UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended
June 30, 2010
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from [ ] to [ ]
Commission file number
333-130673
WEST CANYON ENERGY
CORP.
(Exact name of registrant as specified in its
charter)
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Nevada
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20-8756823
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(State or other jurisdiction of incorporation or
organization)
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(I.R.S. Employer Identification No.)
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20333 State Highway 249, Suite 200 – 11 Houston TX
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77070-26133
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(Address of principal executive offices)
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(Zip Code)
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Registrant's telephone number, including area code:
281.378.1563
Securities registered pursuant to Section 12(b) of the Act:
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Title of Each Class
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Name of Each Exchange On Which Registered
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N/A
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N/A
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Securities registered pursuant to Section 12(g) of the Act:
N/A
(Title of class)
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 the Securities Act.
Yes[ ] No[ x ]
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the Act
Yes[ ] No[ x ]
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the last 90 days.
Yes[ x ] No[ ]
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation
S-T (§232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such
files).
[ ] YES [ ] NO
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not
contained herein, and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K.
[
]
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See definition of “large accelerated filer,” “accelerated
filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer [ ]
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Accelerated filer [ ]
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Non-accelerated filer [ ]
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Smaller reporting company [ x ]
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Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act).
Yes[ ] No[ x ]
The aggregate market value of Common Stock held by
non-affiliates of the Registrant on December 31, 2009, the last business day of
the Company’s most recently completed second fiscal quarter was $1,151,500 based
on a $0.075 closing price for the Common Stock on December 31, 2009. For
purposes of this computation, all executive officers and directors have been
deemed to be affiliates. Such determination should not be deemed to be an
admission that such executive officers and directors are, in fact, affiliates of
the Registrant.
Indicate the number of shares outstanding of each of the
registrant’s classes of common stock as of the latest practicable date.
21,206,667 common shares as of November 12, 2010
DOCUMENTS INCORPORATED BY REFERENCE
None.
2
TABLE OF CONTENTS
3
PART I
Item 1. Business
This annual report contains
forward-looking statements. These statements relate to future events or our
future financial performance. In some cases, you can identify forward-looking
statements by terminology such as “may”, “should”, “expects”, “plans”,
“anticipates”, “believes”, “estimates”, “predicts”, “potential” or “continue” or
the negative of these terms or other comparable terminology. These statements
are only predictions and involve known and unknown risks, uncertainties and
other factors, including the risks in the section entitled “Risk Factors” that
may cause our or our industry’s actual results, levels of activity, performance
or achievements to be materially different from any future results, levels of
activity, performance or achievements expressed or implied by these
forward-looking statements.
Although we believe that the
expectations reflected in the forward-looking statements are reasonable, we
cannot guarantee future results, levels of activity, performance or
achievements. Except as required by applicable law, including the securities
laws of the United States, we do not intend to update any of the forward-looking
statements to conform these statements to actual results.
Our financial statements are
stated in United States Dollars (U.S.$) and are prepared in accordance with
United States Generally Accepted Accounting Principles.
In this annual report, unless
otherwise specified, all dollar amounts are expressed in United States dollars
and all references to “common shares” refer to the common shares in our capital
stock.
As used in this current report
and unless otherwise indicated, the terms "we", "us", "our" and "West Canyon"
mean West Canyon Energy Corp. and our wholly-owned subsidiaries, PetroSouth
Energy Corp. BVI and Petrosouth Energy Corporation Sucursal Colombia.
General Overview
We were incorporated on July 27,
2004, under the name Mobridge Explorations Inc. Since inception, we were a
company primarily engaged in the acquisition and exploration of mineral
properties. Pursuant to a mineral property option agreement dated July 6, 2005,
we were granted an option to acquire a 100% undivided right, title and interest
in a total of 15 mineral claim units, known as the Chambers Township claim
block, located in the Sudbury Mining Division of Ontario, Canada. On November 1,
2006, the mineral property agreement was terminated.
Because we had not discovered any
economically viable mineral deposits on the Chambers Township claim block, we
decided to change the direction of our exploration activities to the oil and gas
sector. On April 30, 2007, we completed a merger with our subsidiary, PetroSouth
Energy Corp. with PetroSouth Energy Corp. as the surviving corporation.
Concurrently, our board of directors approved a 10 for one stock split of our
authorized, issued and outstanding shares of common stock. As a result, our
authorized capital increased from 75,000,000 shares of common stock with a par
value of $0.001 to 750,000,000 shares of common stock with a par value of
$0.001.
On October 2, 2007, we completed
the acquisition of all the issued and outstanding common stock of PetroSouth
Energy Corp. BVI pursuant to a share exchange agreement dated September 30,
2007, among our company, as purchaser, and all of the shareholders of PetroSouth
Energy Corp. BVI, as vendors.
Effective April 11, 2008, we
completed a merger with our wholly-owned subsidiary, West Canyon Energy Corp., a Nevada corporation. The sole purpose of the merger was to change our name from PetroSouth Energy Corp. to West Canyon Energy Corp. and the subsidiary company was incorporated solely for such purpose. The change of name became effective with the
Over-the-Counter Bulletin Board at the opening for trading on April 11, 2008,
under the stock symbol “WCYO”.
Effective November 7, 2008, we
effected a five (5) for one (1) reverse stock split of our authorized, issued
and outstanding shares of common stock. As a result our authorized capital
decreased from 750,000,000 shares of common stock with a par value of $0.001 to
150,000,000 shares of common stock with a par value of $0.001. Our CUSIP number
is 951736206 and our stock symbol changed to “WCYN”.
4
On October 27, 2010, we entered
into a letter agreement with Petrodorado Energy Ltd. (“Petrodorado”) with
respect to the sale by us of our wholly-owned subsidiary PetroSouth Energy Corp.
BVI, including our interest in the Talora Exploration Block but excluding our
interest in the Buenavista Block, to Petrodorado for $1.5 million.
We have not been involved in any
bankruptcy, receivership or similar proceeding.
Our Current Business
Upon the completion of the
acquisition of PetroSouth Energy Corp. BVI, we became an exploration stage
company engaged in the exploration and production of oil and gas properties.
Our asset base and property
development activity has consisted of the following:
Buenavista Exploration and
Production Contract dated November 8, 2004 (Northeast of Bogotá,
Colombia)
We have a 16% participation stake
in the Buenavista Exploration and Production Contract northeast of Bogotá,
Colombia, which we acquired through an Assignment Agreement dated August 30,
2007. The Buenavista Exploration and Production Contract was effective November
8, 2004 and has a surrender date of November 8, 2032. The operator and majority
partner is UTO with an 84% participation stake. The 25,000 acre contiguous
parcel of land contains the Bolivar field, the Bolivar prospect and three leads.
Included in the field is the La Luna formation, covering an area of 700 acres.
The Exploration and Production Contract associated with the block was originally
signed on November 8, 2004, providing for a six year exploration period and a 28
year production period.
The Buenavista Block is located
38 miles northwest of Colombia’s largest oil fields, the Cusiana/Cupiagua
complex. The Buenavista Block currently has two producing wells, the Bolivar 1
well and the Bolivar 2 well, from which we had a total of 4,833 barrels of crude
oil of combined sales during our fiscal year ended June 30, 2010.
In December 2007, the Company
commenced drilling on the Bochica 1 development well. During the initial
drilling of the Bochica1, the Company had to cease drilling until additional
drilling rigs could be obtained. In early 2008, a workover was performed on the
Bochica 1 well, but was not successful. In January 2009, the Company completed a
seismic 3D shoot in the 70 kilometer area around the Bochica 1 well to determine
if the Company had any further potential production zones. In May 2009, the
Bochica 1 well was determined to be a dry hole and was subsequently plugged and
abandoned. Under the full cost method of accounting, the costs associated with
abandoned wells are to be transferred to the full cost pool and depleted over
the useful life of proved reserves. Since the Company had no proven reserve
value as of June 30, 2009, these costs were considered impaired. As a result,
the Company recognized a $1,197,229 impairment charge related to the Buenavista
Block for the year ended June 30, 2009. In May 2009, the Bolivar 2 well was
drilled based on the information obtained from the 3D seismic information from
the Bochica 1 well site.
Effective September 16, 2008, we
entered into a farmout agreement with Delavaco Energy Colombia Inc. Sucursal
Colombia, a subsidiary of Delavaco Energy Inc., for the sale of our 16%
participating interest in the Buenavista Block. The total purchase price was
$4,000,000. Upon entering in the farmout agreement, we received a nonrefundable
deposit on sale of $200,000. The balance of $3,800,000 was to be paid on the
earlier of (i) 30 days from a Liquidity Event by Delavaco (as defined by the
farmout agreement), or (ii) December 31, 2008. As of December 31, 2008, the
balance of payment was not made by Delavaco and the Buenavista Block reverted
back to us and the $200,000 deposit was recorded as Other Income during the year
ended June 30, 2009.
As of June 30, 2010, the Company had
not yet determined the commerciality of the Buenavista Block.
Talora Exploration and Exploitation
Contract dated September 16, 2006 (Southwest of Bogotá, Colombia)
At June 30, 2010, we owned a 20%
participation stake in the Talora Exploration and Exploitation Contract
southwest of Bogotá, Colombia. The Talora Exploration and Exploitation Contract
was effective September 16, 2004, and has a surrender date of September 16,
2032. The operator and majority partner is Petroleum Equipment International
with a 60% participation stake. Gran Tierra Energy, Inc., which purchased Argosy
Energy International, has the remaining 20% participation stake. The 108,333
acre contiguous parcel of land is located 47 miles southwest of Bogotá, Colombia
and contains five prospects. The Exploration and Exploitation Contract
associated with the block was originally signed on September 16, 2004, providing
for a six year exploration period and a 28 year production period. There are
currently no reserves, as this is an exploration block. The Company
commenced drilling on the Laura-1 exploration well on December 27, 2006, and it
was subsequently plugged and abandoned in January 2007. Drilling of this well
has fulfilled the commitment for the second exploration phase of the contract,
ending December 31, 2006.
5
The third exploration phase has
begun and had a commitment to drill a single well. To fulfill this commitment,
we commenced drilling of the Manatial development well in January of 2008.
During the drilling of the Manatial, we encountered rig problems that caused
damage to the well. During 2009, an unsuccessful re-entry workover was performed
on the Manatial and the well was determined to be a dry hole. In June of 2009,
the Manatial was plugged and abandoned. During 2009, we commenced drilling on
the Montemelo development well and it was subsequently plugged and abandoned in
June of 2009. Under the full cost method of accounting, the costs associated
with abandoned wells are to be transferred to the full cost pool and depleted
over the useful life of proved reserves. Since we have no proven reserve value
for the year ended June 30, 2009, these costs are considered impaired, as they
can provide no future value. We recognized $1,998,801 in Impairment of Unproved
Property expense related to the Talora Block for the year ended June 30, 2009.
On July 25, 2008, we entered into
a non-binding letter of intent agreement with Delavaco Energy Colombia Inc.
Sucursal Colombia for the sale of our 20% participating interest in the Talora
Exploration Block. The total purchase price was $3,500,000. Upon entering into
the letter of intent, we received a nonrefundable deposit on sale of $200,000.
The non-binding letter of intent agreement provided for an exclusivity period of
120 days, which expired on or about November 30, 2008. As a result of the
expiration of the exclusivity period, the $200,000 deposit on sale was recorded
as Other Income during the year ended June 30, 2009.
As of June 30, 2010, the Company had
not yet determined the commerciality of the Talora Block.
On October 27, 2010, we entered
into a letter agreement with Petrodorado Energy Ltd. (“Petrodorado”) with
respect to the sale by us of our wholly-owned subsidiary PetroSouth Energy Corp.
BVI, including our interest in the Talora Exploration Block but excluding our
interest in the Buenavista Block, to Petrodorado for $1.5 million.
Carbonera Exploration and
Exploitation Contract dated October 2, 2007 (Northeast of Bogotá,
Colombia)
We acquired a 6% share interest
in the Carbonera Exploration and Exploitation Contract. The Carbonera Contract
encompasses a 64,000 acre concession located northeast of Bogotá near the
Venezuelan border in the Catatumbo Basin region of northern Colombia. The 6%
interest was acquired for $420,000 and other considerations from Omega Energy
Colombia, which is a joint interest holder with our company on several other
exploration concessions in Colombia. The operator of the Carbonera Contract is
Well Logging Ltd. and the concession is currently being evaluated for a
combination of gas and condensate. Additional Wells are in the planning stage.
