause such registration to occur in connection with any offer or sale of
the Shares.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The Date of this Prospectus is __________, 2000
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The following table of contents has been designed to help you find important
information contained in this prospectus. We encourage you to read the entire
prospectus.
TABLE OF CONTENTS
Forward-Looking Statements.................................................. 5
Prospectus Summary.......................................................... 6
The Company.............................................................. 6
TheInvestment Agreement.................................................. 6
Key Facts................................................................ 6
Summary Financial Information............................................ 7
Management's Discussion and Analysis of Financial Condition
and Results of Operations ............................................... 8
Risk Factors................................................................ 9
Use of Proceeds............................................................. 18
Market For Common Stock and Related Shareholder Matters..................... 18
Dividends and Dividend Policy............................................... 19
Business.................................................................... 19
Properties.................................................................. 21
Selling Shareholder......................................................... 21
Plan of Distribution........................................................ 24
Directors and Executive Officers............................................ 25
Principal Shareholders...................................................... 26
Transactions with Management and Others..................................... 26
Legal Proceedings........................................................... 27
Description of Securities................................................... 27
Legal Matters............................................................... 28
Experts..................................................................... 28
Where You Can Find More Information......................................... 28
Index to Consolidated Financial Statements.................................. F-1
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FORWARD-LOOKING STATEMENTS
This prospectus and the documents incorporated herein by reference contain
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934, concerning
our future operations. Forward-looking statements are statements that estimate
the happening of future events, are not based on historical fact and are
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements may be identified by
the use of forward-looking terminology such as "believes", "intends",
"projects", "forecasts", "predicts", "may", "will", "expects", "estimates",
"anticipates", "probable", "continue" or similar terms, variations of those
terms or the negative of those terms. The "risk factors" included in this
prospectus under the caption "risk factors" constitute cautionary statements
identifying important factors that could cause actual results to differ
materially from those in the forward-looking statements. The forward-looking
statements contained in this prospectus and the documents incorporated herein by
reference have been compiled by our management based upon assumptions they
consider reasonable. These assumptions are subject to significant business,
economic and competitive uncertainties and contingencies, many of which are
beyond our control. Actual results could differ materially from those currently
anticipated due to a number of factors, including those identified under "risk
factors" and elsewhere in this prospectus. Accordingly, there can be no
assurance that such statements, estimates and projections will be realized. The
forecasts and actual results will likely vary and those variations may be
material. We make no representation or warranty as to the accuracy or
completeness of such statements, estimates or projections contained in this
prospectus or that any forecast contained in this prospectus will be achieved.
These forward-looking statements have been compiled as of the date of this
prospectus or the date of the documents incorporated herein by reference, as the
case may be, and you should evaluate them with consideration of any changes
occurring after the date of this prospectus or the documents incorporated herein
by reference in which such forward-looking statements appear. We do not intend
to update these forward-looking statements. We cannot give you any assurance
that any of the assumptions relating to the forward-looking statements specified
in this prospectus or the documents incorporated herein by reference will prove
to be accurate. We urge you and your advisors to review these forward-looking
statements, to consider the assumptions upon which they are based and to
ascertain their reasonableness.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information and the
Financial Statements (including the notes thereto) appearing elsewhere in this
Prospectus. Unless otherwise specifically referenced, all references to dollar
amounts refer to United States dollars.
The Company
Tidelands Oil & Gas Corporation (the "Company"), formerly known as C2
Technologies, Inc., was incorporated under the laws of the State of Nevada on
February 25, 1997. C2 Technologies, Inc. changed its name to Tidelands Oil & Gas
Corporation on November 19, 1998. The Company has four operating subsidiaries
named Tidelands Oil Corporation (TOC) and Tidelands Gas Corporation (TGC), both
Texas corporations and Rio Bravo Energy, LLC and Sonora Pipeline, LLC, both
Texas limited liability companies.
Tidelands Oil Corporation was formed in May 1985. Since inception and
until recently, Tidelands Oil Corporation has devoted virtually all of its
efforts to acquiring control of leases which comprise the remaining portion of
the Sacatosa Field in Maverick County, Texas. This acreage is located on the
Ewing Halsell Foundation Ranch also known as the Farias Ranch. These oil and gas
leases directly offset Continental Oil Company (CONOCO) which has leases on the
Chittam Ranch. The CONOCO leases have produced in excess of 40,000,000 barrels
of oil and 20 BCF of gas. Tideland's leases have approximately156 oil and gas
wells scattered across the leases with largest concentration being on the
northern portion of the acreage offsetting CONOCO. Tidelands has began a
reworking program to place all of the wells back into production.
Tidelands Gas Corporation was formed on August 29, 1996. Tidelands Gas
Corporation was formed primarily for the purpose of acquiring the Delhi Pipeline
System for use as a gas transportation outlet for the shallow gas reserves
underlying Tideland's leases.
Rio Bravo Energy, LLC was formed on August 10, 1998. It was formed
primarily to operate the Chittim Gas Processing Plant. This plant was purchased
by Rio Bravo in 1999 and processes natural gas from Conoco Oil's Sacatosa Field
which consists of approximately 3000 wells. It also processes natural gas from
Merit Energy's Pena Creek Field which consists of approximately 300 wells. The
gas plant has the capability to fractionate the natural gas into commercial
grade propane and butane.
Sonora Pipeline, LLC was formed in January 1998. It was formed
primarily to operate the Sonora pipeline network. This pipeline was formerly
known as the Delhi Pipeline. It delivers natural gas to the Rio Bravo Chittim
Gas Processing Plant. Sonora's pipeline network consists of approximately 80
miles of gas pipeline.
On December 1,2000, we purchased the remaining fifty percent interest
in Rio Bravo Energy and Sonora Pipeline limited liability companies.
Our principal executive offices are located at 13330 Leopard St., Suite
26, Corpus Christi, TX 78410.
Unless otherwise noted, the "Company" as used in this Prospectus, will
refer to Tidelands Oil & Gas Corporation as described above.
The Investment Agreement
We have entered into an Investment Agreement with Swartz to raise up to
$20 million through a series of sales of our common stock to Swartz. The dollar
amount of each sale is limited by our common stock's trading volume. A minimum
period of time must occur between sales. In turn, Swartz will either sell our
stock in the open market, sell our stock to other investors through negotiated
transactions or hold our stock in its own portfolio. This prospectus covers the
resale of our stock by Swartz either in the open market or to other investors
Key Facts
Total shares outstanding prior to 17,980,489 (1) as of
the offering September 30, 2000
Shares being offered for resale to the public 29,000,000 (2)
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Total shares outstanding after the offering 46,980,489
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Price per share to the public Market price at time of resale.
Total proceeds raised by offering None; however, we may receive
up to $20 million from the sale
of the shares to Swartz, and we
may receive additional amounts
from the sale of shares to
Swartz if Swartz exercises any
of the warrants issued under
the Investment Agreement.
Use of proceeds from the sale of the shares We plan to use the proceeds for
to Swartz debt reduction, working capital,
acquisitions and general
corporate purposes.
OTC Bulletin Board Symbol TIDE
(1) Does not include shares underlying warrants issued to Swartz in connection
with the Investment Agreement; and does not include any shares underlying
warrants that we may issue to Swartz in the future under the Investment
Agreement.
(2) Includes
- up to 25,000,000 shares that may be issued to Swartz under the
Investment Agreement,
- up to 4,000,000 shares underlying warrants issued to Swartz
under the Investment Agreement, and
Summary Financial Information
The following table presents selected historical financial data for the Company
derived from the Company's Financial Statements. The historical financial data
are qualified in their entirety by reference to, and should be read in
conjunction with, the Financial Statements and notes thereto of the Company,
which are incorporated by reference into this Prospectus. The following data
should be read in conjunction with "Plan of Operation" and the Financial
Statements of the Company and the notes thereto included elsewhere in this
Prospectus.
Fiscal Year Ended Nine Months
December 31 ended Sept. 30
(unaudited)
1999 1998 2000 1999
------------------------ -----------------------
Statement of Operations
Data:
Revenue $ 45,299 $ 14,381 $ 99,588 $ 26,978
Net (loss) $(1,082,305) $(224,382) $(719,825) $ (616,257)
Net (loss) per basic share $ (0.071) $ (0.025) $ (0.037) $ (0.043)
Net (loss) per diluted share $ (0.067) $ (0.025) $ (0.037) $ (0.039)
Fiscal Year Ended Nine Months
December 31 ended Sept. 30
(unaudited)
1999 2000
----------- ----------
Balance Sheet Data:
Working Capital $ (383,289) $ (330,216)
Total assets $ 4,204,067 $4,216,997
Total liabilities $ 951,193 $1,462,806
Stockholder's equity $ 3,252,874 $2,754,191
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion and analysis should be red in conjunctions with the
Company's Financial Statements and Notes included in this prospectus.
Overview
Results of Operations
Year 1999
Revenues of $45,299 resulted from gas and oil sales. Lease operating costs of
$15,691, depreciation, depletion and amortization of $205,948, a loss in the
equity of joint ventures $28,282, litigation settlements of $220,400 and
interest of $34,870 were incurred. General and administrative cost os f$516,317
consisted of personnel costs of $252,482, professional fees of $90,513,
shareholder communications costs of $43,751, travel costs of $67,251 and $62,320
for miscellaneous expenses.
Year 1998
Revenues of $14,381 resulted from gas and oil sales. Lease operating costs of
$15,691, depreciation and amortization of $51,776 and a loss in the equity of
joint ventures of $7,254 were incurred. General and administrative costs of
$164,062 consisted of professional fees of $29,600, and reorganizational costs
of $29,289, personnel costs of $79,590 and $25,583 for miscellaneous expenses.
Liquidity and Capital Resources
Year 1999
The Company required $602,647 from operations, acquired oil and gas properties
of $47,573, decreased debt by $159,533, increased due to related parties by
$148, and sold stock of $712,637. The Company maintains a $1,000,000 credit line
to be funded on an as-needed basis.
Year 1998
The Company required $79,940 from operations, acquired oil and gas properties
and additional investments of $2,198, incurred debt of $43,043, increased due to
related parties of $34,438 and reduced subscriptions receivable by $3,150. On
February 1, 1999, the Company obtained a $1,000,000 credit line to be funded on
an as-needed basis.
Nine Months 2000
Plan of Operation
The Company's plan of operation for the next twelve months through its wholly
owned subsidiaries , Tidelands Oil Corporation, Tidelands Gas Corporation,
Sonora Pipeline, LLC and Rio Bravo Energy, LLC will continue to rework existing
oil and gas wells, subject to budgetary limitations, for the purpose of
achieving increased production revenues and to assist in developing the gas
processing plant and pipeline systems to their capacities.
Financial Condition
The Company does not currently have the liquidity or capital resources to fund
its operations until revenues and profits increase as described in its "Plan of
Operations" without utilizing its One Million Dollar credit line which has been
drawn down in the amount of $227,925, as of September 30, 2000 or obtaining
additional borrowing and, or sales of common stock.
The Company has secured a $20 Million Dollar agreement from an institutional
equity investor which will provide for a private equity line for the purchase of
common stock, subject to registration and certain other conditions.
Additionally, the financing will be limited to a percentage of dollar trading
volume of the company's stock as quoted on the OTC Electronic Bulletin Board.
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RISK FACTORS
An investment in the Securities offered in this Prospectus involves a high
degree of risk and should only be made by persons who can afford the loss of
their entire investment. Accordingly, prospective investors should consider
carefully the following factors, in addition to the other information concerning
the Company and its business contained in this Prospectus, before purchasing the
Securities offered hereby. An investment in the common stock the selling
shareholders are offering to resell is risky. You should be able to bear a
complete loss of your investment. Before purchasing any of the common stock, you
should carefully consider the following risk factors, among others.
OPERATING LOSSES
We have had significant losses ever since starting business and we expect to
continue losing money for some time. To date, we have incurred significant
losses. At September 30, 2000, our accumulated deficit was $ 1,332,241 and our
working capital deficit was $ 330,216. For the year ended December 31, 1999, we
lost $ 1,082,305 and for the year ended December 31, 1998, we lost $224,382.
These losses were caused primarily by:
o The fluctuation of natural gas and crude oil prices did not warrant
the operation and maintenance of our wells.
o both development costs and continuing general and administrative
expenses with no corresponding revenue during these periods of
time.
LIMITED OPERATING HISTORY.
We have a limited operating history and our financial health will be subject to
all the risks inherent in the establishment of a new business enterprise. The
likelihood of success of our company must be considered in the light of the
problems, expenses, difficulties, complications, and delays frequently
encountered in connection with the startup and growth of a new business, and the
competitive environment in which we will operate. Our success is dependent upon
the successful financing and development of our business plan. No assurance of
success is offered. Unanticipated problems, expenses, and delays are frequently
encountered in establishing a new business and marketing and developing
products. These include, but are not limited to, competition, the need to
develop customers and market expertise, market conditions, sales, marketing and
governmental regulation. The failure of the Company to meet any of these
conditions would have a materially adverse effect upon the Company and may force
the Company to reduce or curtail operations. No assurance can be given that the
Company can or will ever operate profitably. See "Business"
WE DEPEND HEAVILY ON THE CONTINUED SERVICE OF OUR CHIEF EXECUTIVE OFFICER.
We place substantial reliance upon the efforts and abilities of Michael Ward,
our chief executive officer. The loss of Mr. Ward's services could have a
serious adverse effect on our business, operations, revenues or prospects. We do
not have an employment agreement with Mr. Ward or maintain any key man insurance
on his life, and we do not intend to maintain any keyman insurance for some
time.
RELIANCE ON MANAGEMENT.
All decisions with respect to the management of our Company will be
made by our Company's directors and officers. Accordingly, no person should
purchase any shares offered by this Prospectus unless the subscriber is willing
to entrust all aspects of management to the Directors and Officers of our
Company. The loss of their services could have a material adverse effect on our
Company's business and prospects.
OUR MANAGEMENT WILL HAVE BROAD DISCRETION IN THE USE OF PROCEEDS WE RECEIVE FROM
THE SALE OF SHARES TO SWARTZ.