On September 22, 2009, we entered
into an agreement with Delavco Energy Colombia Inc. Sucursal Colombia pursuant
to which we agreed to sell 100% of our 6% non-operated participation interest in
the Carbonera Block for $750,000. Closing of the agreement took place on October
2, 2009. Our former chief financial officer and director is also a consultant of
Delavco Energy Colombia Inc. The $750,000 of proceeds was accounted for as a
reduction of Unproved Interest.
North Semitropic Prospect
On February 1, 2008, we entered
into a formal farmout agreement with Transco Oil & Gas, Inc. relating to
Transco’s leases on approximately 3,290 acres in Kern County, CA. The plan under
the farmout agreement was to drill the first test well in order to exploit the
potential of two target horizons. We were to earn the entire interest in the
properties once drilling is completed. We were also responsible for our prorata
share of the delay rentals on the leasehold. Any additional leases to be
acquired were to be decided between both parties and the costs to acquire new
leases were to be shared equally.
On June 16, 2008 we entered into
an Assignment of Farmout Interest agreement with Cobra Oil & Gas Company
whereby we assigned our interest in the North Semitropic Prospect to Cobra for
$34,000.
On January 19, 2009, we announced
that we repurchased the 25% interest in the North Semitropic Prospect from Cobra
Oil and Gas for a payment of $134,438, that included the original $34,000 paid
to us by Cobra, plus the sum of additional prospect fees paid by Cobra to
Transco totaling $100,348.
6
On February 25, 2010, the Company
entered into an agreement with New World Petroleum Investments Inc. pursuant to
which the Company agreed to sell 100% of its 25% interest for $185,000. Pursuant
to the terms of the agreement, the Company received $35,000 at closing and is to
receive $25,000 per month beginning April 2010 and ending September 2010. The
$185,000 sales price was accounted for as a reduction of Unproved Interest and
an increase in accounts receivable.
Spring Creek Red River
Prospect
In 2008, we acquired
non-producing leases in the Spring Creek Red River Prospect for the payment of
$240,000 and $7,500 in geologist fees.
Competition
We are an exploration-stage
company engaged in the business of oil and gas exploration. We compete with
other exploration-stage companies for financing from a limited number of
investors that are prepared to make investments in junior oil and gas resource
exploration companies. The presence of competing junior oil and gas exploration
companies may impact on our ability to raise additional capital in order to fund
our property acquisitions and exploration programs if investors are of the view
that investments in competitors are more attractive based on the merit of the
properties under investigation and the price of the investment offered to
investors.
We also compete for oil and gas
properties of merit with other exploration-stage companies. Competition could
reduce the availability of properties of merit or increase the cost of acquiring
additional oil and gas properties.
Many of the oil and gas
exploration companies with whom we compete have greater financial and technical
resources than we do. Accordingly, these competitors may be able to spend
greater amounts on acquisitions of properties of merit and on exploration of
their properties. In addition, they may be able to afford greater geological
expertise in the targeting and exploration of resource properties. This
competition could result in our competitors having resource properties of
greater quality and interest to prospective investors who may finance additional
exploration and to senior exploration companies that may purchase resource
properties or enter into joint venture agreements with junior exploration
companies. This competition could adversely impact our ability to finance
property acquisitions and further exploration.
Compliance with Government
Regulation
Our business is subject to
various federal, state and local laws and governmental regulations that may be
changed from time to time in response to economic or political conditions. We
are required to comply with the environmental guidelines and regulations
established at the local levels for our field activities and access requirements
on our permit lands and leases. Any development activities, when determined,
will require, but not be limited to, detailed and comprehensive environmental
impact assessments studies and approvals of local regulators.
Employees
Our sole director and officer is
our only employee. We do not anticipate any significant changes in the number of
our employees over the next twelve months.
Research and
Development
We have not spent any amounts on
which have been classified as research and development activities in our
financial statements since our inception.
7
Item 1A. Risk Factors
Risks Related to Our
Operations
Our business operations are
subject to a number of risks and uncertainties, including, but not limited to
those set forth below:
Because we may never earn
revenues from our operations, our business may fail and then investors may lose
all of their investment in our company.
We have no history of revenues
from operations. We have never had significant operations and have no
significant assets. We have yet to generate positive earnings and there can be
no assurance that we will ever operate profitably. Our company has a limited
operating history. If our business plan is not successful and we are not able to
operate profitably, then our stock may become worthless and investors may lose
all of their investment in our company.
We expect to incur significant
losses into the foreseeable future. We recognize that if we are unable to
generate significant revenues from future acquisitions, we will not be able to
earn profits or continue operations. There is no history upon which to base any
assumption as to the likelihood that we will prove successful, and we can
provide no assurance that we will generate any revenues or ever achieve
profitability. If we are unsuccessful in addressing these risks, our business
will fail and investors may lose all of their investment in our company.
We have a history of losses
and have negative cash flows from operations, which raises substantial doubt
about our ability to continue as a going concern.
We have not generated any
revenues since our incorporation and we will continue to incur operating
expenses without revenues until we are in commercial deployment. To date we have
had negative cash flows from operations and we have been dependent on sales of
our equity securities and debt financing to meet our cash requirements and have
incurred net losses from inception to June 30, 2010 of $4,682,713. Our net cash
used in operations for the year ended June 30, 2010 was $413,434. As of June 30,
2010, we had a working capital deficit of $1,917,052. We do not expect positive
cash flow from operations in the near term. There is no assurance that actual
cash requirements will not exceed our estimates. In particular, additional
capital may be required in the event that drilling and completion costs increase
beyond our expectations; or we encounter greater costs associated with general
and administrative expenses or offering costs. The occurrence of any of the
aforementioned events could adversely affect our ability to meet our business
plans. We cannot provide assurances that we will be able to successfully execute
our business plan. These circumstances raise substantial doubt about our ability
to continue as a going concern. If we are unable to continue as a going concern,
investors will likely lose all of their investments in our company.
There is no assurance that we
will operate profitably or will generate positive cash flow in the future. In
addition, our operating results in the future may be subject to significant
fluctuations due to many factors not within our control, such as the
unpredictability of when customers will purchase our services, the size of
customers’ purchases, the demand for our services, and the level of competition
and general economic conditions. If we cannot generate positive cash flows in
the future, or raise sufficient financing to continue our normal operations,
then we may be forced to scale down or even close our operations.
We will depend almost exclusively
on outside capital to pay for the continued exploration and development of our
properties. Such outside capital may include the sale of additional stock and/or
commercial borrowing. There is no guarantee that sufficient capital will
continue to be available to meet these continuing development costs or that it
will be on terms acceptable to us. The issuance of additional equity securities
by us would result in a significant dilution in the equity interests of our
current stockholders. Obtaining commercial loans, assuming those loans would be
available, will increase our liabilities and future cash commitments.
If we are unable to obtain
financing in the amounts and on terms deemed acceptable to us, we may be unable
to continue our business and as a result may be required to scale back or cease
operations for our business, the result of which would be that our stockholders
would lose some or all of their investment.
8
A decline in the price of our
common stock could affect our ability to raise further working capital and
adversely impact our operations.
A prolonged decline in the price
of our common stock could result in a reduction in the liquidity of our common
stock and a reduction in our ability to raise capital. Because our operations
have been and will be primarily financed through the sale of equity securities,
a decline in the price of our common stock could be especially detrimental to
our liquidity and our continued operations. Any reduction in our ability to
raise equity capital in the future would force us to reallocate funds from other
planned uses and would have a significant negative effect on our business plans
and operations, including our ability to develop new products and continue our
current operations. If our stock price declines, we may not be able to raise
additional capital or generate funds from operations sufficient to meet our
obligations.
We have a limited operating
history and if we are not successful in continuing to grow our business, then we
may have to scale back or even cease our ongoing business operations.
We have no history of revenues
from operations and have yet to generate positive earnings and there can be no
assurance that we will ever operate profitably. The success of our company is
significantly dependent on a successful acquisition, drilling, completion and
production program. Our company’s operations will be subject to all the risks
inherent in the establishment of a developing enterprise and the uncertainties
arising from the absence of a significant operating history. We may be unable to
locate recoverable reserves or operate on a profitable basis. We are in the
development stage and potential investors should be aware of the difficulties
normally encountered by enterprises in the development stage. If our business
plan is not successful, and we are not able to operate profitably, investors may
lose some or all of their investment in our company.
Because of the early stage of
development and the nature of our business, our securities are considered highly
speculative.
Our securities must be considered
highly speculative, generally because of the nature of our business and the
early stage of our development. We are engaged in the business of exploring and,
if warranted, developing commercial reserves of oil and gas. Our properties are
in the exploration stage. Accordingly, we have not generated any revenues nor
have we realized a profit from our operations to date and there is little
likelihood that we will generate any revenues or realize any profits in the
short term. Any profitability in the future from our business will be dependent
upon locating and developing economic reserves of oil and gas, which itself is
subject to numerous risk factors as set forth herein. Since we have not
generated any revenues, we will have to raise additional monies through the sale
of our equity securities or debt in order to continue our business operations.
Nature of oil and gas exploration
and development involves many risks that we may not be able to overcome.
Oil and gas exploration and
development is very competitive and involves many risks that even a combination
of experience, knowledge and careful evaluation may not be able to overcome. As
with any petroleum property, there can be no assurance that oil or gas will be
extracted from any of the properties subject to our exploration and production
contracts. Furthermore, the marketability of any discovered resource will be
affected by numerous factors beyond our control. These factors include, but are
not limited to, market fluctuations of prices, proximity and capacity of
pipelines and processing equipment, equipment availability and government
regulations (including, without limitation, regulations relating to prices,
taxes, royalties, land tenure, allowable production, importing and exporting of
oil and gas and environmental protection). The extent of these factors cannot be
accurately predicted, but the combination of these factors may result in us not
receiving an adequate return on invested capital.
The marketability of natural
resources will be affected by numerous factors beyond our control which may
result in us not receiving an adequate return on invested capital to be
profitable or viable.
The marketability of natural
resources which may be acquired or discovered by us will be affected by numerous
factors beyond our control. These factors include market fluctuations in oil and
gas pricing and demand, the proximity and capacity of natural resource markets
and processing equipment, governmental regulations, land tenure, land use,
regulation concerning the importing and exporting of oil and gas and
environmental protection regulations. The exact effect of these factors cannot
be accurately predicted, but the combination of these factors may result in us
not receiving an adequate return on invested capital to be profitable or viable.
9
Oil and gas operations are
subject to comprehensive regulation which may cause substantial delays or
require capital outlays in excess of those anticipated causing an adverse effect
on our company.
Oil and gas operations are
subject to federal, state, and local laws relating to the protection of the
environment, including laws regulating removal of natural resources from the
ground and the discharge of materials into the environment. Oil and gas
operations are also subject to federal, state, and local laws and regulations
which seek to maintain health and safety standards by regulating the design and
use of drilling methods and equipment. Various permits from government bodies
are required for drilling operations to be conducted; no assurance can be given
that such permits will be received. Environmental standards imposed by federal,
provincial, or local authorities may be changed and any such changes may have
material adverse effects on our activities. Moreover, compliance with such laws
may cause substantial delays or require capital outlays in excess of those
anticipated, thus causing an adverse effect on us. Additionally, we may be
subject to liability for pollution or other environmental damages which we may
elect not to insure against due to prohibitive premium costs and other reasons.
To date we have not been required to spend any material amount on compliance
with environmental regulations. However, we may be required to do so in the
future and this may affect our ability to expand or maintain our operations.
Exploratory drilling involves
many risks and we may become liable for pollution or other liabilities which may
have an adverse effect on our financial position.
Drilling operations generally
involve a high degree of risk. Hazards such as unusual or unexpected geological
formations, power outages, labor disruptions, blow-outs, sour gas leakage, fire,
inability to obtain suitable or adequate machinery, equipment or labor, and
other risks are involved. We may become subject to liability for pollution or
hazards against which we cannot adequately insure or which we may elect not to
insure. Incurring any such liability may have a material adverse effect on our
financial position and operations.
Any change to government
regulation/administrative practices may have a negative impact on our ability to
operate and our profitability.