We will not receive any other proceeds of this offering, but we may receive
proceeds of the sale of shares to Swartz under our Investment Agreement with
them. Management has broad discretion to adjust the application and allocation
of the net proceeds of shares sold to Swartz in order to address changed
circumstances and opportunities. As a result, our success will be substantially
dependent upon the discretion and judgment of our management in determining how
to apply and allocate those proceeds.
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A MAJORITY OF OUR SHAREHOLDERS CAN ELECT ALL OF OUR DIRECTORS.
There is no cumulative voting for the election of directors of the Company. As a
result, the holders of a majority of our outstanding voting stock may elect all
of our directors if they choose to do so, and the holders of the remaining
shares will not be able to elect any directors. Currently, our officers own a
substantial percentage of the shares of Common Stock outstanding and are in a
position to control our affairs, including the election of the board of
directors.
A SIGNIFICANT PERCENTAGE OF OUR COMMON STOCK IS HELD BY OUR DIRECTORS AND
EXECUTIVE OFFICERS, WHO CAN SIGNIFICANTLY INFLUENCE ALL ACTIONS THAT REQUIRE A
VOTE OF OUR SHAREHOLDERS.
Our directors and executive officers currently own approximately 40.02 % of our
outstanding common stock. As a result, management is in a position to influence
significantly the election of our directors and all other matters that are put
to a vote of our shareholders.
TRADING IN OUR COMMON STOCK ON THE OTC BULLETIN BOARD MAY BE LIMITED.
Our common stock trades on the OTC Bulletin Board. The OTC Bulletin Board is not
an exchange. Trading of securities on the OTC Bulletin Board is often more
sporadic than the trading of securities listed on an exchange or NASDAQ. You may
have difficulty reselling any of the shares that you purchase from the selling
shareholders.
THERE HAS BEEN AN ILLIQUID PUBLIC MARKET FOR OUR COMMON STOCK AND THE PRICE OF
OUR STOCK MAY BE SUBJECT TO FLUCTUATIONS.
We cannot assure you that a liquid transparent trading market for our common
stock will develop or be sustained. You may not be able to resell your shares at
or above the initial offering price. The market price of our common stock is
likely to be volatile and could be subject to fluctuations in response to
factors such as the following, most of which are beyond our control:
- operating results that vary from the expectations of securities analysts
and investors;
- changes in expectations as to our future financial performance, including
financial estimates by securities analysts and investors;
- the operations, regulatory, market and other risks discussed in this
section;
- announcements by us or our competitors of significant contracts,
acquisitions, strategic partnerships, joint ventures or capital commitments;
- announcements by third parties of significant claims or proceedings
against us; and
- future sales of our common stock.
In addition, the market for our stock has from time to time experienced extreme
price and volume fluctuations. These broad market fluctuations may adversely
affect the market price of our common stock.
OUR COMMON STOCK IS SUBJECT TO PENNY STOCK REGULATION.
Our common stock is subject to regulations of the Securities and Exchange
Commission relating to the market for penny stocks. The Securities Enforcement
and Penny Stock Reform Act of 1990 (the "Reform Act") also requires additional
disclosure in connection with any trades involving a stock defined as a "penny
stock" (generally, according to recent regulations adopted by the Commission,
any equity security that has a market price of less than $5.00 per share,
subject to certain exceptions), including the delivery, prior to any penny stock
transaction, of a disclosure schedule explaining the penny stock market and the
risks associated therewith. These regulations generally require broker-dealers
who sell penny stocks to persons other than established customers and accredited
investors to deliver a disclosure schedule explaining the penny stock market and
the risks associated with that market. These regulations also impose various
sales practice requirements on broker-dealers. The regulations that apply to
penny stocks may severely affect the market liquidity for our securities and
that could limit your ability to sell your securities in the secondary market.
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RISKS RELATING TO LOW-PRICE STOCKS.
Because our stock is quoted on the NASD OTC Electronic Bulletin Board and
subject to the Penny Stock Regulations, an investor may find it difficult to
dispose of, or to obtain accurate quotations as to the market value of, our
Company's securities. The regulations governing low-priced or penny stocks could
limit the ability of broker-dealers to sell the Company's securities and thus
the ability of the purchasers of this Offering to sell their securities in the
secondary market.
THE EXERCISE OF WARRANTS COULD DEPRESS OUR STOCK PRICE AND REDUCE YOUR
PERCENTAGE OF OWNERSHIP.
If all of the warrants that may be issued to Swartz under the Investment
Agreement are issued, Swartz will hold warrants to 4,000,000 shares of common
stock, assuming that we issue a total of 25,000,000 shares to Swartz under the
Investment Agreement. These are in addition to the options held by officers and
employees. The number of warrants that may be issued to Swartz under the
Investment Agreement will fluctuate depending on the price at which we put
shares to Swartz, which in turn will depend on the market price at the time of
the puts. In the future, we may grant more warrants or options under stock
option plans or otherwise. The exercise or conversion of stock options, warrants
or other convertible securities that are presently outstanding, or that may be
granted in the future, will dilute the percentage ownership of our other
shareholders. The "Description of Securities" section of this prospectus
provides you with more information about options and warrants to purchase our
common stock that will be outstanding after this offering.
WE MAY NOT HAVE ENOUGH FUNDING TO COMPLETE OUR BUSINESS PLAN.
We expect that our major source of funding over the next 36 months will be our
financing arrangement with Swartz. We may need additional financing to fully
implement our business plan. We believe the private equity line will be
sufficient to maintain our operations for at least the next 36 months, but the
amount available under that line is based upon trading volume, which is beyond
our control. If trading volume were to decline significantly, or not to increase
as expected, we might not be able to draw down enough funds under that line to
finance demand for our product. As a result, we may need to seek financing above
that provided by Swartz's private equity line. We cannot give any assurance that
this additional financing could be obtained of attractive terms or at all. In
addition, our ability to raise additional funds through a private placement may
be restricted by SEC rules which limit a company's ability to sell securities
similar to those being sold in a registered offering (such as that contemplated
by Swartz's equity line) before the time that offering is completed or otherwise
terminated.
Lack of funding could force us to curtail substantially or cease our operations.
Based on our potential rate of cash operating expenditures and our current
plans, we expect our cash requirements for the next 36 months may need to come
primarily from the proceeds of the Investment Agreement with Swartz. However,
our ability to raise funds under the Investment Agreement is subject to several
conditions. These conditions include the continuing effectiveness of a
registration statement covering the resale of the shares sold under the
Investment Agreement and a limitation on the number of shares we may issue based
on the volume of trading in the common stock. We expect that our future cash
requirements may be fulfilled by sales of gas products and related services, the
sale of additional equity securities, debt financing. However, there can be no
assurance that any future funds required in excess of the proceeds of the
Investment Agreement will be generated from operations or other potential
sources. There can also be no assurance that the required funds, if available,
will be available on attractive terms or that the terms under which they are
raised will not significantly dilute the interests of our existing shareholders.
FUTURE CAPITAL NEEDS COULD RESULT IN DILUTION TO INVESTORS; ADDITIONAL FINANCING
COULD BE UNAVAILABLE OR HAVE UNFAVORABLE TERMS.
Our Company's future capital requirements will depend on many factors, including
cash flow from operations, progress in its oil and gas operations, competing
market developments, and the Company's ability to market its proposed products
successfully. Although the Company currently has specific plans and arrangements
for financing its working capital is presently insufficient to fund the
Company's activities. It may be necessary to raise additional funds through
equity or debt financings. Any equity financings could result in dilution to our
Company's then-existing stockholders. Sources of debt financing may result in
higher interest expense. Any financing, if available, may be on terms
unfavorable to the Company. If adequate funds are not obtained, the Company may
be required to reduce or curtail operations. The Company anticipates that its
existing capital resources, together with the net proceeds of this Offering,
will be adequate to satisfy its operating expenses and capital requirements for
at least 6 months after the date of this Prospectus. However, such estimates may
prove to be inaccurate. See "Plan of Operation," "Business" and Financial
Statements.
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SUBSTANTIAL CAPITAL REQUIREMENTS
We may make substantial capital expenditures for the exploration, development,
acquisition and production of natural gas and oil reserves, pipeline and
processing systems. We believe that the Company will have sufficient cash
provided by operating activities and equity financing to fund planned capital
expenditures in the near future. If revenues or the Company's equity financing
decrease as a result of lower natural gas and oil prices, operating difficulties
or declines in reserves, the Company may have limited ability to expend the
capital necessary to undertake or complete future drilling programs or
acquisition opportunities. There can be no assurance that additional debt or
equity financing or cash generated by operations will be available to meet these
requirements.
WE CAN GIVE NO ASSURANCE REGARDING THE AMOUNTS OF CASH THAT WE WILL GENERATE.
The actual amounts of cash we generate will depend upon numerous factors
relating to our business which may be beyond our control, including:
o the demand for natural gas;
o profitability of operations;
o required principal and interest payments on any debt we may incur;
o the cost of acquisitions;
o our issuance of equity securities;
o fluctuations in working capital;
o capital expenditures;
o continued development of wells for connection to our gathering systems;
o prevailing economic conditions;
o fuel conservation measures;
o alternate fuel requirements;
o government regulations; and
WE DO NOT EXPECT TO PAY DIVIDENDS FOR SOME TIME, IF AT ALL.
No cash dividends have been paid on the Common Stock. We expect that any income
received from operations will be devoted to our future operations and growth. We
do not expect to pay cash dividends in the near future. Payment of dividends
would depend upon our profitability at the time, cash available for those
dividends, and other factors.
COMPETITION.
Our Company will be competing with other established businesses that market
similar products. Many of these companies have greater capital, marketing and
other resources than we do. There can be no assurance that these or other
companies will not develop new or enhanced products that have greater market
acceptance than any that may be marketed by the Company. There can be no
assurance that our Company will successfully differentiate itself from its
competitors or that the market will consider our products to be superior or to
or more appealing than those of our competitors. Market entry by any significant
competitor may have an adverse effect on our sales and profitability. See
"Competition."
WE OPERATE IN HIGHLY COMPETITIVE MARKETS IN COMPETITION WITH A NUMBER OF
DIFFERENT COMPANIES.
We face strong competition in our geographic areas of operations. Our
competitors include major integrated oil companies, interstate and intrastate
pipelines and raw natural gas gatherers and processors. Some of our competitors
offer more services or have greater financial resources and access to larger raw
natural gas supplies than we do. We compete with integrated companies that have
greater access to raw natural gas supply and are less susceptible to
fluctuations in price or volume, and some of our competitors that have greater
financial resources may have an advantage in competing for acquisitions or other
new business opportunities.
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WE MUST CONTINUALLY COMPETE FOR RAW NATURAL GAS SUPPLY AND OUR SUCCESS DEPENDS
UPON THE AVAILABLE SUPPLY OF RAW NATURAL GAS.
In order to maintain or increase throughput levels in our raw natural gas
gathering systems and asset utilization rates at our processing plants, we must
continually contract for new raw natural gas supplies to offset natural declines
in connected supplies of raw natural gas. Our future growth will depend, in
part, upon whether we can contract for additional supplies at a greater rate
than the rate of natural decline in our currently connected supplies. The
primary factors affecting our ability to connect new wells to our gathering
facilities include our success in contracting for existing producing raw natural
gas supplies that are not committed to other systems and the level of drilling
activity near our gathering systems. Drilling activity generally increases (or
decreases) as oil and natural gas prices increase (or decrease). Our industry is
highly competitive, and we cannot assure you that we will be able to obtain
additional contracts for raw natural gas supplies.
Our results are materially affected by the volume of raw natural gas processed
at our facilities and asset utilization rates. Fluctuations in energy prices can
greatly affect production rates and investments by third parties in the
development of new oil and natural gas reserves. A material decrease in natural
gas production for a prolonged period in the areas where our gathering
facilities are located, as a result of depressed commodity prices or otherwise,
likely would have a material adverse effect on our results of operations and
financial position.
GROWING OUR BUSINESS BY CONSTRUCTING NEW PIPELINES AND PROCESSING FACILITIES
SUBJECTS US TO CONSTRUCTION RISKS AND RISKS THAT RAW NATURAL GAS SUPPLIES WILL
NOT BE AVAILABLE UPON COMPLETION OF THE FACILITIES.
One of the ways we intend to grow our business is through the construction of
additions to our existing gathering systems, modification of our existing gas
processing plant and construction of new processing facilities. The construction
of gathering and processing facilities requires the expenditure of significant
amounts of capital, which may exceed our expectations. Generally, we may have
only limited raw natural gas supplies committed to these facilities prior to
their construction. Moreover, we may construct facilities to capture anticipated
future growth in production in a region in which anticipated production growth
does not materialize. As a result, there is the risk that new facilities may not
be able to attract enough raw natural gas to achieve our expected investment
return, which could adversely affect our results of operations and financial
condition.
A SIGNIFICANT COMPONENT OF OUR GROWTH STRATEGY WILL BE ACQUISITIONS AND WE MAY
NOT BE ABLE TO COMPLETE FUTURE ACQUISITIONS SUCCESSFULLY.
Our business strategy will emphasize growth through strategic acquisitions, but
we cannot assure you that we will be able to identify attractive or willing
acquisition candidates or that we will be able to acquire these candidates on
economically acceptable terms. Competition for acquisition opportunities in our
industry exists and may increase. Any increase in the level of competition for
acquisitions may increase the cost of, or cause us to refrain from, completing
acquisitions.
Our strategy of acquisitions is dependent upon, among other things, our ability
to obtain debt and equity financing and possible regulatory approvals. Our
ability to pursue our growth strategy may be hindered if we are not able to
obtain financing or regulatory approvals, including those under federal and
state antitrust laws. Our ability to grow through acquisitions and manage such
growth will require us to to invest in operational, financial and management
information systems and to attract, retain, motivate and effectively manage our
employees. The inability to manage the integration of acquisitions effectively
could have a material adverse effect on our financial condition, results of
operations and business. Pursuit of our acquisition strategy may cause our
financial position and results of operations to fluctuate significantly from
period to period.
IF WE ARE UNABLE TO MAKE ACQUISITIONS ON ECONOMICALLY AND OPERATIONALLY
ACCEPTABLE TERMS, OUR FUTURE FINANCIAL PERFORMANCE MAY BE LIMITED.
There can be no assurance that:
o we will identify attractive acquisition candidates in the future;
o we will be able to acquire assets on economically acceptable terms;
o any acquisitions will not be dilutive to earnings and operating surplus; or
o any debt incurred to finance an acquisition will not affect our ability to
make distributions to you.
If we are unable to make acquisitions on economically and operationally
acceptable terms, our future financial performance will be limited to the
performance of our present gas gathering network.
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Our acquisition strategy involves many risks, including:
o difficulties inherent in the integration of operations and systems;
o the diversion of management's attention from other business concerns; and
o the potential loss of key employees of acquired businesses.
In addition, future acquisitions may involve significant expenditures. Depending
upon the nature, size and timing of future acquisitions, we may be required to
secure financing. We cannot assure you that additional financing will be
available to us on acceptable terms.
The amount of natural gas which is recoverable from properties potentially
served by our gathering systems may be less than our estimates, which could
materially adversely affect the amount of natural gas we gather and, thus, our
revenues.
Estimates of the amount of natural gas which is recoverable from properties
potentially served by our gathering systems may vary substantially from actual
amounts that are economically recoverable. There are numerous uncertainties
inherent in estimating quantities of recoverable natural gas, including many
factors over which we have no control. Estimates of recoverable natural gas
necessarily depend upon a number of factors, any one of which may vary
considerably from actual results. These factors and assumptions relate to:
o the geological features of the rock formations in which the natural gas is
found;
o historical production from the area compared with production from other
producing areas;
o the assumed effects of regulation by governmental agencies; and
o assumptions concerning future natural gas prices, operating costs and
capital expenditures.
For these reasons, estimates of the recoverable quantities of natural gas
attributable to any particular group of properties, classifications of
properties based on risk of recovery of natural gas, and estimates of future net
cash flows expected from these properties, as prepared by different engineers or
by the same engineers at different times, may vary substantially. Actual
production, revenue and expenditures will likely vary from estimates, and these
variations may be material. If the amount of recoverable natural gas is
materially less than the estimates, the amount of natural gas we gather and,
thus, our revenues could be materially adversely affected. A decline in gas
prices could adversely affect our revenues.
ACQUISITION RISKS
The acquisition of prospects that yield cost-effective and successful
exploration or development opportunities requires assessment of numerous
factors, many of which are beyond our control. While we believe that our
management's expertise will give us advantages over some of our competitors,
there can be no assurances that the Company's acquisition of property interests
will be successful and, if unsuccessful, that such failure will not have an
adverse effect on our future results of operations and financial condition.
OUR BUSINESS IS DEPENDENT UPON PRICES AND MARKET DEMAND FOR OIL, NATURAL GAS AND
NGLS, WHICH ARE BEYOND OUR CONTROL AND HAVE BEEN EXTREMELY VOLATILE.
We are subject to significant risks due to fluctuations in commodity prices,
primarily with respect to the prices of NGLs that we own as a result of our
processing activities.
The markets and prices for residue gas and NGLs depend upon factors beyond our
control. These factors include demand for oil, natural gas and NGLs, which
fluctuate with changes in market and economic conditions and other factors,
including:
- the impact of weather on the demand for oil and natural gas;
- the level of domestic oil and natural gas production;
- the availability of imported oil and natural gas;
- the availability of local, intrastate and interstate transportation
systems;
- the availability and marketing of competitive fuels;
- the impact of energy conservation efforts; and
- the extent of governmental regulation and taxation.
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UNCERTAINTY OF RESERVE INFORMATION AND FUTURE NET REVENUE ESTIMATES
There are numerous uncertainties inherent in estimating natural gas and oil
reserves and their estimated values, including many factors beyond the control
of the producer. The reserve data set forth in our financial statements
represent only estimates. Reservoir engineering is a subjective process of
estimating underground accumulations of natural gas and oil that cannot be
measured in an exact manner. Estimates of economically recoverable natural gas
and oil reserves and of future net cash flows necessarily depend upon a number
of variable factors and assumptions, such as historical production from the area
compared with production from other producing areas, the assumed effects of
regulations by governmental agencies and assumptions concerning future natural
gas and oil prices, future operating costs, severance and excise taxes,
development costs and workover and remedial costs, all of which may in fact vary
considerably from actual results. For these reasons, estimates of the
economically recoverable quantities of natural gas and oil attributable to any
particular group of properties, classifications of such reserves based on risk
of recovery, and estimates of the future net cash flows expected therefrom
prepared by different engineers or by the same engineers but at different times
may vary substantially and such reserve estimates may be subject to downward or
upward adjustment based upon such factors. Actual production, revenues and
expenditures with respect to our reserves will likely vary from estimates, and
such variances may be material.
RESERVE REPLACEMENT RISK
In general, the volume of production from natural gas and oil properties
declines as reserves are depleted. The rate of decline depends on reservoir
characteristics, and varies from the steep decline rate characteristic of some
reservoirs to the relatively slow decline rate characteristic of the
longer-lived fields. Except to the extent we acquire properties containing
proved reserves or conducts successful exploration and development activities,
or both, the proved our reserves will decline as reserves are produced. Our
future natural gas and oil production is, therefore, highly dependent upon the
level of success in finding or acquiring additional reserves. The business of
exploring for, developing or acquiring reserves is capital intensive. To the
extent cash flow from operations is reduced and external sources of capital
become limited or unavailable, the Company's ability to make the necessary
capital investment to maintain or expand its asset base of natural gas and oil
reserves would be impaired. In addition, there can be no assurance that our
future exploration, development and acquisition activities will result in
additional proved reserves or that we will be able to drill productive wells at
acceptable costs.
WE GENERALLY DO NOT OWN THE LAND ON WHICH OUR PIPELINES ARE CONSTRUCTED AND WE
ARE SUBJECT TO THE POSSIBILITY OF INCREASED COSTS FOR THE LOSS OF LAND USE.
We generally do not own the land on which our pipelines are constructed.
Instead, we obtain the right to construct and operate the pipelines on other
people's land for a period of time. If we were to lose these rights, our
business could be affected negatively.
GOVERNMENT REGULATION AND ENVIRONMENTAL MATTERS
Our business is regulated by certain local, state and federal laws and
regulations relating to the exploration for, and the development, production,
marketing, pricing, transportation and storage of, natural gas and oil. We are
also subject to extensive and changing environmental and safety laws and
regulations governing plugging and abandonment, the discharge of materials into
the environment or otherwise relating to environmental protection. In addition,
we are subject to changing and extensive tax laws, and the effect of newly
enacted tax laws cannot be predicted. The implementation of new, or the
modification of existing, laws or regulations, including regulations which may
be promulgated under the Oil Pollution Act of 1990, could have a material
adverse effect on the Company.
FEDERAL, STATE OR LOCAL REGULATORY MEASURES COULD ADVERSELY AFFECT OUR BUSINESS.
While the Federal Energy Regulatory Commission, or FERC, does not directly
regulate the major portions of our operations, federal regulation, directly or
indirectly, influences certain aspects of our business and the market for our
products. As a raw natural gas gatherer and not an operator of interstate
transmission pipelines, we generally are exempt from FERC regulation under the
Natural Gas Act of 1938, but FERC regulation still significantly affects our
business. In recent years, FERC has pursued pro-competition policies in its
regulation of interstate natural gas pipelines. However, we cannot assure you
that FERC will continue this approach as it considers proposals by pipelines to
allow negotiated rates not limited by rate ceilings, pipeline rate case
proposals and revisions to rules and policies that may affect rights of access
to natural gas transportation capacity.
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While state public utility commissions do not regulate our business, state and
local regulations do affect our business. We are subject to ratable take and
common purchaser statutes in the states where we operate. Ratable take statutes
generally require gatherers to take, without undue discrimination, natural gas
production that may be tendered to the gatherer for handling. Similarly, common
purchaser statutes generally require gatherers to purchase without undue
discrimination as to source of supply or producer. These statutes are designed
to prohibit discrimination in favor of one producer over another producer or one
source of supply over another source of supply. These statutes also have the
effect of restricting our right as an owner of gathering facilities to decide
with whom we contract to purchase or transport natural gas. Federal law leaves
any economic regulation of raw natural gas gathering to the states, and some of
the states in which we operate have adopted complaint-based or other limited
economic regulation of raw natural gas gathering activities. States in which we
operate that have adopted some form of complaint-based regulation, like
Oklahoma, Kansas and Texas, generally allow natural gas producers and shippers
to file complaints with state regulators in an effort to resolve grievances
relating to natural gas gathering access and rate discrimination. The states in
which we conduct operations administer federal pipeline safety standards under
the Pipeline Safety Act of 1968, and the "rural gathering exemption" under that
statute that our gathering facilities currently enjoy may be restricted in the
future. The "rural gathering exemption" under the Natural Gas Pipeline Safety
Act of 1968 presently exempts substantial portions of our gathering facilities
from jurisdiction under that statute, including those portions located outside
of cities, towns, or any area designated as residential or commercial, such as a
subdivision or shopping center.
OUR BUSINESS INVOLVES HAZARDOUS SUBSTANCES AND MAY BE ADVERSELY AFFECTED BY
ENVIRONMENTAL REGULATION.
Many of the operations and activities of our gathering systems, plants and other
facilities are subject to significant federal, state and local environmental
laws and regulations. These include, for example, laws and regulations that
impose obligations related to air emissions and discharge of wastes from our
facilities and the cleanup of hazardous substances that may have been released
at properties currently or previously owned or operated by us or locations to
which we have sent wastes for disposal. Various governmental authorities have
the power to enforce compliance with these regulations and the permits issued
under them, and violators are subject to administrative, civil and criminal
penalties, including civil fines, injunctions or both. Liability may be incurred
without regard to fault for the remediation of contaminated areas. Private
parties, including the owners of properties through which our gathering systems
pass, may also have the right to pursue legal actions to enforce compliance as
well as to seek damages for non-compliance with environmental laws and
regulations or for personal injury or property damage.
There is inherent risk of the incurrence of environmental costs and liabilities
in our business due to our handling of natural gas and other petroleum products,
air emissions related to our operations, historical industry operations, waste
disposal practices and the prior use of natural gas flow meters containing
mercury. In addition, the possibility exists that stricter laws, regulations or
enforcement policies could significantly increase our compliance costs and the
cost of any remediation that may become necessary. We cannot assure you that we
will not incur material environmental costs and liabilities. Furthermore, we
cannot assure you that our insurance will provide sufficient coverage in the
event an environmental claim is made against us.
Our business may be adversely affected by increased costs due to stricter
pollution control requirements or liabilities resulting from non-compliance with
required operating or other regulatory permits. New environmental regulations
might adversely affect our products and activities, including processing,
storage and transportation, as well as waste management and air emissions.
Federal and state agencies also could impose additional safety requirements, any
of which could affect our profitability.
RISK OF ADDITIONAL COSTS AND LIABILITIES RELATED TO ENVIRONMENTAL AND SAFETY
REGULATIONS AND CLAIMS
Our pipeline operations are subject to various federal, state and local
environmental, safety, health and other laws, which can increase the cost of
planning, designing, installing and operating such facilities. There can be no
assurance that costs and liabilities relating to compliance will not be incurred
in the future. Moreover, it is possible that other developments, such as
increasingly strict environmental and safety laws, regulations and enforcement
policies thereunder, and claims for damages to property or persons resulting
from our operations, could result in additional costs to and liabilities for us.
GOVERNMENTAL REGULATION OF OUR PIPELINES COULD INCREASE OUR OPERATING COSTS
Currently our operations involving the gathering of natural gas from wells are
exempt from regulation under the Natural Gas Act. Section 1(b) of the Natural
Gas Act provides that the provisions of the Act shall not apply to facilities
used for the production or gathering of natural gas. Our physical dimensions and
operations support the conclusion that our facilities perform primarily a
gathering function. We should not, therefore, be subject to Natural Gas Act
regulation. There, however, can be no assurance that this will remain the case.
The Federal Energy Regulatory Commission's oversight of entities subject to the
Natural Gas Act includes the regulation of rates, entry and exit of service,
acquisition, construction and abandonment of transmission facilities, and
accounting for regulatory purposes. The implementation of new laws or policies
that would subject us to regulation by the Federal Energy Regulatory Commission
under the Natural Gas Act could have a material adverse effect on our financial
condition and operations. Similarly, changes in the method or circumstances of
operation, or in the configuration of facilities, could result in changes in our
regulatory status.
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Our gas gathering operations are subject to regulation at the state level, which
increases the costs of operating our pipeline facilities. Matters subject to
regulation include rates, service and safety. We have been granted an exemption
from regulation as a public utility in Texas. Presently, our rates are not
regulated in Texas . Changes in state regulations, or our status under these
regulations due to configuration changes in our operating facilities, that
subject us to further regulation could have a material adverse effect on our
financial condition. Litigation or governmental regulation relating to
environmental protection and operational safety may result in substantial costs
and liabilities Our operations are subject to federal and state environmental
laws under which owners of natural gas pipelines can be liable for clean-up
costs and fines in connection with any pollution caused by the pipelines. We can
also be liable for clean-up costs resulting from pollution which occurred before
our acquisition of the gathering systems. In addition, we are subject to federal
and state safety laws that dictate the type of pipeline, quality of pipe
protection, depth, methods of welding and other construction-related standards.
While we believe that the gathering systems comply in all material respects with
applicable laws, we cannot assure you that future events will not occur for
which we may be liable. Possible future developments, including stricter laws or
enforcement policies, or claims for personal or property damages resulting from
our operations could result in substantial costs and liabilities to us.
GATHERING SYSTEM OPERATIONS ARE SUBJECT TO OPERATIONAL HAZARDS AND UNFORESEEN
INTERRUPTIONS
The operations of our gathering systems are subject to hazards and unforeseen
interruptions, including natural disasters, adverse weather, accidents or other
events, beyond our control. A casualty occurrence might result in injury and
extensive property or environmental damage. Although we intend to maintain
customary insurance coverages for gathering systems of similar capacity, we can
offer no assurance that these coverages will be sufficient for any casualty loss
we may incur.