The business of resource
exploration and development is subject to regulation relating to the exploration
for, and the development, upgrading, marketing, pricing, taxation, and
transportation of oil and gas and related products and other matters. Amendments
to current laws and regulations governing operations and activities of oil and
gas exploration and development operations could have a material adverse impact
on our business. In addition, there can be no assurance that income tax laws,
royalty regulations and government incentive programs related to the properties
subject to our exploration and production contracts and the oil and gas industry
generally, will not be changed in a manner which may adversely affect our
progress and cause delays, inability to explore and develop or abandonment of
these interests.
Permits, leases, licenses, and
approvals are required from a variety of regulatory authorities at various
stages of exploration and development. There can be no assurance that the
various government permits, leases, licenses and approvals sought will be
granted in respect of our activities or, if granted, will not be cancelled or
will be renewed upon expiry. There is no assurance that such permits, leases,
licenses, and approvals will not contain terms and provisions which may
adversely affect our exploration and development activities.
All or a portion of our
interest in our properties may be lost if we are unable to obtain significant
additional financing, as we are required to make significant expenditures on the
exploration and development of our properties.
Our ability to continue
exploration and, if warranted, development of our properties will be dependent
upon our ability to raise significant additional financing. If we are unable to
obtain such financing, a portion of our interest in our properties may be lost
or our properties may be lost entirely and revert back to the government of
Colombia. We have limited financial resources and no material cash flow from
operations and we are dependent for funds on our ability to sell our common
shares, primarily on a private placement basis. There can be no assurance that
we will be able to obtain financing on that basis in light of factors such as
the market demand for our securities, the state of financial markets generally
and other relevant factors.
We anticipate that we may need to
obtain additional bank financing or sell additional debt or equity securities in
future public or private offerings. There can be no assurance that additional
funding will be available to us for exploration and development of our projects
or to fulfill our obligations under the applicable petroleum prospecting
licenses. Although historically we have announced additional financings to
proceed with the development of some of our properties, there can be no
assurance that we will be able to obtain adequate financing in the future or
that the terms of such financing will be favorable. Failure to obtain such additional financing could
result in delay or indefinite postponement of further exploration and
development of our projects with the possible loss of our petroleum prospecting
licenses.
10
We will require substantial
funds to enable us to decide whether our non-producing properties contain
commercial oil and gas deposits and whether they should be brought into
production, and if we cannot raise the necessary funds we may never be able to
realize the potential of these properties.
Our decision as to whether our
unproved properties contain commercial oil and gas deposits and should be
brought into production will require substantial funds and depend upon the
results of exploration programs and feasibility studies and the recommendations
of duly qualified engineers, geologists, or both. This decision will involve
consideration and evaluation of several significant factors including but not
limited to: (1) costs of bringing a property into production, including
exploration and development work, preparation of production feasibility studies,
and construction of production facilities; (2) availability and costs of
financing; (3) ongoing costs of production; (4) market prices for the oil and
gas to be produced; (5) environmental compliance regulations and restraints; and
(6) political climate, governmental regulation and control. If we are unable to
raise the funds necessary to properly evaluate our unproved properties, then we
may not be able to realize any potential of these properties.
We have licenses in respect of
our properties, but our properties may be subject to prior unregistered
agreements, or transfers which have not been recorded or detected through title
searches, and are subject to a governmental right of participation, resulting in
a possible claim against any future revenues generated by such
properties.
We have licenses with respect to
our oil and gas properties and we believe our interests are valid and
enforceable given that they have been granted directly by the government of
Colombia, although we have not obtained an opinion of counsel or any similar
form of title opinion to that effect. However, these licenses do not guarantee
title against all possible claims. The properties may be subject to prior
unregistered agreements, or transfers which have not been recorded or detected
through title research. If the interests in our properties are challenged, we
may have to expend funds defending any such claims and may ultimately lose some
or all of any revenues generated from the properties if we lose our interest in
such properties.
The majority of our projects
are located in Colombia where oil and gas exploration activities may be affected
in varying degrees by political and government regulations which could have a
negative impact on our ability to continue our operations.
The majority of our projects in
which we have participation stakes are located in Colombia. Exploration
activities in Colombia may be affected in varying degrees by political
instabilities and government regulations relating to the oil and gas industry.
Any changes in regulations or shifts in political conditions are beyond our
control and may adversely affect our business. Operations may be affected in
varying degrees by government regulations with respect to restrictions on
production, price controls, export controls, income taxes, expropriations of
property, environmental legislation and safety. The status of Colombia as a
developing country may make it more difficult for us to obtain any required
financing for our projects. The effect of all these factors cannot be accurately
predicted. Notwithstanding the progress achieved in restructuring Colombia
political institutions and revitalizing its economy, the present administration,
or any successor government, may not be able to sustain the progress achieved.
While the Colombia economy has experienced growth in recent years, such growth
may not continue in the future at similar rates or at all. If the economy of
Colombia fails to continue its growth or suffers a recession, we may not be able
to continue our operations in that country. We do not carry political risk
insurance.
The potential profitability of oil
and gas ventures depends upon factors beyond the control of our company.
The potential profitability of
oil and gas properties is dependent upon many factors beyond our control. For
instance, world prices and markets for oil and gas are unpredictable, highly
volatile, potentially subject to governmental fixing, pegging, controls, or any
combination of these and other factors, and respond to changes in domestic,
international, political, social, and economic environments. Additionally, due
to world-wide economic uncertainty, the availability and cost of funds for
production and other expenses have become increasingly difficult, if not
impossible, to project. These changes and events may materially affect our
financial performance.
Adverse weather conditions can
also hinder drilling operations. A productive well may become uneconomic in the
event water or other deleterious substances are encountered which impair or
prevent the production of oil and/or gas from the well. In addition, production
from any well may be unmarketable if it is impregnated with water or other
deleterious substances. The marketability of oil and gas which may be acquired
or discovered will be affected by numerous factors beyond our control. These
factors include the proximity and capacity of oil and gas pipelines and
processing equipment, market fluctuations of prices, taxes, royalties, land tenure,
allowable production and environmental protection. The extent of these factors
cannot be accurately predicted but the combination of these factors may result
in our company not receiving an adequate return on invested capital.
11
Competition in the oil and gas
industry is highly competitive and there is no assurance that we will be
successful in acquiring licenses and permits.
The oil and gas industry is
intensely competitive. We compete with numerous individuals and companies,
including many major oil and gas companies, which have substantially greater
technical, financial and operational resources and staffs. Accordingly, there is
a high degree of competition for desirable oil and gas properties for drilling
operations and necessary drilling equipment, as well as for access to funds.
There can be no assurance that the necessary funds can be raised or that any
projected work will be completed. There are other competitors that have
operations in the properties in Colombia and the presence of these competitors
could adversely affect our ability to acquire additional property interests.
Risks Related to Our Common
Stock
Trading of our stock may be
restricted by the SEC’s “Penny Stock” regulations which may limit a
stockholder's ability to buy and sell our stock
.
The U.S. Securities and Exchange
Commission has adopted regulations which generally define “penny stock” to be
any equity security that has a market price (as defined) less than $5.00 per
share or an exercise price of less than $5.00 per share, subject to certain
exceptions. Our securities are covered by the penny stock rules, which impose
additional sales practice requirements on broker-dealers who sell to persons
other than established customers and “accredited investors.” The term
“accredited investor” refers generally to institutions with assets in excess of
$5,000,000 or individuals with a net worth in excess of $1,000,000 or annual
income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock
rules require a broker-dealer, prior to a transaction in a penny stock not
otherwise exempt from the rules, to deliver a standardized risk disclosure
document in a form prepared by the SEC which provides information about penny
stocks and the nature and level of risks in the penny stock market. The
broker-dealer also must provide the customer with current bid and offer
quotations for the penny stock, the compensation of the broker-dealer and its
salesperson in the transaction and monthly account statements showing the market
value of each penny stock held in the customer's account. The bid and offer
quotations, and the broker-dealer and salesperson compensation information, must
be given to the customer orally or in writing prior to effecting the transaction
and must be given to the customer in writing before or with the customer's
confirmation. In addition, the penny stock rules require that prior to a
transaction in a penny stock not otherwise exempt from these rules, the
broker-dealer must make a special written determination that the penny stock is
a suitable investment for the purchaser and receive the purchaser's written
agreement to the transaction. These disclosure requirements may have the effect
of reducing the level of trading activity in the secondary market for the stock
that is subject to these penny stock rules. Consequently, these penny stock
rules may affect the ability of broker-dealers to trade our securities. We
believe that the penny stock rules discourage investor interest in and limit the
marketability of, our common stock.
Financial Industry Regulatory
Authority (“FINRA”) sales practice requirements may also limit a stockholder’s
ability to buy and sell our stock.
In addition to the “penny stock”
rules described above, FINRA has adopted rules that require that in recommending
an investment to a customer, a broker-dealer must have reasonable grounds for
believing that the investment is suitable for that customer. Prior to
recommending speculative low priced securities to their non-institutional
customers, broker-dealers must make reasonable efforts to obtain information
about the customer’s financial status, tax status, investment objectives and
other information. Under interpretations of these rules, FINRA believes that
there is a high probability that speculative low priced securities will not be
suitable for at least some customers. FINRA requirements make it more difficult
for broker-dealers to recommend that their customers buy our common stock, which
may limit your ability to buy and sell our stock and have an adverse effect on
the market for our shares.
Trading in our common stock on
the OTC Bulletin Board is limited and sporadic making it difficult for our
shareholders to sell their shares or liquidate their investments
.
Shares of our common stock are
currently quoted on the OTC Bulletin Board. The trading price of our common
stock has been subject to wide fluctuations. Trading prices of our common stock
may fluctuate in response to a number of factors, many of which will be beyond
our control. The stock market has generally experienced extreme price and volume
fluctuations that have often been unrelated or disproportionate to the operating
performance of companies with no current business operation. There can be no
assurance that trading prices and price earnings ratios previously experienced
by our common stock will be matched or maintained. These broad market
and industry factors may adversely affect the market price of our common stock,
regardless of our operating performance.
12
In the past, following periods of
volatility in the market price of a company's securities, securities
class-action litigation has often been instituted. Such litigation, if
instituted, could result in substantial costs for us and a diversion of
management's attention and resources.
Because of the early stage of
development and the nature of our business, our securities are considered highly
speculative.
Our securities must be considered
highly speculative, generally because of the nature of our business and the
early stage of its development. We are engaged in the business of exploring and,
if warranted, developing commercial reserves of oil and gas. Our properties are
primarily in the exploration stage only. Accordingly, we have not generated any
revenues nor have we realized a profit from our operations to date and there is
little likelihood that we will generate any revenues or realize any profits in
the short term. Any profitability in the future from our business will be
dependent upon locating and developing economic reserves of oil and gas, which
itself is subject to numerous risk factors as set forth herein. Since we have
not generated any revenues, we will have to raise additional monies through the
sale of our equity securities or debt in order to continue our business
operations.
We do not intend to pay dividends
on any investment in the shares of stock of our company.
We have never paid any cash
dividends and currently do not intend to pay any dividends for the foreseeable
future. To the extent that we require additional funding currently not provided
for in our financing plan, our funding sources may prohibit the payment of a
dividend. Because we do not intend to declare dividends, any gain on an
investment in our company will need to come through an increase in the stock’s
price. This may never happen and investors may lose all of their investment in
our company.
Risks Related to Our
Company
Our By-laws contain provisions
indemnifying our officers and directors against all costs, charges and expenses
incurred by them
.
Our By-laws contain provisions
with respect to the indemnification of our officers and directors against all
costs, charges and expenses, including an amount paid to settle an action or
satisfy a judgment, actually and reasonably incurred by him, including an amount
paid to settle an action or satisfy a judgment in a civil, criminal or
administrative action or proceeding to which he is made a party by reason of his
being or having been one of our directors or officers.
Investors' interests in our
company will be diluted and investors may suffer dilution in their net book
value per share if we issue additional shares or raise funds through the sale of
equity securities
.
Our constating documents
authorize the issuance of 150,000,000 shares of common stock with a par value of
$0.001. In the event that we are required to issue any additional shares or
enter into private placements to raise financing through the sale of equity
securities, investors' interests in our company will be diluted and investors
may suffer dilution in their net book value per share depending on the price at
which such securities are sold. If we issue any such additional shares, such
issuances also will cause a reduction in the proportionate ownership and voting
power of all other shareholders. Further, any such issuance may result in a
change in our control.