OPERATING RISKS OF NATURAL GAS AND OIL OPERATIONS
The natural gas and oil business involves certain operating hazards such as well
blowouts, cratering, explosions, uncontrollable flows of oil, natural gas or
well fluids, fires, formations with abnormal pressures, pollution, releases of
toxic gas and other environmental hazards and risks, any of which could result
in substantial losses to the Company. The availability of a ready market for our
natural gas and oil products also depends on the proximity of reserves to, and
the capacity of, natural gas and oil gathering systems, pipelines and trucking
or terminal facilities. In addition, the Company may be liable for environmental
damages caused by previous owners of property purchased and leased by the
Company. As a result, substantial liabilities to third parties or governmental
entities may be incurred, the payment of which could reduce or eliminate the
funds available for exploration, development or acquisitions or result in the
loss of the Company's properties. In accordance with customary industry
practices, the Company maintains insurance against some, but not all, of such
risks and losses. The Company does not carry business interruption insurance.
The occurrence of such an event not fully covered by insurance could have a
material adverse effect on the financial condition and results of operations of
the Company.
OPERATING HAZARDS, RISKS OF TRANSPORTATION ACCESS AND UNINSURED RISKS.
Oil and gas drilling activities are subject to numerous risks, many of which are
uninsurable, including the risk that no commercially viable oil or natural gas
production will be obtained. Many of such risks are beyond our control. Our
decisions to purchase, explore or develop a prospect or property will depend in
part on our evaluation of data obtained through geophysical and geological
analyses, production data and engineering studies, the results of which are
often inconclusive or subject to varying interpretations. The cost of drilling,
completing and operating wells is often uncertain, and overruns in budgeted
expenditures are common risks that can make a particular project uneconomical.
Technical problems encountered in actual drilling, completion and workover
activities can delay such activities and add substantial costs to a project.
Further, drilling may be curtailed, delayed or canceled as a result of many
factors, including title problems, weather conditions, compliance with
government permitting requirements, shortages of or delays in obtaining
equipment, reductions in product prices and limitations in the market for
products.
The availability of a ready market for our oil and natural gas production also
depends on a number of factors, including the demand for and supply of oil and
natural gas and the proximity of reserves to pipelines or trucking and terminal
facilities. Natural gas wells may be partially or totally shut in for lack of a
market or because of inadequacy or unavailability of natural gas pipeline or
gathering system capacity.
Our oil and natural gas business also is subject to all of the operating risks
associated with the drilling for and production of oil and natural gas,
including, but not limited to, uncontrollable flows of oil, natural gas, brine
or well fluids into the environment (including groundwater and shoreline
contamination), blowouts, cratering, mechanical difficulties, fires, explosions,
pollution and other risks, any of which could result in substantial losses to
us. Although we maintain insurance at levels that we believe are consistent with
industry practices, we are not fully insured against all risks. Losses and
liabilities arising from uninsured and under insured events could have a
material adverse effect on our financial condition and operations.
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OUR BUSINESS INVOLVES MANY HAZARDS AND OPERATIONAL RISKS, SOME OF WHICH MAY NOT
BE COVERED BY INSURANCE.
Our operations are subject to the many hazards inherent in the gathering,
compressing, treating and processing of raw natural gas and NGLs and storage of
residue gas, including ruptures, leaks and fires. These risks could result in
substantial losses due to personal injury and/or loss of life, severe damage to
and destruction of property and equipment and pollution or other environmental
damage and may result in curtailment or suspension of our related operations. We
are not fully insured against all risks incident to our business. If a
significant accident or event occurs that is not fully insured, it could
adversely affect our operations and financial condition.
INSURANCE
Companies engaged in the petroleum products distribution and storage business
may be sued for substantial damages in the event of an actual or alleged
accident or environmental contamination. The Company maintains $2,500,000 of
liability insurance. There can be no assurance that we will be able to continue
to maintain liability insurance at a reasonable cost in the future, or that a
potential liability will not exceed the coverage limits. Nor can there be any
assurance that the amount of insurance carried by us will enable it to satisfy
any claims for which it might be held liable resulting from the conduct of its
business operations.
USE OF PROCEEDS
We will not receive any proceeds from the sale of the shares by the
selling shareholders. However, we may receive proceeds from the sale to Swartz
of common stock puts and shares issuable upon the exercise of warrants issued or
to be issued to Swartz under the Investment Agreement. We intend to use the
proceeds from the sale of the put shares to Swartz and the exercise of warrants
by Swartz for acquisitions, working capital and general corporate purposes.
MARKET FOR COMMON STOCK AND RELATED SHAREHOLDER MATTERS
Our common stock is traded on the OTC Electronic Bulletin Board. The
following table sets forth the high and low bid prices of our common stock for
each quarter for the years 1998 and 1999 and the three quarters of 2000.
The quotations set forth below reflect inter-dealer prices, without retail
mark-up, mark-down or commission and may not represent actual transactions.
Common Stock:
Our common stock trades Over-the-Counter (OTC) on the OTC Bulletin
Board under the symbol TIDE. Table1. sets forth the high and low bid information
for each fiscal quarter beginning with September 30, 1998, the first quoted
quarter. These quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not represent actual transactions. These data
provided by NASDAQ Trading and Market Services.
Table 1.
Bid Information
--------------------------------------------------------------------------------
Fiscal Quarter Ended High Low
--------------------------------------------------------------------------------
September 30, 2000 0.47 0.25
June 30, 2000 0.75 0.40
March 31, 2000 1.81 0.53
December 31, 1999 3.46 1.25
September 30, 1999 4.00 0.875
June 30, 1999 1.50 0.375
March 31, 1999 0.70 0.40
December 31, 1998 0.875 0.125
September 30, 1998 0.5625 0.375
--------------------------------------------------------------------------------
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The Company has 81 active shareholders of its common stock as of
September 30, 2000 holding 17,980,489 common shares. We believe that many
additional holders of the Company common stock are unidentified because their
shares are held by brokers in nominee accounts or "street name". The number of
beneficial owners holding stock in nominee or "street name" is estimated by the
Company to be approximately 600.
Dividends and Dividend Policy
A ten percent common stock dividend was declared on December 28, 1999.
An additional 1,385,959 shares were issued to existing shareholders. There are
no restrictions imposed on the Company which limit its ability to declare or pay
dividends on its common stock. No cash dividends have been declared or paid to
date and none are expected to be paid in the foreseeable future.
We have never paid any dividends on our common stock. We expect to
continue to retain all earnings generated by our operations for the development
and growth of our business, and do not expect to pay any cash dividends to our
shareholders in the foreseeable future. The board of directors will determine
whether or not to pay dividends in the future in light of our earnings,
financial condition, capital requirements and other factors.
BUSINESS
Business Overview
Tidelands Oil & Gas Corporation (the "Company"), formerly known as C2
Technologies, Inc., was incorporated under the laws of the State of Nevada on
February 25, 1997. C2 Technologies, Inc. changed its name to Tidelands Oil & Gas
Corporation on November 19, 1998. The Company has two operating subsidiaries
named Tidelands Oil Corporation (TOC) and Tidelands Gas Corporation (TGC), both
Texas corporations.
Tidelands Oil Corporation was formed in May 1985. Since inception and
until recently, Tidelands Oil Corporation has devoted virtually all of its
efforts to acquiring control of leases which comprise the remaining portion of
the Sacatosa Field in Maverick County, Texas. This acreage is located on the
Ewing Halsell Foundation Ranch also known as the Farias Ranch. These oil and gas
leases directly offset Continental Oil Company (CONOCO) which has leases on the
Chittam Ranch. The CONOCO leases have produced in excess of 40,000,000 barrels
of oil and 20 BCF of gas. Tideland's leases have approximately 156 oil and gas
wells scattered across the leases with largest concentration being on the
northern portion of the acreage offsetting CONOCO. Tidelands has began a
reworking program to place all of the wells back into production.
Tidelands Gas Corporation was formed on August 29, 1996. Tidelands Gas
Corporation was formed primarily for the purpose of acquiring the Delhi Pipeline
System for use as a gas transportation outlet for the shallow gas reserves
underlying Tideland's leases.
Tidelands Gas Corporation organized two Texas Limited Liability
companies, Rio Bravo Energy, LLC and Sonora Pipeline, LLC. Prior to December
2000, Tidelands owned fifty percent of each LLC. We purchased the remaining
fifty percent of these two companies on December 1, 2000. We paid $500,000 for
the two interests. We borrowed the purchase money from RAI Funding, Inc.
Rio Bravo Energy, LLC was formed on August 10, 1998. It was formed
primarily to operate the Chittim Gas Processing Plant. Rio Bravo Energy, LLC.
purchased the Chittim gas processing plant from Conoco, Inc. This plant was
purchased by Rio Bravo in 1999 and processes natural gas from Conoco Oil's
Sacatosa Field which consists of approximately 3000 wells. It also processes
natural gas from Merit Energy's Pena Creek Field which consists of approximately
300 wells. The gas plant has the capability to fractionate the natural gas into
commercial grade propane and butane.
Sonora Pipeline, LLC was formed in January 1998. It was formed
primarily to operate the Sonora pipeline network which delivers natural gas to
the Rio Bravo Chittim Gas Processing Plant. Sonora's pipeline network consists
of approximately 80 miles of gas pipeline.
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Sonora will transport gas produced from Tideland's property as well as
from other gas suppliers. Rio Bravo will operate the gas plant. It will process
the natural gas into gas products such as natural gasoline, propane, butane. Rio
Bravo will also market the gas products.
Sonoro Pipeline and Rio Bravo will transport and process gas for
suppliers such as Tidelands, Merit Energy, Conoco, and Cuantro Petroluem, Inc.
The maximum operating capacity of gas plant is 10 million cubic feet of gas per
day. The Sonoro pipeline capacity is greater than the gas processing plant's
present capacity.
Rio Bravo intends to ship all propane and butane products to Mexico and
to sell natural gasolines to Enron Oil Trading and Transportation Company.
The Texas Railroad Commission regulates all aspects of the production,
transportation and processing of petroleum products.
Competition
Tidelands will actively compete for reserve acquisitions and
exploration/exploitation leases, licenses, gas suppliers and petroleum product
purchasers. This competition will be against companies with greater financial
and other resources. Competitive factors will include price, contract terms and
quality of service, including pipeline connection times and distribution
efficiencies and financial resources. The Company will face competition from
other producers and suppliers, including competition from other local and world
wide energy suppliers.
Employees
The Company has seven employees, including the Company officers, two plant
operators and three field personnel.
PROPERTIES
The Rio Bravo Energy, LLC owns the Chittim Gas Processing Plant which
is located Maverick County, Texas. Sonora Pipeline, LLC owns the Sonora Pipeline
network. The oil and gas leases are located in Maverick and Dimmit Counties,
Texas.
The following table sets forth our net proved and proved developed
reserves at December 31, 1999, as set forth in the financial statements on the
Consolidated Supplemental Information (unaudited).
Table 1. Net Proved and Proved Developed Reserve Summary
Natural Gas (Mcf)
Proved developed and Undeveloped reserves 19,995,825
Proved Developed reserves 2,934,851
Production -0-
Oil (BBLS)
Proved developed and undeveloped reserves 6,981,930
Proved developed reserves 3,916,777
Production 1,130
Acreage
The following table summarizes our developed and undeveloped acreage at
December 31, 1999 in Texas. We have excluded acreage in which the Company's
interest is limited to owned royalty, overriding royalty and other similar
interests.
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Table 2. Acreage
Location Developed Undeveloped Total
Gross Net Gross Net
Oil 2429 1821 9419 7064 8885
------ ------ ------ ------ ------
Gas 2280 1710 9908 7431 9711
------ ------ ------ ------ ------
Producing Wells
The following table reflects the Company's ownership interests in gas
and oil wells located in Texas at December 31, 1999.
Table 3.
Gross Net
Oil 133 99.76
------ ------
Gas 23 4.31
------ ------
Drilling and Acquisition Activities
During the years ended December 31, 1998 and 1999, we conducted no
drilling activity.
Present Activities
No drilling operations are presently in process. Current activities
include reworking wells and placing wells back into production, gathering gas
for the Sonora Pipeline and processing the gas through the Rio Bravo gas plant.
SELLING SHAREHOLDER
The following table provides certain information about the selling shareholder's
beneficial ownership of our common stock as of September 30, 2000 and as
adjusted to give effect to the sale of all of the shares being offered by this
prospectus. The selling shareholder is not our affiliate and has not had a
material relationship with us during the past three years. It is not affiliated
with any broker-dealer. See "Plan of Distribution." The selling shareholder has
sole voting and investment power with respect to the securities shown.
Shares Beneficially Owned After Offering
Number of Shares
Beneficially Number of
Owned Before Number of Shares Benef- Percentage
Name Offering Shares Offered icially Owned
After Offering
Swartz Private
Equity, LLC (2) 1,500,000 (1) 29,000,000 (2) -0- -0-
---------- ---------- ----- -----
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(1) Assumes that the selling shareholders will sell all of the shares of the
common stock offered by this prospectus. We cannot assure you that the selling
shareholders will sell all or any of these shares.
(2) This number includes 1,500,000 shares of common stock issuable upon exercise
of outstanding warrants which are currently exercisable. This number also
includes (solely for purposes of this prospectus) up to an aggregate of
27,500,000 shares of our common stock that we may sell to Swartz under the
Investment Agreement and Warrants issuable in connection with the Investment
Agreement. These shares would not be deemed beneficially owned within the
meaning of Sections 13(d) and 13 (g) of the Securities Exchange Act of 1934
before their acquisition by Swartz. We do not anticipate that Swartz will
beneficially own more than 9.9% of our outstanding common stock at any time.
On October 17, 2000, we entered into an Investment Agreement with Swartz Private
Equity, LLC. The Investment Agreement entitles us to issue and sell our common
stock to Swartz for up to an aggregate of $20 million from time to time during
the three-year period beginning on the effective date of this registration
statement. Each election by us to sell stock to Swartz is referred to as a put
right.
Put Rights.