Our By-laws do not contain
anti-takeover provisions which could result in a change of our management and
directors if there is a take-over of our company
.
We do not currently have a
shareholder rights plan or any anti-takeover provisions in our By-laws. Without
any anti-takeover provisions, there is no deterrent for a take-over of our
company, which may result in a change in our management and directors.
Item 1B. Unresolved Staff
Comments
As a “smaller reporting company”, we
are not required to provide the information required by this Item.
13
Item 2. Properties
Executive Offices
Our executive office is located
at 20333 State Highway 249, Suite 200 – 113, Houston, Texas 77070-26133. Our
telephone number is (281) 378-1563. We believe the space is adequate for our
current needs and that suitable space will be available to accommodate our
future needs. This lease is currently on a month to month contract at a cost of
US $260 per month.
Item 3. Legal
Proceedings
We know of no material, existing
or pending legal proceedings against us, nor are we involved as a plaintiff in
any material proceeding or pending litigation. There are no proceedings in which
any of our directors, officers or affiliates, or any registered or beneficial
shareholder, is an adverse party or has a material interest adverse to our
Company.
Item 4. [Removed and
Reserved]
PART II
Item 5. Market for
Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Our shares of common stock are
quoted for trading on the OTC Bulletin Board under the symbol WCYN. Our transfer
agent is Island Stock Transfer Inc., 100 Second Avenue South, Suite 104N, St.
Petersburg, Florida 33701. We began trading on July 23, 2007. On November 11,
2010, the closing bid price for our common stock was $0.006.
The high and low bid prices of our
common stock for the periods indicated below are as follows:
|
National Association of Securities Dealers OTC Bulletin
Board
|
|
Quarter Ended
|
High
|
Low
|
|
June 30, 2010
|
$0.095
|
$0.25
|
|
March 31, 2010
|
$0.08
|
$0.04
|
|
December 31, 2009
|
$0.23
|
$0.035
|
|
September 30, 2009
|
$0.05
|
$0.015
|
|
June 30, 2009
|
$0.40
|
$0.027
|
|
March 31, 2009
|
$0.30
|
$0.04
|
|
December 31, 2008
|
$1.10
|
$0.064
|
|
September 30, 2008
|
$0.31
|
$0.07
|
|
June 30, 2008
|
$0.68
|
$0.14
|
On November 12, 2010, the
shareholders' list of our common shares showed 46 registered shareholders and
21,206,667 shares outstanding.
Dividend Policy
We have not paid any cash
dividends on our common stock and have no present intention of paying any
dividends on the shares of our common stock. Our current policy is to retain
earnings, if any, for use in our operations and in the development of our
business. Our future dividend policy will be determined from time to time by our
board of directors.
Equity Compensation Plan
Information
We currently do not have an equity
compensation plan.
14
Recent Sales of Unregistered
Securities; Use of Proceeds from Registered Securities
We did not sell any equity
securities which were not registered under the Securities Act during the year
ended June 30, 2010, that were not otherwise disclosed on our quarterly reports
on Form 10-Q or our current reports on Form 8-K filed during the year ended June
30, 2010.
Purchase of Equity Securities by
the Issuer and Affiliated Purchasers
We did not purchase any of our
shares of common stock or other securities during our fourth quarter of our
fiscal year ended June 30, 2010.
Item 6. Selected Financial
Data
As a “smaller reporting company”, we
are not required to provide the information required by this Item.
Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should
be read in conjunction with our audited financial statements and the related
notes that appear elsewhere in this annual report. The following discussion
contains forward-looking statements that reflect our plans, estimates and
beliefs. Our actual results could differ materially from those discussed in the
forward looking statements. Factors that could cause or contribute to such
differences include, but are not limited to; those discussed below and elsewhere
in this annual report, particularly in the section entitled "Risk Factors"
beginning on page 8 of this annual report.
Our audited financial statements
are stated in United States Dollars and are prepared in accordance with United
States Generally Accepted Accounting Principles.
Going Concern
These consolidated financial
statements have been prepared on a going concern basis. We have incurred losses
since inception (July 27, 2004) resulting in an accumulated deficit of
$4,682,713 and further losses are anticipated in the development of the
business, raising substantial doubt about our ability to continue as a going
concern. Our ability to continue as a going concern is dependent upon our
ability to generate profitable operations in the future and/or to obtain the
necessary capital and financing to meet our obligations and repay our
liabilities arising from normal business operations when they come due. The
consolidated financial statements do not include any adjustments relating to the
recoverability and classification of recorded assets, or the amounts of and
classification of liabilities that might be necessary in the event we cannot
continue as a going concern.
We anticipate a cash requirement
in the amount of $350,000 during the next 12 months, mostly for professional
fees and salaries. We currently have no exploration activities planned, nor do
we have sufficient funds to do so. Accordingly, we will require additional funds
to embark on any exploration and development programs. These funds may be raised
through asset sales, equity financing, debt financing, or other sources, which
may result in further dilution in the equity ownership of our shares. There is
still no assurance that we will be able to maintain operations at a level
sufficient for an investor to obtain a return on his investment in our common
stock. Further, we may continue to be unprofitable. We do not have any
arrangements in place for any future debt or equity financing.
Over the next 12 months we anticipate
that we will incur the following cash requirements:
|
Professional Fees
|
|
180,000
|
|
|
Salaries
|
|
120,000
|
|
|
Other General & Administrative
|
|
50,000
|
|
|
|
$
|
350,000
|
|
15
Results of Operations
|
|
|
For the Year Ended
|
|
|
|
|
June 30,
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
REVENUE
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES:
|
|
|
|
|
|
|
|
General & Administrative
|
|
487,845
|
|
|
903,846
|
|
|
Impairment of Unproved Interest
|
|
-
|
|
|
3,196,030
|
|
|
OPERATING LOSS
|
|
(487,845
|
)
|
|
(4,099,876
|
)
|
|
Interest Income (Expense), net
|
|
(63,780
|
)
|
|
(216,003
|
)
|
|
Gain on Forgiveness of Debt
|
|
906,250
|
|
|
-
|
|
|
Other Income (Expense), net
|
|
2,193
|
|
|
400,087
|
|
|
Income (Loss) Before Income Taxes
|
|
356,818
|
|
|
(3,915,792
|
)
|
Revenue
We have not earned any revenues
from operations since inception and we do not anticipate earning such revenues
until such time as we have entered into commercial production of our oil and gas
projects. We are currently in the exploration stage of our business and we can
provide no assurances that we will discover commercially exploitable resources
on our properties, or if such resources are discovered, that we will be able to
enter into commercial production. Oil and natural gas revenues and lease
operating expenses related to unproved oil and gas properties that are being
evaluated for commercial viability are offset against the full cost pool until
proved reserves are established, or determination is made that the unproved
properties are impaired. During the years ended June 30, 2010 and 2009, our
company offset $148,487 and $114,729, respectively, of oil and gas revenue, net
of lease operating expense, against the full cost pool related to unproved
properties being evaluated for commercial viability.
General and Administrative
Expenses
The decrease in General and
Administrative expenses for the year ended June 30, 2010, as compared to the
year ended June 30, 2009, can be primarily attributed to decreases in finder’s
fee, management fees and professional and other technical fees incurred. The
decrease in these expenses is the result of the controlling of costs due to the
economic downturn and our reoccurring negative cash flows.
Impairment of Unproved Interest
The Impairment of
Unproved Interest for the year ended June 30, 2009, was due to final
determination and abandonment of four wells on our Talora and Buenavista Blocks
as of June 30, 2009. We had been in the process of drilling these wells during
fiscal year 2008 and into 2009. During the fourth quarter of 2009, these wells
were deemed to be either dry holes or not commercially viable. Under the full
cost method of accounting, cost related to dry holes or non commercial wells are
depleted over the useful life of proved reserves. Since we had no proven reserve
value as of June 30, 2009, these costs were considered impaired and were charged
to expense. There were no impairments of unproved interest recognized during the year ended June 30, 2010.
Interest Expense and Gain on
Forgiveness of Debt
The decrease in interest expense
for the year ended June 30, 2010, as compared to the year ended June 30, 2009,
is due to the reduction in debt levels outstanding resulting from the
forgiveness of debt by Stealth Energy Ventures. On September 22, 2009, we issued
a promissory note to Stealth Energy Ventures in an original principal amount of
$1,050,000 in satisfaction of outstanding convertible notes totaling $1,956,250,
including $56,250 of accrued and unpaid interest. We recorded a gain of $906,250
related to the forgiveness of the then outstanding convertible notes, which was
recorded as a gain on forgiveness of debt. The promissory note carries an
interest rate of 9% per annum which is payable at maturity.
16
Other Income (Expense), net
The $400,087 Other Income
recognized in 2009 related to forfeited deposits related to potential sales of
our Talora and Buenavista Blocks.
Effective September 16, 2008, we
entered into a farmout agreement with Delavaco Energy Colombia Inc. Sucursal
Colombia, for the sale of our 16% participating interest in the Buenavista
Block. The total purchase price was $4,000,000. Upon entering in the farmout
agreement, we received a nonrefundable deposit on sale of $200,000. The balance
of $3,800,000 was to be paid on the earlier of (i) 30 days from a Liquidity
Event by Delavaco (as defined by the farmout agreement), or (ii) December 31,
2008. As of December 31, 2008, the balance of payment was not made by Delavaco
and the Buenavista Block reverted back to us and the $200,000 deposit was
recorded as Other Income during the year ended June 30, 2009.
On July 25, 2008, we entered into
a non-binding letter of intent agreement with Delavaco Energy Colombia Inc.
Sucursal Colombia for the sale of our 20% participating interest in the Talora
Exploration Block. The total purchase price was $3,500,000. Upon entering into
the letter of intent, we received a nonrefundable deposit on sale of $200,000.
The non-binding letter of intent agreement provided for an exclusivity period of
120 days, which expired on or about November 30, 2008. As a result of the
expiration of the exclusivity period, the $200,000 deposit on sale was recorded
as Other Income during the year ended June 30, 2009.
Liquidity and Financial
Condition
At June 30, 2010, we had a
working capital deficit of $1,917,052 consisting primarily of $1,790,000 of
short-term debt and advances and $305,215 of accounts payable, accrued interest
and accrued expenses.
We have raised net proceeds of
$7,215,500 in various advances and debt and equity financings since our
inception (July 27, 2004), and have used the majority of the net proceeds to
acquire our prospect blocks in Colombia, as well as for general and
administrative expenses and working capital purposes.
Net cash used in operating
activities for the year ended June 30, 2010, totaled $413,434 and consisted
primarily of the net earnings of $356,818, net of the non-cash gain on
forgiveness of debt of $906,250. Net cash used in operating activities for the
year ended June 30, 2009, totaled $1,090,172 and consisted primarily of the net
loss of $3,915,792, net of non-cash charges of $3,196,030 related to the
impairment of unproved interest, $150,000 related to the fair value of our
common share issued for consulting services, and a $594,642 increase in our
advances to the operator of our Columbian prospects, receivables and prepaid
expenses.
Net cash provided by investing
activities for the year ended June 30, 2010, totaled $858,862 and consisted
primarily of the $600,000 of final proceeds received from the sale of our
interest in the Carbonera Block in Colombia and $109,900 of payments received on
the sale of our North Semitropic prospect located in the San Joaquin Basin, Kern
County, California, in February 2010. Net cash used in investing activities for
the year ended June 30, 2009, totaled $284,467, primarily related to drilling
activities in our Colombian properties.
Net cash used in financing
activities for the year ended June 30, 2010, totaled $450,000 and consisted of
the required partial repayment of the September 2009 promissory note upon the
sale of our interest in the Carbonera Block. Net cash provided by financing
activities for the year ended June 30, 2009, totaled $1,314,985 resulting from
the net proceeds from lender advances.
On September 22, 2009, we issued
a promissory note to Stealth Energy Ventures AG in an original principal amount
of $1,050,000 in satisfaction of outstanding convertible notes totaling
$1,956,250, including $56,250 of accrued and unpaid interest. We recorded a gain
of $906,250 related to the forgiveness of the then outstanding convertible
notes, which was recorded as a gain on forgiveness of debt. The promissory note
carries an interest rate of 9% per annum which is payable at maturity. The
promissory note is repayable as follows:
i.
$450,000 payable upon disposition of the interest in the Carbonera project,
which was to occur on or before November 1, 2009; and
ii.
$600,000 payable upon disposition of the interest in the Buena Vista project,
which is to occur on or before May 31, 2010.
17
Upon closing on the sale of the
Carbonera Block on October 2, 2009, we made the required payment of $450,000, in
accordance with the repayment terms.
On October 27, 2010, we entered
into a letter agreement with Petrodorado Energy Ltd. (“Petrodorado”) with
respect to the sale by us of our wholly-owned subsidiary PetroSouth Energy Corp.
BVI, including our interest in the Talora Exploration Block but excluding our
interest in the Buenavista Block, to Petrodorado for $1.5 million. Upon
executing the letter agreement, Petrodorado advanced the entire $1.5 million
purchase price to us. We were obligated to pay a 6.0% finder fee, or $90,000, to
our asset broker, and used $600,000 of the proceeds to repay the September 2009
Note. The balance of the proceeds will be used for general working capital
purposes.
We have suffered recurring losses
from operations. The continuation of our business is dependent upon obtaining
further financing, a successful program of exploration, and, finally, achieving
a profitable level of operations. The issuance of additional equity securities
by us could result in a significant dilution in the equity interests of our
current stockholders. Obtaining commercial loans, assuming those loans would be
available, will increase our liabilities and future cash commitments.
There are no assurances that we
will be able to obtain further funds required for our continued operations. As
noted herein, we are pursuing various financing alternatives to meet our
immediate and long-term financial requirements. There can be no assurance that
additional financing will be available to us when needed or, if available, that
it can be obtained on commercially reasonable terms. If we are not able to
obtain the additional financing on a timely basis, we will be unable to conduct
our operations as planned, and we will not be able to meet our other obligations
as they become due. In such event, we will be forced to scale down or perhaps
even cease our operations.
Off-Balance Sheet
Arrangements
We have no off-balance sheet
arrangements that have or are reasonably likely to have a current or future
effect on our financial condition, changes in financial condition, revenues or
expenses, results of operations, liquidity, capital expenditures or capital
resources that is material to stockholders.
Critical Accounting
Policies
Accounting for Oil and Gas
Properties
We use the full-cost method of
accounting for our exploration and development activities. Under this method of
accounting, the cost of both successful and unsuccessful exploration and
development activities are capitalized as oil and gas property. We have not
incurred any internal costs that are directly related to exploration and
development activities, including salaries and benefits, which could be
capitalized as part of oil and gas property. Proceeds from the sale or
disposition of oil and gas properties are accounted for as a reduction to
capitalized costs unless a significant portion (greater than 25 percent) of our
reserve quantities in a particular country are sold, in which case a gain or
loss is recognized. Under the full-cost method of accounting, we apply a ceiling
test to the capitalized cost in the full cost pool. We compute the ceiling test
so that capitalized cost, less accumulated depletion and related deferred income
tax, do not exceed an amount (the ceiling) equal to the sum of: (A) The present
value, using a ten percent discount rate, of estimated future net revenue
computed by applying average annual prices based on the first day of each month
to estimated future production of proved oil and gas reserves as
of the date of the latest balance sheet presented, less estimated future
expenditures (based on current cost) to be incurred in developing and producing
the proved reserves computed using a discount factor of ten percent and assuming
continuation of existing economic conditions; plus (B) the cost of unevaluated
properties and major development projects excluded from the costs being
amortized; plus (C) the lower of cost or estimated fair value of unproven
properties included in the costs being amortized; less (D) income tax effects
related to differences between the book and tax basis of the property. If
capitalized costs exceed this limit, the excess is charged to expense and
reflected as additional depreciation, depletion and amortization.
Oil and gas unevaluated
properties and properties under development include costs that are excluded from
costs being depreciated or amortized. These costs represent investments in
unproved properties and major development projects in which we own a direct
interest. We exclude these costs until proved reserves are found, until it is
determined that the costs are impaired, or major development projects are placed
in service. All costs excluded are reviewed at least quarterly to determine if
impairment has occurred. We add the amount of impairment assessed to the cost to
be amortized subject to the ceiling test.
18
We did not have a ceiling test
impairment during the year ended June 30, 2010. Our oil and gas properties
totaling $3,669,416 consists solely of unevaluated properties excluded from the
costs being amortized.
Revenue Recognition
Oil and natural gas revenues
related to proved oil and gas properties are recorded using the sales method
whereby we recognize oil and natural gas revenue based on the amount of oil and
gas sold to purchasers when title passes, the amount is determinable and
collection is reasonably assured. Actual sales of gas are based on sales, net of
the associated volume charges for processing fees and for costs associated with
delivery, transportation, marketing, and royalties in accordance with industry
standards. Operating costs and taxes are recognized in the same period for which
revenue is earned. We did not recognize any revenue related to proved oil and
gas properties during the years ended June 30, 2010 or 2009.
Oil and natural gas revenues and
lease operating expenses related to unproved oil and gas properties that are
being evaluated for commercial viability are offset against the full cost pool
until proved reserves are established, or determination is made that the
unproved properties are impaired. During the year ended June 30, 2010 and 2009,
the Company offset $148,487 and $114,729, respectively, of oil and gas revenue,
net of lease operating expense, against the full cost pool related to unproved
properties being evaluated for commercial viability.
Basic and Diluted Earnings
(Loss) per Share
We compute earnings (loss) per
share in accordance with ASC Topic 260, “Earnings per Share”. ASC Topic 260
requires presentation of both basic and diluted earnings (loss) per share (EPS)
on the face of the statement of operations. Basic EPS is computed by dividing
earnings (loss) available to common shareholders by the weighted average number
of shares outstanding during the period. Diluted EPS gives effect to all
potentially dilutive common shares outstanding during the period. Diluted EPS
excludes all potentially dilutive shares if their effect is anti-dilutive.
During the years ended June 30,
2010 and 2009, there were 6,526,666 warrants outstanding, respectively that were
not included in the computation of diluted earnings (loss) per share because the
effect would have been anti-dilutive.
During the years ended June 30,
2010 and 2009, there was $1,900,000 of convertible notes outstanding under which
3,559,664 shares could be acquired under full conversion and which were included
in the computation of diluted earnings per share. These shares were not included
in the computation of diluted earnings (loss) per share for either year ended
June 30, 2010 or 2009, because the effect would have been anti-dilutive.
Foreign Currency Translation
Adjustments
The U.S. dollar is the functional
currency for our consolidated operations except its Colombian branch, which uses
the Colombian peso as the functional currency. Our U.S. operations and Colombian
operations do not engage in transactions other than in their functional
currencies. As such, we had no material earnings impact from foreign currency
transaction gains and losses. The assets and liabilities of our Colombian branch
are translated into U.S. dollars based on the current exchange rate in effect at
the balance sheet date. Colombian income and expenses are translated at average
rates for the periods presented. Translation adjustments have no effect on net
income and are included in accumulated other comprehensive income in
stockholders’ equity. We have an immaterial deferred tax asset due to a
translation loss.
Comprehensive Income
ASC Topic 220, “Reporting
Comprehensive Income,” establishes standards for the reporting and display of
comprehensive income and its components in the financial statements.
Comprehensive income resulting from the translation of our subsidiary financial
statements for the years ended June 30, 2010 and 2009, are recorded as
accumulated other comprehensive income.
Contractual
Obligations
As a “smaller reporting company”, we
are not required to provide tabular disclosure obligations.
Item 7A. Quantitative and
Qualitative Disclosures About Market Risk
As a “smaller reporting company”, we
are not required to provide the information required by this Item.
19
Item 8. Financial Statements
and Supplementary Data
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
West Canyon
Energy Corp. and Subsidiary (formerly PetroSouth Energy Corp.)
(An
Exploration Stage Company)
We have audited the accompanying consolidated balance sheets of
West Canyon Energy Corp. and Subsidiary (An Exploration Stage Company) (the
Company) as of June 30, 2010 and 2009, and the related consolidated statements
of operations, stockholders’ equity and cash flows for the years then ended, and
for the period from inception (July 27, 2004) to June 30, 2010. The Company’s
management is responsible for these consolidated financial statements. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. The Company
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the consolidated financial
position of West Canyon Energy Corp. and Subsidiary (an Exploration Stage
Company) at June 30, 2010 and 2009, and the consolidated results of
operations and cash flows for the years then ended, and for the period from
inception (July 27, 2004) to June 30, 2010, in conformity with accounting
principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been
prepared assuming the Company will continue as a going concern. As discussed in
Note 1 to the consolidated financial statements, the Company has incurred losses
since inception, has not attained profitable operations and is dependent upon
obtaining adequate financing to fulfill its exploration activities. These
factors raise substantial doubt that the Company will be able to continue as a
going concern. Management's plans in regard to these matters are also discussed
in Note 1. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
/s/ Weaver and Tidwell, L.L.P.
WEAVER AND TIDWELL, L.L.P.
Houston, Texas
November 15,
2010
20
|
WEST CANYON ENERGY CORP. AND SUBSIDIARY
|
|
(An Exploration Stage Company)
|
|
|
|
CONSOLIDATED BALANCE SHEETS
|
|
(Stated in U.S. Dollars)
|
|
|
|
June 30, 2010
|
|
|
June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
Cash and Cash Equivalents
|
$
|
24,422
|
|
$
|
30,003
|
|
|
Advances to Operators
|
|
117,160
|
|
|
7,920
|
|
|
Accounts Receivable
|
|
78,214
|
|
|
36,651
|
|
|
Prepaid Expenses and Other Current
Assets
|
|
49,764
|
|
|
6,873
|
|
|
Total Current Assets
|
|
269,560
|
|
|
81,447
|
|
|
Unproved Interest
|
|
3,669,416
|
|
|
4,717,183
|
|
|
Deferred Financing Costs, net
|
|
-
|
|
|
21,655
|
|
|
Furniture & Equipment, net
|
|
2,193
|
|
|
3,531
|
|
|
Total Assets
|
$
|
3,941,169
|
|
$
|
4,823,816
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS'
EQUITY
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
Accounts Payable - Trade
|
$
|
252,941
|
|
$
|
158,045
|
|
|
Accrued Interest Payable
|
|
43,015
|
|
|
57,372
|
|
|
Accrued Liabilities
|
|
9,259
|
|
|
8,978
|
|
|
Advances
|
|
1,190,000
|
|
|
1,190,000
|
|
|
Note Payable
|
|
600,000
|
|
|
-
|
|
|
Other Liabilities
|
|
91,397
|
|
|
1,173
|
|
|
Advance on Sale of Property
|
|
-
|
|
|
150,000
|
|
|
Convertible Note Payable
|
|
-
|
|
|
1,900,000
|
|
|
Total Current Liabilities
|
|
2,186,612
|
|
|
3,465,568
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’ EQUITY:
|
|
|
|
|
|
|
Common Stock:
Authorized: 150,000,000
shares, par value $0.001
Issued and outstanding: 21,206,667 shares at
June 30, 2010,
and 20,606,667 at June 30, 2009, respectively
|
|
21,207
|
|
|
20,607
|
|
|
Additional Paid-In Capital
|
|
6,421,969
|
|
|
6,382,069
|
|
|
Deficit Accumulated During the Exploration
Stage
|
|
(4,682,713
|
)
|
|
(5,039,531
|
)
|
|
Accumulated Other
Comprehensive Loss
|
|
(5,906
|
)
|
|
(4,897
|
)
|
|
Total Stockholders' Equity
|
|
1,754,557
|
|
|
1,358,248
|
|
|
Total Liabilities
and Stockholders' Equity
|
$
|
3,941,169
|
|
$
|
4,823,816
|
|
The accompanying notes are an integral part of these consolidated financial statements.