In order to invoke a put right, we must have an effective registration statement
on file with the SEC registering the resale of the shares of common stock that
may be issued as a result of exercising that put right. We must also give at
least 10 but not more than 20 business days' advance notice to Swartz of the
date we intend to exercise a particular put right and we must indicate the
maximum number of shares of common stock that we intend to sell to Swartz. At
our option, we may also designate a maximum dollar amount of common stock (not
to exceed $2 million) that we will sell under the put and/or a minimum purchase
price per common share at which Swartz may purchase shares under the put.
The minimum purchase price that we specify, if any, will be no greater than the
lesser of (i) 80% of the closing bid price of our common stock on the business
day immediately preceding the date of our advance put notice, or (ii) the
closing bid price of our common stock on the business day immediately preceding
the date of our advance put notice minus $0.125.
The number of shares of our common stock we may sell to Swartz in a put may not
exceed the lesser of (i) 1,500,000 shares, (ii) 15% of the aggregate daily
reported trading volume of our common shares, excluding certain block trades of
our common stock, during the 20 business days after the date of our put notice,
excluding any trading days in which the common stock trades below a price based
on a minimum price, if any, that we may specify in our put notice; (iii) 15% of
the aggregate daily reported trading volume of our common shares, excluding
certain block trades of our common stock, during the 20 business days before the
put dated, or (iv) a number of shares that, when added to the number of shares
acquired by Swartz under the Investment Agreement during the 61 days preceding
the put date, would exceed 909% of our total number of common stock outstanding
(as calculated under Section 13(d) of the Securities Exchange Act of 1934).
For each share of common stock, Swartz will pay us the lesser of:
o the market price for such share, minus $ 0.075, or
o 91% of the market price for the share;
however, Swartz may not pay us less than the designated minimum per share price,
if any, that we indicate in our put notice.
Market price is defined as the lowest closing bid price for the common stock on
its principal market during the pricing period. The pricing period is defined as
the 20 business days immediately following the day we exercise the put right.
Warrants Associated with Puts.
Within five business days after the end of each pricing period, we are required
to issue and deliver to Swartz a warrant to purchase a number of shares of
common stock equal to 10% of the common shares issued to Swartz in the
applicable put. Each warrant will be exercisable at a price that will initially
equal 100% of the market price on the date on which we exercised the put right.
We have estimated, for registration purposes, that this will represent 2,500,000
underlying common shares. Each warrant will be immediately exercisable and have
a term beginning on the date of issuance and ending five years thereafter.
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Swartz Commitment Warrants.
In partial consideration of the Investment Agreement, we issued warrants to
Swartz (the "Commitment Warrants") to purchase 1,500,000 shares of our Common
Stock. The Commitment Warrants are currently exercisable at the price of $0.297
per share. Each Commitment Warrant is immediately exercisable and terminates ten
years after the date of issuance. The shares underlying the Commitment Warrants
are being registered pursuant to the registration statement to which this
Prospectus relates.
Limitations and Conditions Precedent to Our Put Rights.
Swartz is not required to acquire and pay for any shares of common stock with
respect to any particular put if, between the date we give advance notice of an
intended put and the date the particular put is to close:
o we have announced or implemented a stock split or combination of our
common stock;
o we have paid a common stock dividend;
o we have made a distribution of all or any portion of our assets or
evidences of indebtedness to the holders of our common stock; or
o we have consummated a major transaction, such as a sale of all or
substantially all of our assets or a merger or tender or exchange
offer that results in a change of control of our company.
Short Sales.
Swartz and its affiliates are prohibited from engaging in short sales of our
common stock unless Swartz has received a put notice and the amount of shares
involved in the short sale does not exceed the number of shares specified in the
put notice.
Cancellation of Puts.
We must cancel a particular put between the date of the advance put notice and
the last day of the pricing period if:
o we discover an undisclosed material fact that would amount to a
material misstatement or omission in this prospectus;
o the registration statement registering resales of the common shares
becomes ineffective; or
o our shares are delisted from the then-primary exchange.
If a put is canceled, it will continue to be effective, but the pricing period
for the put will terminate on the date notice of cancellation of the put is
given to Swartz. Because the pricing period will be shortened, the number of
shares Swartz will be required to purchase in the canceled put will be smaller
than it would have been had the put not been canceled.
Non-usage Fee.
If we have not put a minimum of $1,000,000 in aggregate Put Dollar Amount during
any six month period of time during the term of the Investment Agreement, we
will be required to pay Swartz a non-usage fee equal to the difference of
$100,000 minus 10% of the aggregate Put Dollar Amount of the Put Shares put to
Swartz during such six month period. In the event that we deliver a termination
notice to Swartz or an automatic termination occurs, we must pay Swartz a
termination fee the greater of the non-usage fee for the applicable period or
the difference of $200,000 minus 10% of the aggregate Put Dollar Amount of the
Put Shares put to Swartz during all Puts to such date.
Shareholder Approval.
Under the Investment Agreement, we may sell Swartz a number of shares that is
more than 20% of our shares outstanding on the date of this prospectus. If we
become listed on The NASDAQ Small Cap Market or NASDAQ National Market, we may
be required to get shareholder approval to issue some or all of the shares to
Swartz. As we are currently a Bulletin Board company, we do not need shareholder
approval.
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Termination of Investment Agreement.
We may terminate our right to initiate further puts or terminate the Investment
Agreement at any time by providing Swartz with notice of our intention to
terminate that right; however, termination of that right will not affect any
other rights or obligations we have concerning the Investment Agreement or any
related agreement.
Restrictive Covenants.
During the term of the Investment Agreement and for a period of sixty (60) days
after the Investment Agreement is terminated, we are prohibited from
o issuing any equity securities, or debt securities convertible into
equity securities, for cash in a private transaction without obtaining
the prior written approval of Swartz, or
o entering into any private equity line type agreements similar to the
Investment Agreement without obtaining Swartz's prior written approval.
Right of First Refusal.
Swartz has a right of first refusal to participate in any private capital
raising transaction of equity securities that closes from the date of the
Investment Agreement (October 17, 2000) through sixty (60) days after the
Investment Agreement is terminated.
Swartz's Right to Indemnification.
We have agreed to indemnify Swartz (including its stockholders, officers,
directors, employees, investors and agents) from all liability and losses
resulting from any misrepresentations or breaches we make in connection with the
Investment Agreement, our registration rights agreement, other related
agreements, or the registration statement.
PLAN OF DISTRIBUTION
Each selling shareholder is free to offer and sell its common shares at
such times, in such manner and at such prices as it may determine. The common
shares are sold through transactions in the over-the-counter market (including
block transactions), negotiated transactions, the settlement of short sales of
common shares or a combination of these methods of sale. Sales will be at market
prices prevailing at the time of sale or at negotiated prices. The sales may or
may not involve brokers or dealers. The selling shareholders have told us they
have not entered into agreements, understandings or arrangements with any
underwriters or broker-dealers regarding the sale of their shares. The selling
shareholders do not have an underwriter or coordinating broker acting in
connection with the proposed sale of the common shares.
Each selling shareholder may sell its shares directly to purchasers or
to or through broker-dealers, which may act as agents or principals. These
broker-dealers may receive compensation in the form of discounts, concessions or
commissions from the selling shareholders. They may also receive compensation
from the purchasers of common shares for whom such broker-dealers may act as
agents or to whom they sell as principal, or both. Compensation as to a
particular broker-dealer might be in excess of customary commissions. Swartz is,
and any broker-dealer assisting in the sale of the common stock may be deemed to
be, an underwriter within the meaning of Section 2(a)(11) of the Securities Act.
Any commissions received by these broker-dealers and any profit on the resale of
the common shares sold by them while acting as principals might be deemed to be
underwriting discounts or commissions.
Because Swartz is deemed to be an "underwriter" within the meaning of
Section 2(a)(11) of the Securities Act, it will be subject to prospectus
delivery requirements.
We have informed the selling shareholders that the anti-manipulation
rules of the SEC, including Regulation M promulgated under the Securities and
Exchange Act, may apply to its sales in the market and have provided the selling
shareholder with a copy of those rules and regulations.
Each selling shareholder also may resell all or part of the common
shares in open market transactions in reliance upon Rule 144 under the
Securities Act, provided it meets the criteria and conforms to the requirements
of that Rule.
We are responsible for all costs, expenses and fees incurred in
registering the shares offered by this prospectus. The selling shareholder is
responsible for brokerage commissions, if any, on the sale of those securities.
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DIRECTORS AND EXECUTIVE OFFICERS
Date became director
Name Age Position or officer
--------------------------------------------------------------------------------
Michael Ward 45 Director, President October 21, 1998
Royis Ward 67 Director, Secretary/Treasurer October 21, 1998
Ahmed Karim 28 Director, Vice President October 21, 1998
Allen Alderson 51 Director December 1999
Michael Ward is the President and Chief Executive Officer. Michael Ward
has served in his present capacities since October 21, 1998. He is Vice
President and Chief Executive Officer of Tidelands Gas Corporation. He is a
Manager and Vice President of Development of Rio Bravo Energy, LLC. Mr. Ward has
more than 25 years of diversified experience as an oil and gas professional. He
was educated in business management and administration at Southwest Texas State
University and the University of Texas. He has wide experience in the capacity
in which he successfully served in operating oil and gas companies in the United
States. During the past 20 years, he has been associated with Century Energy
Corporation where his duties and responsibilities were production and drilling
superintendent and supervised 300 re- completions and new drills in Duval
County, Texas. In association with Omega Minerals, Inc., where he was vice
president and part owner, he operated 65 wells in 23 counties in South and West
Texas: 17 wells in Seminole and Osage Counties, Oklahoma, 44 wells in Neosho and
Wilson Counties, Kansas and 125 wells in Brown, Pike, Schuyler and Scott
Counties. Illinois. He was president and owner of Major Petroleum Company. He
drilled, completed and produced 42 wells in South and West Texas counties. The
company was sold. With Tidelands Oil Corporation, his duties included
supervising and performing remedial well work, work-overs and economic
evaluation of the corporate properties. The primary area of interest was in
Maverick County, Texas. He has performed project financing analysis and
consulting of refinery acquisitions for the Yemen government. Currently, he is
negotiating new gas purchase and sale contracts, supervising and administering
the sale of gas line connections and hookups.
Royis Ward is the Secretary/Treasurer and director of the Company. He
is a Manager of Rio Bravo Energy, LLC and Sonora Pipeline, LLC. He is an oil and
gas professional. He has been engaged in the oil and gas industry since
graduation from Tyler Junior College, Tyler, Texas in 1952. Initially, he was
employed as a production superintendent and landman for Coffield & Guthrie,
Inc., a large independent oil and gas operator and thereafter placed in charge
of pipeline and drilling operations from 1952-1955. In 1955. he began to develop
oil and gas properties for his own account as an independent oil and gas
operator throughout the southwest until 1962. At that time, he became President
of Omega Petroleum Corporation, Shreveport, Louisiana. Thereafter, he continued
as an independent oil and gas operator drilling individual in excess of 50 wells
in the South Texas Area. In 1968, he became the President and CEO of Omega
Minerals, Inc. and was instrumental in acquiring vast oil and gas properties by
drilling, development, and re-acquisitions. In 1985, Tidelands Oil Corporation,
a Texas Corporation, was formed for the purpose of drilling and developing oil
and gas properties in South Texas. He presently serves as President of Tidelands
Oil Corporation with emphasis primarily devoted to acquisitions of oil and gas
properties.
Ahmed Karim Vice President and director of the Company. He is a
graduate of Simon Fraser University. He holds a degree in Business
Administration, specializing in marketing and international business. Since 1995
his business experience includes work with Quest Investments Group and
Interworld Trade and Finance where his responsibilities included marketing,
finance and investor relations.
Mr. Allen Alderson a member of the Company's board of directors. He is
currently President of Falco Energy Services, L.L.C. (FES), a natural gas
marketing and transportation company formed in 1995 with its headquarters
located in Shreveport, Louisiana. Falco Energy Services is engaged in the
marketing, transportation and processing of natural gas with emphasis on the
development and operation of natural gas pipeline systems. He is a Manager and
President of Rio Bravo Energy L.L.C. and Sonora Pipeline L.L.C.
Mr. Alderson attended Louisiana Tech University and the University of
Texas at Austin, graduating with a Bachelor of Science Degree in Finance. He is
a member of the Independent Petroleum Association of America, the Texas
Independent Producers and Royalty Owners Association, the Houston Energy
Association and is a charter member of the Natural Energy Services Association.
Royis Ward is the father of Michael Ward.
Executive Officer Compensation
The Company has three executive officers, Michael, Royis Ward and Ahmmed Karim.
Michael Ward's annual salary is $120,000. Royis Ward's annual salary is
$120,000. The company has not paid any of these salaries to date and the amounts
due are accruing. These salaries include work performed by the Wards on the
Company's subsidiaries in their respective executive officer capacities.
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Director Compensation
No compensation was paid by our Company to any Directors for any service
provided as a Director during the fiscal year ended December 31, 1999. There are
no other formal or informal understandings or arrangements relating to
compensation; however, Directors may be reimbursed for all reasonable expenses
incurred by them in conducting Integral's business. These expenses would include
out-of-pocket expenses for such items as travel, telephone, and postage. The
company has retained Mr. Allen Alderson as a consultant. His monthly consulting
fee is $3,000.
PRINCIPAL SHAREHOLDERS
The following table shows, as of September 30, 2000, information about equity
securities we believe to be owned of record or beneficially by
o each of our directors;
o each person who owns beneficially more than 5% of any class of our
outstanding common stock; and
o all of our directors and executive officers as a group.
Table 1.
(1) (2) (3) (4)
Title of Class Name and Address Amount and Nature Percent
of Class
Common Michael Ward 3,513,125 19.54%
9309 North Star
Corpus Christi, TX
Common Royis Ward 3,513,125 19.54%
5902 Fenway
Corpus Christi, TX
Common Cede & Co 4,523,471 25.16%
P.O. Box 20
Bowling Green Station, NY
*Common Pan Pacific Investments, Ltd. 1,000,000 5.6%
Buckingham Square Penthouse
Seven Mile Beach
West Bay Road
Grand Cayman, Cayman Island
British West Indies
Common Allen Alderson 165,000 0.092%
6857 N. Lakeshore Dr.
Shreveport, LA 71107
Common Ahmed Karim 27,500 0.002%
1532 Woods Dr.
N. Vancouver, B.C.
Canada V7R 1A9
* Beneficial ownership based on outstanding common stock option to purchase
1,000,000 shares at $1.00 per share on, or before February 2, 2002. The option
has not been exercised as of the filing date of this registration statement.