21
|
WEST CANYON ENERGY CORP AND SUBSIDIARY
|
|
(An Exploration Stage Company)
|
|
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
(Stated in U.S. Dollars)
|
|
|
|
|
|
|
|
|
|
Cumulative
|
|
|
|
|
|
|
|
|
|
|
Period
|
|
|
|
|
|
|
|
|
|
|
from Inception,
|
|
|
|
|
For the Year Ended June 30,
|
|
|
July 27, 2004,
|
|
|
|
|
2010
|
|
|
2009
|
|
|
to June 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUE
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
General & Administrative
|
|
487,845
|
|
|
903,846
|
|
|
2,455,590
|
|
|
Impairment of Unproved Interest
|
|
-
|
|
|
3,196,030
|
|
|
3,196,030
|
|
|
|
|
487,845
|
|
|
4,099,876
|
|
|
5,651,620
|
|
|
OPERATING LOSS
|
|
(487,845
|
)
|
|
(4,099,876
|
)
|
|
(5,651,620
|
)
|
|
Interest Expense, net
|
|
(63,780
|
)
|
|
(216,003
|
)
|
|
(339,623
|
)
|
|
Gain on Forgiveness of Debt
|
|
906,250
|
|
|
-
|
|
|
906,250
|
|
|
Other Income, net
|
|
2,193
|
|
|
400,087
|
|
|
402,280
|
|
|
Income (Loss) Before Income Taxes
|
|
356,818
|
|
|
(3,915,792
|
)
|
|
(4,682,713
|
)
|
|
Income Taxes
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Net Income (Loss)
|
|
356,818
|
|
|
(3,915,792
|
)
|
|
(4,682,713
|
)
|
|
Foreign Currency
Translation
|
|
(1,009
|
)
|
|
(9,788
|
)
|
|
(5,906
|
)
|
|
Comprehensive Income (Loss)
|
$
|
355,809
|
|
$
|
(3,925,580
|
)
|
$
|
(4,688,619
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted Earnings (Loss) per Share
|
$
|
0.02
|
|
$
|
(0.19
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Common Shares Used in Basic and
Diluted Earnings (Loss) per Share
|
|
20,954,612
|
|
|
20,542,831
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
22
|
WEST CANYON ENERGY CORP. AND SUBSIDIARY
|
|
(An Exploration Stage Company)
|
|
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
(Stated in U.S. Dollars)
|
|
|
|
|
|
|
|
|
|
Cumulative
|
|
|
|
|
|
|
|
|
|
|
Period
|
|
|
|
|
|
|
|
|
|
|
from Inception,
|
|
|
|
|
For the Year Ended June 30,
|
|
|
July 27, 2004,
|
|
|
|
|
2010
|
|
|
2009
|
|
|
to June 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss)
|
$
|
356,818
|
|
$
|
(3,915,792
|
)
|
$
|
(4,682,713
|
)
|
|
Adjustments to Reconcile Net Income (Loss)
to Net Cash
|
|
|
|
|
|
|
|
|
|
|
Used in Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
1,338
|
|
|
726
|
|
|
4,074
|
|
|
Amortization of Deferred
Financing Costs
|
|
21,655
|
|
|
44,845
|
|
|
66,500
|
|
|
Impairment of
Unproved Interest
|
|
-
|
|
|
3,196,030
|
|
|
3,196,030
|
|
|
Gain on Forgiveness of Debt
|
|
(906,250
|
)
|
|
-
|
|
|
(906,250
|
)
|
|
Non-Cash Payment
of Compensation
|
|
40,500
|
|
|
150,000
|
|
|
505,500
|
|
|
Advances to Operators,
Receivables and Prepaids
|
|
(118,594
|
)
|
|
(594,642
|
)
|
|
(126,636
|
)
|
|
Accounts Payable
and Accrued Liabilities
|
|
137,070
|
|
|
33,828
|
|
|
381,464
|
|
|
Other Liabilities
|
|
54,029
|
|
|
(5,167
|
)
|
|
55,202
|
|
|
Net Cash Used in Operating Activities
|
|
(413,434
|
)
|
|
(1,090,172
|
)
|
|
(1,506,829
|
)
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
Unproved
Interests
|
|
148,962
|
|
|
(284,467
|
)
|
|
(3,448,099
|
)
|
|
Disposition of Unproved
Interests
|
|
709,900
|
|
|
-
|
|
|
859,900
|
|
|
Acquisition, Net
of Cash Acquired
|
|
-
|
|
|
-
|
|
|
401,056
|
|
|
Loans to Affiliated Company
|
|
-
|
|
|
-
|
|
|
(2,750,000
|
)
|
|
Net Cash Provided by (Used in) Investing Activities
|
|
858,862
|
|
|
(284,467
|
)
|
|
(4,937,143
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
Proceeds from Issuance of Common
Stock
|
|
-
|
|
|
-
|
|
|
3,900,500
|
|
|
Advances from
Shareholder
|
|
-
|
|
|
-
|
|
|
200,000
|
|
|
Shareholder Loan
|
|
-
|
|
|
-
|
|
|
25,000
|
|
|
Repayments of
Advances from Shareholder
|
|
-
|
|
|
-
|
|
|
(199,700
|
)
|
|
Proceeds from Convertible Debt
|
|
-
|
|
|
-
|
|
|
1,900,000
|
|
|
Deferred
Financing Costs
|
|
-
|
|
|
(25,000
|
)
|
|
(91,500
|
)
|
|
Proceeds from Advances
|
|
-
|
|
|
1,339,985
|
|
|
1,190,000
|
|
|
Repayment of Note Payable
|
|
(450,000
|
)
|
|
-
|
|
|
(450,000
|
)
|
|
Net Cash Provided
by (Used in) Financing Activities
|
|
(450,000
|
)
|
|
1,314,985
|
|
|
6,474,300
|
|
|
Effect of Exchange Rate on Cash
|
|
(1,009
|
)
|
|
(9,788
|
)
|
|
(5,906
|
)
|
|
Increase (Decrease) In Cash During The Period
|
|
(5,581
|
)
|
|
(69,442
|
)
|
|
24,422
|
|
|
Cash, Beginning Of Period
|
|
30,003
|
|
|
99,445
|
|
|
-
|
|
|
Cash, End Of
Period
|
$
|
24,422
|
|
$
|
30,003
|
|
$
|
24,422
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NON-CASH INVESTING AND FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
Shareholder Loans Contributed to Capital
|
$
|
-
|
|
$
|
300
|
|
$
|
25,300
|
|
|
Acquisition of PetroSouth Energy Corp BVI:
|
|
|
|
|
|
|
|
|
|
|
Issuance of
5,653,333 Shares of Common Stock
|
$
|
-
|
|
$
|
-
|
|
$
|
2,011,876
|
|
|
Forgiveness of Demand Loans Receivable from
|
|
|
|
|
|
|
|
|
|
|
Affiliated
Company
|
$
|
-
|
|
$
|
-
|
|
$
|
2,750,000
|
|
The accompanying notes are an integral part of these consolidated financial statements.
23
|
WEST CANYON ENERGY CORP. AND SUBSIDIARY
|
|
(An Exploration Stage Company)
|
|
|
|
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
|
|
PERIOD FROM JULY 27, 2004 (INCEPTION) TO JUNE 30,
2010
|
|
(Stated In U.S. Dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
During the
|
|
|
Other
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Exploration
|
|
|
Comprehensive
|
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Stage
|
|
|
Income
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance July 27, 2004 (date of Inception)
|
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
|
Issuance of Common Stock for cash at $.0005, January 2005
|
|
11,000,000
|
|
|
11,000
|
|
|
(5,500
|
)
|
|
-
|
|
|
-
|
|
|
5,500
|
|
|
Issuance of Common Stock for cash at $.005,
June 2005
|
|
2,400,000
|
|
|
2,400
|
|
|
9,600
|
|
|
-
|
|
|
-
|
|
|
12,000
|
|
|
Issuance of Common Stock for cash at $.10, September 2005
|
|
180,000
|
|
|
180
|
|
|
17,820
|
|
|
-
|
|
|
-
|
|
|
18,000
|
|
|
Net Loss
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(37,796
|
)
|
|
-
|
|
|
(37,796
|
)
|
|
Balance, June 30, 2006
|
|
13,580,000
|
|
$
|
13,580
|
|
$
|
21,920
|
|
$
|
(37,796
|
)
|
$
|
-
|
|
$
|
(2,296
|
)
|
|
Issuance of Common Stock for cash at $3.75,
May 2007
|
|
53,333
|
|
|
53
|
|
|
199,947
|
|
|
-
|
|
|
-
|
|
|
200,000
|
|
|
Shareholder Loan Contributed to Capital May 2007
|
|
-
|
|
|
-
|
|
|
25,000
|
|
|
-
|
|
|
-
|
|
|
25,000
|
|
|
Issuance of Common Stock for cash at $3.75,
June 2007
|
|
266,667
|
|
|
267
|
|
|
999,733
|
|
|
-
|
|
|
-
|
|
|
1,000,000
|
|
|
Net Loss
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(110,974
|
)
|
|
-
|
|
|
(110,974
|
)
|
|
Balance, June 30, 2007
|
|
13,900,000
|
|
$
|
13,900
|
|
$
|
1,246,600
|
|
$
|
(148,770
|
)
|
$
|
-
|
|
$
|
1,111,730
|
|
|
Issuance of Common Stock for cash at $5.00, August 2007
|
|
300,000
|
|
|
300
|
|
|
1,499,700
|
|
|
-
|
|
|
-
|
|
|
1,500,000
|
|
|
Issuance of Common Stock for cash at $3.75,
May 2007; closed September 2007
|
|
53,333
|
|
|
53
|
|
|
199,947
|
|
|
-
|
|
|
-
|
|
|
200,000
|
|
|
Issuance of Common Stock at $0.35 for all of the issued and
oustanding common shares of PetroSouth Energy Corp. BVI, October 2, 2007
|
|
5,653,333
|
|
|
5,654
|
|
|
2,006,222
|
|
|
-
|
|
|
-
|
|
|
2,011,876
|
|
|
Issuance of Common Stock for cash at $5.00,
October 11, 2007
|
|
100,000
|
|
|
100
|
|
|
482,400
|
|
|
-
|
|
|
-
|
|
|
482,500
|
|
|
Issuance of Common Stock for cash at $5.00, November 28,
2007, net of fees of $17,600
|
|
100,000
|
|
|
100
|
|
|
482,400
|
|
|
-
|
|
|
-
|
|
|
482,500
|
|
|
Issuance of Common Stock for services
$1.05, June 23, 2008, net of fees of $17,600
|
|
300,000
|
|
|
300
|
|
|
314,700
|
|
|
-
|
|
|
-
|
|
|
315,000
|
|
|
Net Loss
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(974,969
|
)
|
|
-
|
|
|
(974,969
|
)
|
|
Comprehensive Income
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
4,891
|
|
|
4,891
|
|
|
Balance, June 30, 2008
|
|
20,406,667
|
|
$
|
20,407
|
|
$
|
6,231,969
|
|
$
|
(1,123,739
|
)
|
$
|
4,891
|
|
$
|
5,133,528
|
|
|
Issuance of Common Stock for services
$1.30, July 22, 2008
|
|
100,000
|
|
|
100
|
|
|
129,900
|
|
|
-
|
|
|
-
|
|
|
130,000
|
|
|
Issuance of Common Stock for services $0.20, January 29,
2009
|
|
100,000
|
|
|
100
|
|
|
19,900
|
|
|
-
|
|
|
-
|
|
|
20,000
|
|
|
Shareholder Loan Contributed to Capital
June 2007
|
|
-
|
|
|
-
|
|
|
300
|
|
|
-
|
|
|
-
|
|
|
300
|
|
|
Net Loss
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(3,915,792
|
)
|
|
-
|
|
|
(3,915,792
|
)
|
|
Comprehensive Loss
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(9,788
|
)
|
|
(9,788
|
)
|
|
Balance, June 30, 2009
|
|
20,606,667
|
|
$
|
20,607
|
|
$
|
6,382,069
|
|
$
|
(5,039,531
|
)
|
$
|
(4,897
|
)
|
$
|
1,358,248
|
|
|
Issuance of Common Stock for services
$0.03, July 2, 2009
|
|
100,000
|
|
|
100
|
|
|
2,900
|
|
|
-
|
|
|
-
|
|
|
3,000
|
|
|
Issuance of Common Stock for services $0.075, January 1,
2010
|
|
500,000
|
|
|
500
|
|
|
37,000
|
|
|
-
|
|
|
-
|
|
|
37,500
|
|
|
Net Income
|
|
-
|
|
|
-
|
|
|
-
|
|
|
356,818
|
|
|
-
|
|
|
356,818
|
|
|
Comprehensive Loss
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(1,009
|
)
|
|
(1,009
|
)
|
|
Balance, June 30, 2010
|
|
21,206,667
|
|
$
|
21,207
|
|
$
|
6,421,969
|
|
$
|
(4,682,713
|
)
|
$
|
(5,906
|
)
|
$
|
1,754,557
|
|
The accompanying notes are an integral part of these consolidated financial statements.