TRANSACTIONS WITH MANAGEMENT AND OTHERS
The Company granted common stock options on January 10, 1999 to its
officers and directors totaling 1,650,000 common shares excisable on, or before
January 10, 2000. None of the options were exercised.
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The Company granted common stock options on November 11, 1999 to
directors Allen Alderson and Danny Vines. Danny Vines was a company director who
resigned earlier this year. The options are exercisable in three 50,000 share
blocks each at an exercise price of 45 cents per share. Mr. Alderson exercised
all of his options. Mr. Vines exercised 100,000 share options and has 50,000
shares remaining unexercised.
The boards of directors of the Company's wholly owned subsidiaries had
previously approved the accrual of officer salaries totaling $610,000 for
services rendered during 1999 and previous years. These salaries remain unpaid.
As of December 31, 1999, the cumulative non-interest bearing advances
due from Michael and Royis Wards, as officers and directors of the Company's
wholly owned subsidiaries, totaled $179,782.
LEGAL PROCEEDINGS
The Company is not a party to any pending or threatened legal
proceedings.
DESCRIPTION OF SECURITIES
Common Stock
The Company is authorized to issue One Hundred Million (100,000,000)
shares of common stock, par value $0.001 per share. As of September 30, 2000,
there are17,980,489 shares of common stock issued and outstanding. The holders
of the common stock are not entitled to pre-emptive or preferential rights to
subscribe to any unissued stock or other securities. The shareholders are not
entitled to cumulative voting rights. The common stock is not assessable and not
subject to the payment of any corporate debts. The holders of our common stock
are entitled to one vote for each share on all matters submitted to the
shareholders for vote. Holders are entitled to share ratably in any dividends
which may be declared, from time to time, by the board of directors in its
discretion, from legally available funds. If we are liquidated, dissolved, or
wound up, the holders of common shares are entitled to share pro rata all assets
remaining after full payment of all liabilities. There are no conversion rights
or redemption or sinking fund provisions for the common stock.
Common Stock Warrants
There are outstanding warrants to purchase 1,500,000 shares of our
common stock at a price of $0.375 per share. These warrants were issued to
Swartz on September 6, 2000 for Swartz's commitment to enter into the Investment
Agreement. The warrants expire on September 6, 2010. The holders of the warrants
have the right to have the common stock issuable upon exercise of the warrants
included on any registration statement we file, other than a registration
statement covering an employee stock plan or a registration statement filed in
connection with a business combination or reclassification of our securities.
In partial consideration of arranging for the Swartz Private Equity
Financing Agreements, we issued 1,785,714 shares to Goodbody International, Inc.
Additionally, for each $1,000,000 Dollars of financing provided by Swartz, we
have agreed to deliver Goodbody 100,000 common stock purchase warrants. We have
agreed to pay Goodbody a financing fee equal to 3.5% based on the funds we
receive from the Swartz financing.
There are outstanding warrants to purchase 1,000,000 shares of our
common stock at a price of $1.00 per share. The warrant is immediately
exercisable and expires on February 2, 2002.
Our common stock is covered by the Securities and Exchange Commission's
penny stock rules. These rules include a rule that imposes additional sales
practice requirements on broker-dealers who sell such securities to persons
other than established customers and accredited investors. Accredited investors
are generally institutions with assets in excess of $5,000,000 or individuals
with net worth in excess of $1,000,000 or annual income exceeding $200,000 or
$300,000 jointly with their spouses. For transactions covered by the rule, the
broker-dealer must make a special suitability determination for the purchaser
and transaction prior to the sale. The rule may affect the ability of
broker-dealers to sell our securities and may also affect the availability
ability of purchasers of our stock to sell their shares in the secondary market.
It may also cause fewer brokers to be willing to make a market in our common
stock and it may affect the level of news coverage we receive.
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Stock Transfer Agent
Our Stock Transfer Agent is Signature Stock Transfer of Addison, Texas.
LEGAL MATTERS
The legality of the securities offered hereby has been passed upon by
Gregory M. Wilson, Attorney at Law, Spokane, Washington. Mr. Wilson is a
shareholder of the Company. It is possible that the Company's board of directors
may, in the future, authorize the issuance of shares to Mr. Wilson for legal
services.
EXPERTS
Our balance sheet as of December 31, 1999 and 1998 and the statements
of our operations, shareholders' equity and cash flows for the years then ended,
have been included in this prospectus in reliance on the report of Baum &
Company, P.A., certified public accountants, given on the authority of that firm
as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and
other information with the Securities and Exchange Commission. Our SEC filings
are available to the public over the Internet at the SEC's web site at
http://www.sec.gov. You may also read and copy any document we file at the SEC's
public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549, Seven
World Trade Center, 13th Floor, New York, New York 10048, and 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Please call the SEC at
1-800-SEC-0330 for further information about the public reference room.
We have filed with the SEC a registration statement on Form SB-2 under
the Securities Act covering the sale of the securities offered under this
prospectus. This prospectus, which constitutes a part of the registration
statement, does not contain all of the information in the registration
statement. Certain items of the registration statement are omitted in accordance
with the rules and regulations of the SEC. Statements contained in this
prospectus as to the contents of any contract or other documents are not
necessarily complete and in each instance where reference is made to the copy of
such contract or documents filed as an exhibit to the registration statement,
statements about the document are qualified in all respects by that reference
and the exhibits and schedules to the exhibits. For further information
regarding Tidelands Oil & Gas Corporation and the securities offered under this
prospectus, we refer you to the registration statement and those exhibits and
schedules, which may be obtained from the SEC at its principal office in
Washington, D.C. upon payment of the fees prescribed by the SEC.
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Tidelands Oil & Gas Corporation
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
The Nevada Corporation Law and the Company's Certificate of
Incorporation and Bylaws authorize indemnification of a director, officer,
employee or agent of the Company against expenses incurred by him or her in
connection with any action, suit, or proceeding to which such person is named a
party by reason of having acted or served in such capacity, except for
liabilities arising from such person's own misconduct or negligence in
performance of duty. In addition, even a director, officer, employee or agent of
the Company who was found liable for misconduct or negligence in the performance
of duty may obtain such indemnification if, in view of all the circumstances in
the case, a court of competent jurisdiction determines such person is fairly and
reasonably entitled to indemnification. Insofar as indemnification for
liabilities arising under the Securities Act of 1933 (the "Act") may be
permitted to directors, officers, or persons controlling the Company pursuant to
the foregoing provisions, the Company has been informed that in the opinion of
the Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Act and is therefore unenforceable.
Item 25. Other Expenses of Issuance and Distribution
SEC Registration Fee $
Blue Sky Fees and Expenses $
Accounting Fees and Expenses $ 2,500
Legal Fees and Expenses $ *
Miscellaneous $ *
Total $
Item 26. Recent Sales of Unregistered Securities
On October 21, 1998, the Company issued 8,635,000 common shares to the principal
shareholders of Tidelands Oil Corporation and Tidelands Gas Corporation in
connection with the Company's acquisition of those two corporations as
wholly-owned subsidiaries based on the Section 4(2) securities transaction
exemption.
On January 13, 1999, the Company issued 90,000 common shares to a creditor as
payment for an outstanding debt. The debt was $64,414. In connection with this
transaction, the Company issued 40,000 common stock purchase warrants
exercisable at $2.50 per share. The warrants expire on January 13, 2001. The
securities transaction exemption was Section 4(2).
On February 15, 1999, the Company issued 88,570 common shares to a creditor as
payment for an outstanding debt. The debt was $61,390. In connection with this
transaction, the Company issued 40,000 common stock purchase warrants
exercisable at $2.50 per share. The warrants expire on February 5, 2001. The
securities transaction exemption was Section 4(2).
On April 6, 1999, the Company sold 2,000,000 shares of common stock for 50 cents
per share. The securities transaction exemption was Regulations D and S.
On August 18, 1999, the Company issued 175,000 shares of common stock in
connection with the settlement of a lawsuit. The consideration was par value.
The securities transaction exemption was Section 4(2).
On December 27, 1999, Alan Alderson exercised his option to purchase 150,000
common shares at the price of 45 cents per share. Danny Vines exercised his
option to purchase 100,000 common shares at the price of 45 cents per share. The
securities transaction exemption was Section 4(2).
On April 19, 2000, the Company acquired all of the issued and outstanding
capital stock of Omni Acquisition Corporation in exchange for 250,000 restricted
common shares of the Company. The securities transaction exemption was Section
4(2).
On April 19, 2000, the Company issued 150,000 common shares for services
rendered. The transaction consideration was $30,000. The securities transaction
exemption was Section 3(b).
On, or about September 30, 2000, the Company issued 100,000 common shares for
public relations services valued at $15,600. The securities transaction
exemption was Section 4(2).
On, or about October 2, 2000, the Company authorized the issuance of 1,785,714
common shares to Goodbody International, Inc. in partial consideration for
arranging the Swartz Private Equity financing. The securities transaction
exemption was Section 4(2) of the Securities Act of 1933.
29
<PAGE>
Item 27. Exhibits
Exhibit Description
------- -----------
3.1 Articles of Incorporation of Tidelands Oil & Gas Corporation.,
a Nevada corporation.
3.3 Bylaws of Tidelands Oil & Gas Corporation.
4.1 Investment Agreement with Swartz Private Equity, LLC
5 Opinion of Wilson Law Offices
21 List of Subsidiaries
23.1 Consent of Wilson Law Offices (included in their opinion set
forth in Exhibit 5 hereto)
23.2 Consent of Independent Auditor
24 Power of Attorney (see signature page)
27 Financial Data Schedule
Item 28. Undertakings
The undersigned registrant hereby undertakes to:
(1) Insofar as indemnification for liabilities arising under the Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(2) File, during any period in which it offers or sells securities, a
post effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of the
Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in
the information in the registration statement; and
(iii) Include any additional or changed material information on the
plan of distribution.
For determining liability under the Securities, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy expressed in
the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(c) The undersigned registrant hereby undertakes that it will:
(1) For determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b) (1) or (4) or 497 (h)
under the Securities Act as part of this registration statement as of the time
the Commission declared it effective.
30
<PAGE>
(2) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration statement,
and that offering of the securities at that time as the initial bona fide
offering of those securities.
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned in the City of Corpus
Christi, Texas on December 19, 2000.
Tidelands Oil & Gas Corporation
By:
---------------------------
Michael Ward, President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the following persons in the
capacities and as of the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Michael Ward CEO, Director December __, 2000
-------------------
Michael Ward
/s/ Royis Ward Secretary, Chairman of Board December __, 2000
--------------------
Royis Ward
/s/ Ahmed Karim V.P./Director December __, 2000
---------------
/s/ Allan Alderson Director December __, 2000
-------------------
31
<PAGE>
POWER OF ATTORNEY
Each person whose signature appears appoints Michael Ward, as their
agent and attorneys-in-fact, with full power of substitution to execute for him
and in his name, in any and all capacities, all amendments (including
post-effective amendments) to this Registration Statement to which this power of
attorney is attached.
Signature Title Date
--------- ----- ----
/s/ Royis Ward Secretary, Chairman of Board December __, 2000
--------------------
Royis Ward
/s/ Ahmed Karim V.P./Director December __, 2000
---------------
/s/ Allan Alderson Director December __, 2000
-------------------
32
<PAGE>
TIDELANDS OIL & GAS CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of Independent Auditors F-2
Consolidated Financial Statements of Tidelands Oil & Gas Corporation:
Consolidated Balance Sheets at December 31, 1999 and
September 30, 2000 (Unaudited) F-3
Consolidated Statements of Operations for the Years Ended
December 31, 1999 and 1998 and the Nine Months Ended
September 30, 2000 and 1999 (Unaudited) F-4
Consolidated Statements of Changes in Stockholders' Equity
For the Years Ended December 31, 1999 and 1998 and the Nine
Months Ended September 30, 2000 and 1999 (Unaudited) F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999 and 1998 and the Nine Months Ended
September 30, 2000 and 1999 (Unaudited) F-6
Notes to Consolidated Financial Statements F-7 - F-19
F-1
<PAGE>
BAUM & COMPANY, P.A.
4310 SHERIDAN STREET, SUITE 202
HOLLYWOOD, FLORIDA 33021
INDEPENDENT AUDITOR'S REPORT
----------------------------
Board of Directors
Tidelands Oil & Gas Corporation
Corpus Christi, Texas
We have audited the accompanying consolidated balance sheet of Tidelands Oil &
Gas Corporation as of December 31, 1999, and the related statements of
consolidated stockholders' equity, operations, and cash flows for the years
ended December 31, 1999 and 1998. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Tidelands Oil & Gas Corporation as of December 31, 1999 and the results of their
consolidated operations and their consolidated cash flows for the years ended
December 31, 1999 and 1998 in conformity with generally accepted accounting
principles.
Baum & Company, P.A.
Hollywood, Florida
April 17, 2000
F-2
<PAGE>
<TABLE>
<CAPTION>
TIDELANDS OIL & GAS CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31, September 30,
ASSETS 1999 2000
------------- -------------
(Unaudited)
<S> <C> <C>
Current Assets
Cash $ 51,065 $ 183,585
Accounts Receivable 14,365 13,487
Prepaid Expenses and Other Current Assets 11,851 3,094
------------- -------------
Total Current Assets 77,281 200,166
------------- -------------
Oil and Gas Properties (Net) 506,310 486,040
------------- -------------
Other Assets
Deposits and Organizational Costs, Net 1,101 1,658
Investments 115,742 159,675
Intangible Assets, Net 3,503,633 3,369,458
------------- -------------
Total Other Assets 3,620,476 3,530,791
------------- -------------
Total Assets $ 4,204,067 $ 4,216,997
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable and Accrued Expenses $ 415,051 $ 510,830
Current Maturities of Long--Term Debt 19,552 19,552
Drilling Advances 25,967 --
Total Current Liabilities 460,570 530,382
------------- -------------
Long-Term Debt 60,405 264,925
------------- -------------
Due to Related Parties 430,218 667,499
------------- -------------
Total Liabilities 951,193 1,462,806
------------- -------------
Commitments and Contingencies
Stockholders' Equity
Common Stock - $.001 Par Value; 100,000,000 shares authorized
17,420,489 shares issued and outstanding at December 31, 1999
17,980,489 shares issued and outstanding at September 30, 2000 17,420 17,980
Additional Paid-In Capital 4,682,270 4,845,780
Subscriptions Receivable (124,575) (67,500)
Accumulated (Deficit) (1,322,241) (2,042,069)
------------- -------------
Total Stockholders' Equity 3,252,874 2,754,191
------------- -------------
Total Liabilities and Stockholders' Equity $ 4,204,067 $ 4,216,997
============= =============
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
TIDELANDS OIL & GAS CORPORATION Nine Months Ended
CONSOLIDATED STATEMENTS OF OPERATIONS
Nine Months Ended
Year Ended December 31, ----------------------------
---------------------------- September 30, September 30,
1999 1998 2000 1999
------------ ------------ ------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues:
Oil and Gas Sales and Others $ 45,299 $ 14,381 $ 99,588 $ 26,978
------------ ------------ ------------ ------------
45,299 14,381 99,588 26,978
------------ ------------ ------------ ------------
Operating Expenses:
Lease Operating Expenses 121,787 15,691 183,063 86,119
Lease Expirations -- -- 27,809 --
General and Administrative 516,317 157,493 409,148 368,748
Litigation Settlement 220,400 -- -- --
Depreciation, Depletion and Amortization 205,948 51,776 159,436 151,832
Losses From Investments 28,282 7,254 30,396 12,593
------------ ------------ ------------ ------------
Total Operating Expenses 1,092,734 232,214 809,852 619,292
------------ ------------ ------------ ------------
(Losses) From Operations (1,047,435) (217,833) (710,264) (592,314)
Interest Expense 34,870 6,549 9,561 23,943
------------ ------------ ------------ ------------
Net Loss $ (1,082,305) $ (224,382) $ (719,825) $ (616,257)
============ ============ ============ ============
Basic Net Loss Per Share (0.071) (0.025) (0.041) (0.043)
============ ============ ============ ============
Diluted Net Loss per Share $ (0.067) $ (0.025) $ (0.037) $ (0.039)
============ ============ ============ ============
Basic Weighted Average Shares Outstanding 15,323,224 8,841,765 17,700,489 14,405,745
============ ============ ============ ============
Diluted Weighted Average Shares Outstanding 16,213,224 8,841,765 19,655,489 15,920,745
============ ============ ============ ============
</TABLE>
F-4
<PAGE>
<TABLE>
<CAPTION>
TIDELANDS OIL & GAS CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Common Stock Additional Stock
-------------------------- Paid-In Subscriptions
Shares Amount Capital Receivable
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance - December 31, 1997 4,457,571 4,458 89,892 (3,150)
Net Loss
Sale of Common Stock 133,389 133 58,512
Stock Issued for Acquisitions 8,635,000 8,635 3,177,358
Receipt of Stock Subscription 3,150
----------- ----------- ----------- -----------
Balance - December 31, 1998 13,225,960 13,226 3,325,762 --
Net Loss
Issuance of Common Stock Upon Conversion of Debt 813,070 812 441,740
Sale of Common Stock 1,370,500 1,370,500 683,879 (57,075)
Issuance of Common Stock Upon Exercise of Stock Options 250,000 250 112,250 (67,500)
Issuance of Common Stock in Settlement of Litigation 175,000 175 120,225
Stock Dividend 1,585,959 1,586 (1,586)
----------- ----------- ----------- -----------
Balance - December 31, 1999 17,420,489 17,420 4,682,270 (124,475)
Net Loss (Unaudited)
Rounding Corrections
Stock Issued for Acquisition 250,000 250 5,720
Receipt of Stock Subscriptions 14,500 57,075
Issuance of Common Stock Upon Conversion of Debt 310,000 310 143,290
----------- ----------- ----------- -----------
Balance - September 30, 2000 (Unaudited) 17,980,489 $ 17,980 $ 4,845,780 $ (67,500)
=========== =========== =========== ===========
Total
Accumulated Stockholder's
Deficit Equity
----------- -----------
Balance - December 31, 1997 (15,554) 75,646
Net Loss (224,382) (224,382)
Sale of Common Stock 58,645
Stock Issued for Acquisitions 3,185,993
Receipt of Stock Subscription 3,150
----------- -----------
Balance - December 31, 1998 (239,936) 3,099,052
Net Loss (1,082,305) (1,082,305)
Issuance of Common Stock Upon Conversion of Debt 442,552
Sale of Common Stock 628,175
Issuance of Common Stock Upon Exercise of Stock Options 45,000
Issuance of Common Stock in Settlement of Litigation 120,400
Stock Dividend
----------- -----------
Balance - December 31, 1999 (1,322,241) 3,252,874
Net Loss (Unaudited) (719,825) (719,825)
Rounding Corrections (3) (3)
Stock Issued for Acquisition 5,970
Receipt of Stock Subscriptions 71,575
Issuance of Common Stock Upon Conversion of Debt 143,600
----------- -----------
Balance - September 30, 2000 (Unaudited) $(2,042,069) $ 2,754,191
=========== ===========
</TABLE>
F-5
<PAGE>
<TABLE>
<CAPTION>
TIDELANDS OIL & GAS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
Year Ended December 31, ----------------------------
-------------------------- September 30, September 30,
1999 1998 2000 1999
----------- ----------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Cash Flows From Operating Activities:
Net Loss $(1,082,305) $ 224,362 $ (719,825) $ (616,257)
Adjustments to Reconcile Net Loss to Net Cash Required by
Operating Activities:
Depreciation, Depletion and Amortization 205,948 51,776 159,436 151,832
(Increase) Decrease in Receivables (2,676) (11,689) 878 6,319
(Increase) Decrease in Prepaid Expenses and Other Current Assets (11,851) 73,918 8,757 --
(Increase) in Deposits and Organization Costs (450) (306) (750) (450)
Increase in Accounts Payable and Accrued Expenses 135,515 278,909 215,971 3,014
(Decrease) in Drilling Advances -- 25,967 (25,967) --
----------- ----------- ----------- -----------
Net Cash Provided by (Used For) Operating Activities (755,819) 194,193 (361,500) (455,542)
----------- ----------- ----------- -----------
Cash Flows Provided by (Used For) Investing Activities:
Acquisitions of Subsidiaries -- (3,737,209) -- --
Dispositions (Acquisitions) of Oil and Gas Properties 68,758 (598,762) 1,172 82,673
(Increase) in Investments (87,964) (27,776) (43,933) (104,023)
----------- ----------- ----------- -----------
Net Cash Used for Investing Activities (19,206) (4,363,747) (42,761) (21,350)
----------- ----------- ----------- -----------
Cash Flows Provided by Financing Activities:
Increase (Decrease) in Debt (558,218) 638,175 227,925 (42,648)
Increase in Due to Related Parties 148,134 282,084 237,281 101,192
(Increase) Decrease in Subscriptions Receivable (124,575) 3,150 71,575 (685,250)
Common Stock Issued for Acquisitions -- 3,244,638 -- --
Proceeds From the Issuance of Common Stock 1,360,702 -- -- 1,127,978
----------- ----------- ----------- -----------
826,043 4,168,047 536,781 501,262
----------- ----------- ----------- -----------
Net Increase (Decrease) in Cash 51,018 (1,507) 132,520 24,370
Cash at Beginning of Period 47 1,554 51,065 47
----------- ----------- ----------- -----------
Cash at End of Period $ 51,065 $ 47 $ 183,585 $ 24,417
=========== =========== =========== ===========
</TABLE>
F-6
<PAGE>
TIDELANDS OIL & GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------ ------------------------------------------
This summary of significant accounting policies is presented to assist
in understanding these consolidated financial statements. The
consolidated financial statements and notes are representations of
management who is responsible for their integrity and objectivity. The
accounting policies used confirm to generally accepted accounting
principles and have been consistently applied in the preparation of
these consolidated financial statements.
Organization
------------
Tidelands Oil & Gas Corporation (formerly C2 Technologies, Inc.) (the
Company) was incorporated in the state of Nevada on February 25, 1997.
On October 21, 1998 the Company acquired all of the issued and
outstanding capital stock of Tidelands Oil Corporation and Tidelands
Gas Corporation. On November 19, 1998, the legal name of the Company
was changed to Tidelands Oil and Gas Corporation, and the aggregate
number of shares in which the Company has authority to issue was
increased to 100,000,000 shares.
Nature of Operations
--------------------
The Company is presently engaged, through its wholly-owned subsidiaries
and investments in joint ventures and limited liability companies, in
the acquisition, exploration and development of oil and gas properties
in southern Texas.
Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All significant
inter-company accounts and transactions are eliminated.
Fair Value of Financial Investments
-----------------------------------
The Company has adopted Statement of Financial Accounting Standards No.
107 "disclosure about fair value of financial instruments," which
requires the disclosure of the fair value of off-and-on balance sheet
financial instruments. Unless otherwise indicated, the fair values of
all reported assets and liabilities, which represent financial
investments (none of which are held for trading purposes), approximate
the carrying values of such amounts.
F-7
<PAGE>
TIDELANDS OIL & GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------ ------------------------------------------------------
Use of Estimates
----------------
The preparation of consolidated financial statements in accordance with
generally accepted accounting principles requires management to use
estimates and make judgements. While management has considered all
available information, actual amounts could differ from those reported
as assets, liabilities, related revenues, costs and expenses and the
disclosed amounts of contingencies.
Investments
-----------
The equity method of accounting is used for investments, owned 50% or
less, including corporate joint ventures and limited liability
companies. Under this method, equity in the pre-tax income or losses of
limited liability companies, and in the net income or losses of
joint-ventures, is reflected in the Company's revenues or expenses
rather than when realized through dividends or distributions.
Oil and Gas Properties
----------------------
The Company uses the successful efforts method of accounting for oil
and gas producing activities. Costs, including interest, to acquire
mineral interests in oil and gas properties, to drill and equip
exploratory wells that find proved reserves, and to drill and equip
development wells are capitalized. Costs to drill exploratory wells
that do not find proved reserves, geological and geophysical costs, and
the costs of carrying and retaining unproved properties are expensed.
Unproved oil and gas properties that are individually significant are
periodically assessed for impairment of value, and a loss is recognized
at the time of impairment by providing an impairment allowance. Other
unproved properties are amortized based on the Company's experience of
successful drilling and average holding period. Capitalized costs of
producing oil and gas properties, after considering estimated
dismantlement and abandonment costs and estimated salvage values, are
depleted by the unit-of-production method.
On the sale or retirement of a complete unit of a proven property, the
cost and related accumulated depreciation and depletion are eliminated
from the property accounts, and the resultant gain or loss is
recognized. On the retirement or sale of a partial unit of proved
property, the cost is changed to accumulated depreciation and depletion
with a resulting gain or loss recognized in income.
F-8
<PAGE>
TIDELANDS OIL & GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------ ------------------------------------------------------
On the sale of an entire interest in an unproved property for cash or
cash equivalent, gain or loss on the sale is recognized, taking into
consideration the amount of any recorded impairment if the property has
been assessed individually. If a partial interest in an unproved
property is sold, the amount received is treated as a reduction of the
cost of the interest retained.
Support equipment, facilities and other related equipment are recorded
at historical cost. Depreciation of property and equipment is provided
on the straight-line method over the estimated useful economic lives of
the related assets. Maintenance and repairs are charged to operations.
Additions and betterments, which extend the useful lives of the assets
are capitalized. Upon retirement or disposal, the cost and accumulated
depreciation are eliminated from the account, and the resulting gain or
loss is reflected in operations.
Intangible Assets
-----------------
Intangible assets, which primarily consist of the cost of acquired
business in excess of the fair value of tangible assets and liabilities
acquired (goodwill), are amortized, by the straight-line method, over
an estimated economic useful life, of the underlying values of the
companies required, of twenty years.
Long-Lived Assets
-----------------
The Company adopted statement of Financial Accounting Standards 121
(SFAS 121) "Accounting for the Impairment of Long-Lived Assets to be
Disposed Of." SFAS 121 required that long-lived assets to be held and
used by the Company be reviewed for impairment whenever events or
changes in circumstances indicate that the related carrying amount may
not be recoverable. When required, impairment losses on assets to be
held and used are recognized based on the fair value of the asset and
long-lived assets to be disposed of are reported at the lower of
carrying amount or fair value less cost to sell.
The adoption of SFAS 121 and the evaluation by the Company did not have
a significant effect on the consolidated financial position or results
of consolidated operations.
F-9
<PAGE>
TIDELANDS OIL & GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------ ------------------------------------------------------
Income Taxes
------------
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards 109 (SFAS 109). "Accounting for Income
Taxes," which requires the establishment of a deferred tax asset or
liability for the recognition of future deductions or taxable amounts
and operating loss carryforwards, deferred tax expense or benefit is
recognized as a result of the change in the deferred asset or liability
during the year. If necessary, the Company will establish a valuation
allowance to reduce any deferred tax asset to an amount which will,
more likely than not, be realized.
Net Earnings Per Common Share
-----------------------------
The Company accounts for earnings per share in accordance with
statement of Financial Accounting Standard 128 ("SFAS 128") "Earnings
per Share". Basic earnings per share is based upon the net earnings
applicable to common shares after preferred dividend requirements and
upon the weighted average number of common shares outstanding during
the period. Diluted earnings per share reflects the effect of the
assumed conversions of convertible securities and exercise of stock
options only in the periods in which such affect would have been
dilutive.