24
|
WEST CANYON ENERGY CORP. AND SUBSIDIARY
|
|
(An Exploration Stage Company)
|
|
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
1. ORGANIZATION AND
HISTORY
The Company was incorporated in
the State of Nevada on July 27, 2004, under the name of Mobridge Explorations,
Inc. Since inception, the Company was primarily engaged in the acquisition and
exploration of mineral properties. Pursuant to a mineral property option
agreement dated July 6, 2005, the Company was granted an option to acquire a
100% undivided right, title and interest in a total of 15 mineral claim units,
known as the Chambers Township claim block, located in the Sudbury Mining
Division of Ontario, Canada. On November 1, 2006, the mineral property option
agreement was terminated.
Effective April 30, 2007, the
Company completed a merger with its’ wholly-owned subsidiary, PetroSouth Energy
Corp. The sole purpose of the merger was to change the name of the Company from
Mobridge Explorations Inc. to PetroSouth Energy Corp. and the subsidiary company
was incorporated solely for such purpose. Concurrently with this merger, the
Company effected a ten for one stock split of its’ authorized, issued and
outstanding common stock. As a result, its’ authorized capital increased from
75,000,000 shares of common stock with a par value of $0.001 to 750,000,000
shares of common stock with a par value of $0.001.
During the year ended June 30,
2007, the Company abandoned the mineral property located in the Province of
Ontario, Canada and focused its effort on expanding its operations in the oil
and gas industry through additional equity financing and acquisitions. On
October 2, 2007, the Company completed the acquisition of all of the issued and
outstanding common stock of PetroSouth Energy Corp. BVI, a privately-owned
British Virgin Islands corporation engaged in oil and gas exploration. As a
result of the share purchase transaction, PetroSouth Energy Corp. BVI became a
wholly-owned subsidiary of the Company. All operations and efforts of the
Company are focused in the oil and gas industry and are subject to the related
risks of the industry.
Effective April 11, 2008, the
Company completed a merger with its’ wholly-owned subsidiary, West Canyon Energy
Corp., a Nevada corporation. The sole purpose of the merger was to change the
name of the Company from PetroSouth Energy Corp. to West Canyon Energy Corp. and
the subsidiary company was incorporated solely for such purpose.
Effective November 7, 2008, the
Company effected a five for one reverse stock split of its authorized, issued
and outstanding common stock. As a result, its authorized capital decreased from
750,000,000 shares of common stock with a par value of $0.001 to 150,000,000
shares of common stock with a par value of $0.001.
The effects of the stock splits
noted above have been reflected in the Company’s financial statements as if the
stock splits were effective at the Company’s inception on July 27, 2004.
The Company is an Exploration
Stage Company as defined by Financial Accounting Standards Board (“FASB”)
Accounting Standards Codification (“ASC”) Topic No. 915. Unless otherwise
specified, all dollar amounts are expressed in United States dollars.
Going Concern
These consolidated financial
statements have been prepared on a going concern basis. We have incurred losses
since inception (July 27, 2004) resulting in an accumulated deficit of
$4,682,713 and further losses are anticipated in the development of the
business, raising substantial doubt about our ability to continue as a going
concern. Our ability to continue as a going concern is dependent upon our
ability to generate profitable operations in the future and/or to obtain the
necessary capital and financing to meet our obligations and repay our
liabilities arising from normal business operations when they come due. The
consolidated financial statements do not include any adjustments relating to the
recoverability and classification of recorded assets, or the amounts of and
classification of liabilities that might be necessary in the event we cannot
continue as a going concern.
25
|
WEST CANYON ENERGY CORP. AND SUBSIDIARY
|
|
(An Exploration Stage Company)
|
|
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
2. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Basis of
Presentation
The consolidated financial
statements of the Company have been prepared in accordance with generally
accepted accounting principles in the United States of America. The Company’s
fiscal year end is June 30. Certain reclassifications have been made to prior
periods presented to conform with current period presentation.
Principles of
Consolidation
The consolidated financial
statements include the accounts of the Company’s wholly-owned subsidiary,
PetroSouth Energy Corp. BVI, and Petrosouth Energy Corporation Sucursal
Colombia, a wholly owned branch of PetroSouth Energy Corp. BVI. All intercompany
transactions are eliminated upon consolidation. Management does not believe the
Company to be the primary beneficiary of any entity, nor does management believe
the Company to hold any variable interests. The Company’s interest in oil and
gas exploration and production ventures and partnerships are proportionately
consolidated.
Use of Estimates
Preparation of financial
statements in conformity with U.S. Generally Accepted Accounting Principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements, and the reported amounts of
revenues and expenses during the reporting period. The Company bases its
estimates on historical experience and various other assumptions that are
believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about carrying values of assets and liabilities that
are not readily apparent from other sources. The Company evaluates its estimates
and assumptions on a regular basis. Actual results may differ from these
estimates and assumptions used in preparation of its financial statements and
changes in these estimates are recorded when known.
Cash and Cash
Equivalents
The Company considers all highly
liquid instruments with an original maturity of three months or less at the time
of original issuance to be cash equivalents.
Concentration of Credit
Risk
The Company’s financial
instruments exposed to concentrations of credit risk consist primarily of cash
deposits held by financial institutions, notes payable and advances. The Company
places cash deposits with highly rated financial institutions located in the
United States and Colombia. At times, cash balances held in financial
institutions in the United States may be in excess of FDIC insurance limits.
Balances held in Colombia are not subject to FDIC protection. The Company
believes the financial institutions are financially strong and the risk of loss
is minimal. The Company has not experienced any losses with respect to the
related risks and does not believe its exposure to such risk is more than
nominal.
All operations and efforts of the
Company are focused in the oil and gas industry and are subject to the related
risks of the industry. The majority of the Company’s oil and gas properties and
all related operations are located near Bogota, Colombia.
Financial
Instruments
The fair values of financial
instruments, which includes cash, accounts receivable, advances to operators,
accounts payable, accrued liabilities, note payable and advances approximate
their carrying values due to the relatively short maturity of these instruments.
Accounting for Oil and Gas
Properties
The Company uses the full-cost
method of accounting for its exploration and development activities. Under this
method of accounting, the cost of both successful and unsuccessful exploration
and development activities are capitalized as oil and gas property.
26
|
WEST CANYON ENERGY CORP. AND SUBSIDIARY
|
|
(An Exploration Stage Company)
|
|
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
The Company has not incurred any internal costs
that are directly related to exploration and development activities, including
salaries and benefits, which could be capitalized as part of oil and gas
property. Proceeds from the sale or disposition of oil and gas properties are
accounted for as a reduction to capitalized costs unless a significant portion
(greater than 25 percent) of the Company’s reserve quantities in a particular
country are sold, in which case a gain or loss is recognized. Under the
full-cost method of accounting, the Company applies a ceiling test to the
capitalized cost in the full cost pool. The Company computes the ceiling test so
that capitalized cost, less accumulated depletion and related deferred income
tax, do not exceed an amount (the ceiling) equal to the sum of: (A) The present
value, using a ten percent discount rate, of estimated future net revenue
computed by applying average annual prices based on the first day of each month to estimated future production of proved oil and gas reserves as
of the date of the latest balance sheet presented, less estimated future
expenditures (based on current cost) to be incurred in developing and producing
the proved reserves computed using a discount factor of ten percent and assuming
continuation of existing economic conditions; plus (B) the cost of unevaluated
properties and major development projects excluded from the costs being
amortized; plus (C) the lower of cost or estimated fair value of unproven
properties included in the costs being amortized; less (D) income tax effects
related to differences between the book and tax basis of the property. If
capitalized costs exceed this limit, the excess is charged to expense and
reflected as additional depreciation, depletion and amortization. See Note 3.
Unproved Interest for further discussion.
Oil and gas unevaluated
properties and properties under development include costs that are excluded from
costs being depreciated or amortized. These costs represent investments in
unproved properties and major development projects in which the Company owns a
direct interest. The Company excludes these costs until proved reserves are
found, until it is determined that the costs are impaired, or major development
projects are placed in service. All costs excluded are reviewed at least
quarterly to determine if impairment has occurred. The Company adds the amount
of impairment assessed to the cost to be amortized subject to the ceiling test.
The Company recognizes
liabilities for retirement obligations associated with tangible long-lived
assets, such as producing well sites, when there is a legal obligation
associated with retirement of such assets and the amount can be reasonably
estimated.
Revenue Recognition
Oil and natural gas revenues
related to proved oil and gas properties are recorded using the sales method
whereby the Company recognizes oil and natural gas revenue based on the amount
of oil and gas sold to purchasers when title passes, the amount is determinable
and collection is reasonably assured. Actual sales of gas are based on sales,
net of the associated volume charges for processing fees and for costs
associated with delivery, transportation, marketing, and royalties in accordance
with industry standards. Operating costs and taxes are recognized in the same
period for which revenue is earned. The Company did not recognize any revenue
related to proved oil and gas properties during the years ended June 30, 2010 or
2009.
Oil and natural gas revenues and
lease operating expenses related to unproved oil and gas properties that are
being evaluated for commercial viability are offset against the full cost pool
until proved reserves are established, or determination is made that the
unproved properties are impaired. During the years ended June 30, 2010 and 2009,
the Company offset $148,487and $114,729, respectively, of oil and gas revenue,
net of lease operating expense, against the full cost pool related to unproved
properties being evaluated for commercial viability.
27
|
WEST CANYON ENERGY CORP. AND SUBSIDIARY
|
|
(An Exploration Stage Company)
|
|
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
Income Taxes
The Company records deferred tax
assets and liabilities to account for the expected future tax consequences of
events that have been recorded in its financial statements. The Company
routinely assesses the realizability of its deferred tax assets. If the Company
concludes that it is more likely than not that some portion or all of the
deferred tax assets will not be realized under accounting standards, the tax
asset is reduced by a valuation allowance. Numerous judgments and assumptions
are inherent in the determination of future taxable income, including factors
such as future operating conditions (particularly as related to prevailing oil
and gas prices).
Basic and Diluted Earnings
(Loss) per Share
The Company’s basic earnings
(loss) per share (EPS) amounts have been computed based on the weighted-average
number of shares of Common Stock outstanding for the period. Diluted EPS
reflects the potential dilution, using the treasury stock method, which could
occur if the Company’s dilutive securities were exercised.
During the years ended June 30,
2010 and 2009, there were 6,526,666 warrants outstanding, respectively that were
not included in the computation of diluted earnings (loss) per share because the
effect would have been anti-dilutive. These warrants reflect the 5 for 1 reverse
stock split that was effective November 7, 2008.
At June 30, 2009, there was
$1,900,000 of convertible notes outstanding under which 3,559,664 shares could
be acquired under full conversion. These shares were not included in the
computation of diluted earnings (loss) per share during the years ended June 30,
2010 or 2009, because the effect would have been anti-dilutive.
Stock-Based
Compensation
The Company accounts for
stock-based compensation under the fair value recognition provisions of ASC
Topic 718, “Compensation - Stock Compensation.” The Company has not granted any
type of stock-based awards. Stock compensation awards granted are valued on the
date of grant and are expensed, net of estimated forfeitures, on a straight-line
basis over the required service period.
Foreign Currency Translation
Adjustments
The U.S. dollar is the functional
currency for the Company’s consolidated operations except its Colombian branch,
which uses the Colombian peso as the functional currency. The Company’s U.S.
operations and Colombian operations do not engage in transactions other than in
their functional currencies. As such, the Company had no material earnings
impact from foreign currency transaction gains and losses. The assets and
liabilities of the Company’s Colombian branch are translated into U.S. dollars
based on the current exchange rate in effect at the balance sheet date.
Colombian income and expenses are translated at average rates for the periods
presented. Translation adjustments have no effect on net income and are included
in accumulated other comprehensive income in stockholders’ equity. The Company
has an immaterial deferred tax asset due to a translation loss.
Comprehensive Income
ASC Topic 220, “Reporting
Comprehensive Income,” establishes standards for the reporting and display of
comprehensive income and its components in the financial statements. The
Company’s comprehensive loss results from the translation of the Company’s
subsidiary financial statements.
New Pronouncements Issued But
Not Yet Adopted
All new accounting pronouncements
previously issued have been adopted as of or prior to June 30, 2010.