NOTE 2 - ACQUISITION OF COMPANIES
------ ------------------------
On October 21, 1998, the Company, pursuant to an acquisition agreement,
acquired 100% of the issued and outstanding capital stock of Tidelands
Oil Corporation and Tidelands Gas Corporation in exchange for 8,635,000
shares of its restricted common stock. The value of this transaction
was determined by the mean average of the bid and asked stock price
discounted by 50%. In addition, the deficit in the equity of the
companies acquired was offset against paid-in capital in excess of par
value. Tidelands Oil Corporation and Tidelands Gas Corporation was
owned by current officers of the Company. The acquisition, accounted
for as a purchase, was included in consolidated operations of the
Company from that date through December 31, 1998.
F-10
<PAGE>
TIDELANDS OIL & GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE 2 - ACQUISITION OF COMPANIES (CONTINUED)
------ ------------------------------------
In accordance with Accounting Principle Board Opinion #16, the
unaudited proforma condensed consolidated results of operations of the
Company are as follows:
Tidelands Oil & Gas Corporation
Condensed Consolidated Statement Of Operations
Year Ended December 31, 1998
"Pro Forma"
(Unaudited)
Revenues $ 54,775
--------------
Costs and Expenses $ 503,793
--------------
Net (Loss) $ (449,018)
==============
Net (Loss) Per Common Share $ (.051)
==============
Weighted Average Shares Outstanding 8,841,765
==============
NOTE 3 - OIL AND GAS PROPERTIES
------ ----------------------
A summary of oil and gas properties at December 31, 1999 is a follows:
Proved Properties $ 355,090
Support Equipment 288,792
--------------
Total 643,882
Less Accumulated Depreciation and Depletion 137,572
--------------
Net Oil and Gas Properties $ 506,310
==============
F-11
<PAGE>
TIDELANDS OIL & GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE 4 - INVESTMENTS
------ ------------
A summary of investments in Joint Ventures and Limited Liability
Companies at December 31, 1999 is as follows:
Ownership
Percentage
----------
GT-Pla J.V. 96 5.978% $10,767
G-Halsell J.V. 96 4.5% 9,567
Rio Bravo Energy LLC 50.0% 95,408
--------
$115,742
========
The Company's potential exposure to loss, with respect to its
investments in Joint Ventures and Limited Liability Companies is
generally limited to its positive investments and advances. However, in
some cases the Company may be otherwise obligated to make capital
contributions or loans to the ventures to make up cash flow deficits.
The Company's maximum exposure to credit and market risk is not
determinable with any degree to accuracy as determination of the
ultimate amounts is dependent upon the manager of the joint ventures to
optimize cash flows from the operations of the projects and increase
the value of the projects. However, management does not believe that
the Company's exposure would significantly exceed the aggregate of the
exposure described above.
NOTE 5 - INTANGIBLE ASSETS
------ -----------------
A summary of intangible assets at December 31, 1999 is as follows:
Goodwill $ 3,737,209
Less Accumulated Amortization 233,576
-----------
Net $ 3,503,633
===========
The company evaluates the amortization period of intangibles on an
ongoing basis, in light of any changes in business conditions, events
or circumstances, that may indicate the potential impairment of
intangible assets.
F-12
<PAGE>
TIDELANDS OIL & GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE 6 - LONG-TERM DEBT
------ --------------
A summary of notes payable at December 31, 1999 is as follows;
Note Payable, Unsecured, Non Interest
Bearing, Payable on Demand $ 19,552
Note Payable, Unsecured, 6% Interest,
maturing January 2002 37,000
----------
56,552
Less: Current Maturities 19,552
----------
Total Long-Term Debt $ 37,000
==========
NOTE 7 - DRILLING ADVANCES
------ -----------------
Drilling advances from joint interest owners amounted to $25,967 as of
December 31, 1999. These advances will be applied toward the payment of
drilling costs to be incurred in subsequent periods.
NOTE 8 - INCOME TAXES
------ ------------
At December 31, 1999 the Company had net operating loss carryforwards
of approximately $1,763,887, to offset against future federal taxable
income, that expire in the years through 2019.
The company files a consolidated income tax return and timing
differences between the recognition of certain income and expense items
for income tax purposes and financial reporting purposes are as
follows:
Benefit of net operating loss carryforwards $ 1,763,887
Officers' salary deductions in excess of
tax deduction (610,000)
Tax depreciation in excess of book depreciation 15,080
Other adjustments (22,100)
-------------
$ 1,146,867
Total deferred tax asset $ 666,000
Less valuation allowance 666,000
-------------
Net deferred tax asset $ --
-------------
It is currently undeterminable as to when the Company will benefit from
the deferred tax asset.
F-13
<PAGE>
TIDELANDS OIL & GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE 9 - RELATED PARTY TRANSACTIONS
------ --------------------------
The Boards of Directors of the Company's wholly-owned subsidiaries had
previously approved the accrual of officer salaries of $370,000 for
services rendered in prior years and $240,000 in the current year.
At December 31, 1999, cumulative non-interest bearing advances due from
officers and stockholders of the Company amount to $179,782.
The current officers and shareholders of the Company were formerly
officers and shareholders of Tidelands Oil Corporation and Tidelands
Gas Corporation.
NOTE 10 -SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
-------- -------------------------------------------------
Cash paid for:
1999 1998
---- -----
Interest $12,515 $ 19
======= =======
Income Taxes $ -- $ --
======= =======
Supplemental schedule of non-cash investing and financing activities.
Year Ended Year Ended
December 31, 1999 December 31, 1998
----------------- -----------------
Increase in intangibles $ -- $ 3,737,209
Acquisitions of oil and gas
properties 597,561
Increase in investments 34,032
Increase in other assets 4,420
Issuance of shares
net of adjustments 523,490 3,244,638
Increase in liabilities 222,106
(Decrease) Increase in debt (403,090) 595,132
Transactions with
related parties 311,346
F-14
<PAGE>
TIDELANDS OIL & GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE 11 - COMMITMENTS AND CONTINGENCIES
------- -----------------------------
The Company is subject to the laws and regulations relating to the
protection of the environment. The Company's policy is to accrue
environmental and cleanup related costs of a non-capital nature when it
is both probable that a liability has been incurred and when the amount
can be reasonably estimated. Although it is not possible to quantify
with any degree of certainty the financial impact of the Company's
continuing compliance efforts, management believes any future
remediation or other compliance related costs will not have a material
adverse effect on the financial condition or reported results of
operations of the Company.
NOTE 12 - LITIGATION SETTLEMENTS
------- ----------------------
On June 24, 1998 Tidelands Oil Corporation and Tidelands Gas
Corporation (Subsidiaries), wholly-owned subsidiaries of the Company
entered into an acquisition agreement "Jersey Agreement" with Jersey
Petroleum, Inc. On October 16, 1998, the subsidiaries formerly notified
Jersey Petroleum, Inc. that the Jersey Agreement was terminated due to
non-performance of certain provisions and other misrepresentations
relating to pending litigation.
Under the terms of the original Jersey agreement and a debenture made a
part thereof, the subsidiaries had drawn $155,000 of the debenture.
That amount would be repayable to Jersey Petroleum, Inc. 10 days after
the date of the termination letter or October 26, 1998. This amount had
not been repaid pursuant to management's belief that these costs were
incurred as a result of misrepresentations by Jersey Petroleum, Inc.
On October 22, 1998 Jersey Petroleum, Inc. filed suit against the
subsidiaries and in the Supreme Court of British Columbia claiming
unspecified damages for breach of contract.
F-15
<PAGE>
TIDELANDS OIL & GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE 12 - LITIGATION SETTLEMENTS (CONTINUED)
-------- -----------------------------------
On December 11, 1998 a default judgment against the subsidiaries was
issued for $157,229.04. In March 1999, Jersey Petroleum, Inc. filed
suit against the subsidiaries in a Texas State court claiming
unspecified damages for breach of contract. On May 20, 1998, the
Supreme Court of British Columbia ruled to set aside the December 11,
1998 default judgment. In June 1999, the Texas State Court set aside
the March 1999 Texas lawsuit pending the timely refiling by Jersey
Petroleum, Inc., of the Canadian lawsuit. On August 18, 1999 the
Company paid Jersey Petroleum, Inc. $167,499 and issued 175,000 shares
of restricted "Section 144" common stock at a value of $120,400 as
settlement of the lawsuit. In August and September 1999 the Supreme
Court of British Columbia and the District Court of Nueces County,
Texas dismissed all claims.
On March 8, 2000 the Company negotiated a settlement of a prior
contract dispute. The terms of such settlement are payment in cash of
$100,000 including legal costs or the issuance of 60,000 shares of the
Company's common stock.
NOTE 13 - STOCK OPTIONS
------- -------------
As of December 31, 1999 the Company had issued stock options as
follows:
Shares Option Price Expiration Date
------ ------------ ---------------
1,650,000 $ .45 January 10, 2000 (Expired)
40,000 2.50 January 13, 2001
40,000 2.50 February 15, 2001
50,000 .45 January 10, 2002
1,000,000 1.00 February 2, 2002
---------
2,780,000
F-16
<PAGE>
TIDELANDS OIL & GAS CORPORATION
CONSOLIDATED SUPPLEMENTAL INFORMATION
YEAR ENDED DECEMBER 31, 1999
(UNAUDITED)
-----------
Capitalized Costs Relating to Oil and Gas Producing Activities at December 31,
--------------------------------------------------------------------------------
1999
----
(Note 2)
Proved Properties $ 355,090
Support Equipment 288,792
-----------------------
Total 643,882
Less Accumulated Depreciation and Depletion 137,572
-----------------------
Net Oil and Gas Properties $ 506,310
=======================
Costs Incurred in Oil and Gas Producing Activities for the Year Ended December
--------------------------------------------------------------------------------
31, 1999
--------
Property Acquisition Costs
Proved $ --
=======================
Results of Operations for Oil and Gas Producing Activities for the Years Ended
--------------------------------------------------------------------------------
December 31, 1999 (Note 2)
--------------------------
Oil and Gas Sales $ 45,299
Production Costs (121,787)
Depreciation and Depletion (18,830)
-----------------------
(95,318)
Income Tax Expense --
-----------------------
Results of Operations for Oil and Gas Producing
Activities (Excluding Corporate Overhead,
Management Fees and Losses of Joint Ventures) $ (95,318)
========================
F-17
<PAGE>
TIDELANDS OIL & GAS CORPORATION
CONSOLIDATED SUPPLEMENTAL INFORMATION
YEAR ENDED DECEMBER 31, 1999
(UNAUDITED)
Reserve Information
-------------------
The following estimate of proved reserve and proved developed reserve quantities
and related standardized measure of discounted net cash flow are estimates only,
and do not purport to reflect realizable values or fair market values of the
Company's reserves. The Company emphasizes that reserve estimates are inherently
imprecise and that estimates of new discoveries are more imprecise than those of
producing oil and gas properties. Accordingly, those estimates are expected to
change as future information becomes available. All of the Company's reserves
are located in the state of Texas.
Proved reserves are estimated reserves of crude oil (including condensate and
natural gas liquids) and natural gas that geological and engineering data
demonstrate with reasonable certainty to be recoverable in future years from
known reservoirs under existing economic and operating conditions. Proved
developed reserves are those expected to be recovered through existing wells,
equipment, and operating methods.
The standardized measure of discounted future net cash flows is computed by
applying year-end prices of oil and gas (with consideration of price changes
only to the extent provided by contractual arrangements) to the estimated future
production of proved oil and gas reserves, less estimated future expenditures
(based on year-end costs) to be included in developing and producing the proved
reserves, less estimated future income tax expenses (based on year-end statuary
tax rates) to be incurred on pretax net cash flows less tax basis of the
properties and available credits, and assuming continuation of existing economic
conditions. The estimated future net cash flows are then discounted, pursuant to
the requirements of Statement of Financial Accounting Standards 69 (SFAS 69),
"Disclosures About Oil and Gas Producing Activities," using a rate of 10 percent
a year to reflect the estimated timing of the future cash flows.
F-18
<PAGE>
TIDELANDS OIL & GAS CORPORATION
CONSOLIDATED SUPPLEMENTAL INFORMATION
YEARS ENDED DECEMBER 31, 1999
(UNAUDITED)
Reserve Information (continued)
------------------------------
GAS (MCF) OIL (BBLS)
------------- -------------
Proved Developed and Undeveloped Reserves
Beginning of Year 19,995,825 6,983,060
Production -- 1,130
------------- -------------
End of Year 19,995,825 6,981,930
============= =============
Proved Developed Reserves
Beginning of Year 2,934,851 3,917,907
End of Year 2,934,851 3,916,777
Standardized Measure of Discounted Future
Net Cash Flows at December 31, 1999
Future Cash Inflows $ 33,661,012 $ 117,031,065
Future Production Costs (2,784,050) (28,657,712)
Future Development Costs (2,775,000) (19,121,292)
Future Income Tax Expense (10,098,407) (33,814,007)
------------- -------------
Future Net Cash Flows 18,003,555 35,429,270
10% Annual Discount for Estimated
Timing of Cash Flows (9,013,514) (13,789,148
------------- -------------
Standardized Treasures of
Discounted Future Net
Cash Flows Relating to Proved
Oil and Gas Reserves $ 8,990,041 $ 21,640,122
============= =============
The following reconciles the change in the standardized measure of discounted
future net cash flow during 1999
Beginning of Year $ 8,990,041 21,658,808
Oil and Gas Produced Including
Excess Production Costs -- (18,686)
------------- -------------
End of Year $ 8,990,041 $ 21,640,122
============= =============
F-19
<PAGE>
Item 27. Exhibits
Exhibit Description
3.1 Articles of Incorporation of Tidelands Oil & Gas Corporation., a
Nevada corporation, formerly C2 Technologies, Inc.
3.2 Articles of Amendment Tidelands Oil & Gas Corporation, formerly C2
Technologies, Inc.
3.3 Bylaws of Tidelands Oil & Gas Corporation
4.1 Investment Agreement with Swartz Private Equity, LLC
4.2 Commitment Warrant (Swartz Private Equity, LLC)
4.3 Warrant Agreement (Goodbody International, Inc.)
4.4 Registration Rights Agreement
5 Opinion and Consent of Wilson Law Offices
21 List of Subsidiaries
23.2 Consent of Independent Auditor
24 Power of Attorney (see signature page)
27 Financial Data Schedule