28
|
WEST CANYON ENERGY CORP. AND SUBSIDIARY
|
|
(An Exploration Stage Company)
|
|
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
3. UNPROVED INTEREST
Buenavista Block
The Company owns a 16%
participation stake in the Buenavista Block. This is an exploration project
located northeast of Bogota, Colombia. In December 2007, the Company commenced
drilling on the Bochica 1 development well. During the initial drilling of the
Bochica1, the Company had to cease drilling until additional drilling rigs could
be obtained. In early 2008, a workover was performed on the Bochica 1 well, but
was not successful. In January 2009, the Company completed a seismic 3D shoot in
the 70 kilometer area around the Bochica 1 well to determine if the Company had
any further potential production zones. In May 2009, the Bochica 1 well was
determined to be a dry hole and was subsequently plugged and abandoned. Under
the full cost method of accounting, the costs associated with abandoned wells
are to be transferred to the full cost pool and depleted over the useful life of
proved reserves. Since the Company had no proven reserve value as of June 30,
2009, these costs were considered impaired. As a result, the Company recognized
a $1,197,229 impairment charge related to the Buenavista Block for the year
ended June 30, 2009. In May 2009, the Bolivar 2 well was drilled based on the
information obtained from the 3D seismic information from the Bochica 1 well
site. As of June 30, 2010, the Company had not yet determined the commerciality
of the Buenavista Block.
Effective September 16, 2008, the
Company entered into a farmout agreement with Delavaco Energy Colombia Inc.
Sucursal Colombia, a subsidiary of Delavaco Energy Inc., for the sale of its 16%
participating interest in the Buenavista Block. The total purchase price was
$4,000,000. Upon entering in the farmout agreement, the Company received a
nonrefundable deposit on sale of $200,000. The balance of $3,800,000 was to be
paid on the earlier of (i) 30 days from a Liquidity Event by Delavaco (as
defined by the farmout agreement), or (ii) December 31, 2008. As of December 31,
2008, the balance of payment was not made by Delavaco and the Buenavista Block
reverted back to the Company and the $200,000 deposit was recorded as Other
Income during the year ended June 30, 2009.
Talora Exploration
Block
The Company owns a 20%
participation interest in the Talora Exploration Block which lies Southwest of
Bogota, Colombia. The Company commenced drilling of the Manatial development
well in January of 2008. During the drilling of the Manatial, the Company
encountered rig problems that caused damage to the well. During 2009 an
unsuccessful re-entry workover was performed on the Manatial and the well was
determined to be a dry hole. In June 2009 the Manatial was plugged and
abandoned. During 2009, the Company commenced drilling on the Montemelo
development well and it was subsequently plugged and abandoned in June of 2009.
Since the Company had no proven reserve value as of June 30, 2009, these costs
were considered impaired. As a result, the Company recognized a $1,998,801
impairment charge related to the Talora Exploration Block for the year ended
June 30, 2009.
On July 25, 2008, the Company
entered into a non-binding letter of intent agreement with Delavaco Energy
Colombia Inc. Sucursal Colombia for the sale of its 20% participating interest
in the Talora Exploration Block. The total purchase price was $3,500,000. Upon
entering into the letter of intent, the Company received a nonrefundable deposit
on sale of $200,000. The non-binding letter of intent agreement provided for an
exclusivity period of 120 days, which expired on or about November 30, 2008. As
a result of the expiration of the exclusivity period, the $200,000 deposit on
sale was recorded as Other Income during the year ended June 30, 2009.
Carbonera Block
At June 30, 2009, the Company
owned a 6% participation interest in approximately 64,000 acres in the Carbonera
Block located Northeast of Bogota, Colombia. The project was near the Venezuelan
border in the Catatumbo Basin in Northeastern Colombia. On September 22, 2009,
the Company entered into an agreement with Delavco Energy Colombia Inc. Sucursal
Colombia pursuant to which the Company agreed to sell 100% of its 6%
non-operated participation interest in the Carbonera Block for $750,000. Closing
of the agreement took place on October 2, 2009. The Company’s former chief
financial officer and director is also a consultant of Delavco Energy Colombia
Inc. The $750,000 of proceeds was accounted for as a reduction of Unproved
Interest.
29
|
WEST CANYON ENERGY CORP. AND SUBSIDIARY
|
|
(An Exploration Stage Company)
|
|
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
North Semitropic
Prospect
At June 30, 2009, the Company
owned a 25% interest in the North Semitropic prospect located in the San Joaquin
Basin, Kern County, California. On February 25, 2010, the Company entered into
an agreement with New World Petroleum Investments Inc. pursuant to which the
Company agreed to sell 100% of its 25% interest for $185,000. Pursuant to the
terms of the agreement, the Company received $35,000 at closing and is to
receive $25,000 per month beginning April 2010 and ending September 2010. The
$185,000 sales price was accounted for as a reduction of Unproved Interest and
an increase in accounts receivable. As of June 30, 2010, a total of $75,100 of
the $185,000 purchase price remained outstanding and is included in accounts
receivable.
Spring Creek Red River
Prospect
On March 25, 2008, the Company
entered into a letter of intent to acquire leases in the Spring Creek Red River
Prospect for the payment of $240,000 and $7,500 in geologist fees.
Costs Excluded from
Depletion
Included in unproved oil and gas
properties are the following costs related to Colombia and the United States
unproved properties, valued at cost, that have been excluded from costs subject
to depletion:
|
|
|
As of June 30,
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
Columbia
|
|
|
|
|
|
|
|
Acquistion
|
$
|
3,455,479
|
|
$
|
4,321,701
|
|
|
Exploration
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
|
|
|
|
|
Acquisition
|
|
213,937
|
|
|
387,662
|
|
|
Exploration
|
|
-
|
|
|
7,820
|
|
|
|
$
|
3,669,416
|
|
$
|
4,717,183
|
|
4. ADVANCES
Since November 2008, the Company
has received advances of $1,190,000 from a lender. The parties are in process of
negotiating the terms, including the potential of an equity investment; however,
no definitive agreements have been signed.
5. NOTES PAYABLE
Convertible Promissory
Notes
In December 2007 the Company
received $500,000 from Stealth Energy Ventures AG (“Stealth”), which was
included in the consolidated financial statements as an Advance from Lender. On
January 24, 2008, the Company converted the Advance from Lender into a
convertible promissory note (“Convertible Note #1”). The Convertible Note #1 was
payable on February 17, 2010, and accrued interest at the rate of 9% per annum,
which was to be paid semi-annually starting 180 days from the issuance of the
Convertible Note #1. The outstanding principal amount of Convertible Note #1 was
convertible by Stealth into shares of the Company’s common stock at a conversion
rate based upon 100% of the average closing prices of the Company’s common stock
for the ten trading days immediately preceding the conversion date. The
Convertible Note #1 was secured by substantially all the assets of the
Company.
On February 5, 2008, the Company
issued a second convertible promissory note (“Convertible Note #2”) to Stealth
in the amount of $750,000. Convertible Note #2 was payable on February 5, 2010,
and accrued interest at the rate of 9% per annum, which was to be paid
semi-annually starting 180 days from the issuance of Convertible Note #2. The
outstanding principal amount of Convertible Note #2 was convertible by
Stealth into shares of the Company’s common stock at a conversion rate based
upon 100% of the average closing prices of the Company’s common stock for the
ten trading days immediately preceding the conversion date. Convertible Note #2
was secured by substantially all the assets of the Company.
30
|
WEST CANYON ENERGY CORP. AND SUBSIDIARY
|
|
(An Exploration Stage Company)
|
|
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
On March 10, 2008, the Company
issued a third convertible promissory note (“Convertible Note #3”) to Stealth in
the amount of $300,000. Convertible Note #3 was payable on March 10, 2010, and
accrued interest at the rate of 9% per annum, which was to be paid semi-annually
starting 180 days from the issuance of Convertible Note #3. The outstanding
principal amount of Convertible Note #3 was convertible by Stealth into shares
of the Company’s common stock at a conversion rate based upon 100% of the
average closing prices of the Company’s common stock for the ten trading days
immediately preceding the conversion date. Convertible Note #3 was secured
against substantially all the assets of the Company.
On June 2, 2008, the Company
issued a fourth convertible promissory note (“Convertible Note #4”) to Stealth
in the amount of $350,000. Convertible Note #4 was payable on June 2, 2010, and
accrued interest at the rate of 9% per annum, which was to be paid semi-annually
starting 180 days from the issuance of Convertible Note #4. The outstanding
principal amount of Convertible Note #4 was convertible by Stealth into shares
of the Company’s common stock at a conversion rate based upon 100% of the
average closing prices of the Company’s common stock for the ten trading days
immediately preceding the conversion date. Convertible Note #4 was secured by
substantially all of the assets of the Company.
In connection with the
convertible promissory notes, the Company entered into a services agreement with
a financial consultant whereby the Company agreed to pay a fee of 3.5% of the
gross proceeds of the convertible promissory notes. These fees totaled $66,500
and were recorded as deferred financing costs. Such deferred financing costs
were amortized to interest expense over the respective terms of the convertible
promissory notes using a method that approximates the interest method. As of
June 30, 2009 there was $21,655 of unamortized deferred financing costs
recorded. In connection with the satisfaction of the convertible promissory
notes discussed below, the remaining unamortized deferred financing costs were
written off as of September 30, 2009.
September 2009 Promissory
Note
On September 22, 2009, the
Company issued a promissory note (“September 2009 Note”) to Stealth in an
original principal amount of $1,050,000 in satisfaction of the four outstanding
convertible notes totaling $1,956,250, including $56,250 of accrued and unpaid
interest. The Company recorded a gain of $906,250 related to the forgiveness of
the then outstanding convertible notes, which was recorded as a gain on
forgiveness of debt. The September 2009 Note carries an interest rate of 9% per
annum, which is payable at maturity. The promissory note is repayable as
follows:
i.
$450,000 payable upon disposition of the Company’s interest in the Carbonera
Block, which was to occur on or before November 1, 2009; and
ii.
$600,000 payable upon disposition of the Company’s interest in the Buena Vista
project, which is to occur on or before May 31, 2010.
Upon closing on the sale of the
Carbonera Block on October 2, 2009, the Company made the required payment of
$450,000, in accordance with the repayment terms. As of June 30, 2010, the
Company had not disposed of its interest in the Buenavista Block and had not
made the required $600,000 payment and was therefore in technical default of the
September 2009 Note, although the lender has neither provided notice of default
nor taken any other action. Upon receipt of the $1.5 million advance on sale of
the Company’s Colombian subsidiary, PetroSouth Energy Corp. BVI, on October 28,
2010, the Company repaid the note in full. See Note 10.
6. COMMON STOCK
During the period from July 27,
2004 (Inception) to June 30, 2010, the Company issued 103,033,333 share of
Common Stock (20,606,667 on a split-adjusted basis) for total cash proceeds of
$3,900,500, net of issuance costs.
At June 30, 2010, the Company had
the following outstanding non-transferable warrants, all of which were issued in
conjunction with the private placement of common shares:
31
|
WEST CANYON ENERGY CORP. AND SUBSIDIARY
|
|
(An Exploration Stage Company)
|
|
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
i.
300,000 share purchase warrants exercisable into one common share at a price of
$7.50 per warrant until August 27, 2010;
ii.
53,333 share purchase warrants exercisable into one common share at a price of
$6.25 per warrant until September 21, 2010;
iii. 5,653,333
share purchase warrants exercisable into one common share at a price of $6.25
per warrant until October 2, 2010;
iv.
100,000 share purchase warrants exercisable into one common share at a price of
$7.50 per warrant until October 11, 2010; and
v.
100,000 share purchase warrants exercisable into one common share at a price of
$7.50 per warrant until November 28, 2010
At June 30, 2010, no warrants have
been exercised and all warrants were out of the money.
7. STOCK BASED
COMPENSATION
During the twelve months ended
June 30, 2009, the Company’s President and Chief Financial Officer were granted
shares of the Company’s common stock as compensation for services provided to
the Company. The common shares were fully vested at the date of grant and have
all ordinary and normal rights as other shares of the Company’s common stock.
The Company estimated the fair value of the common shares at date of grant to be
$150,000 based on the closing share price of the Company’s common stock on the
day prior to the grant date and recognized this amount in its consolidated
financial statements as of June 30, 2009.
During the twelve months ended
June 30, 2010, the Company’s President, in accordance with his employment
contract, was granted shares of the Company’s common stock as compensation for
services provided to the Company. The common shares were fully vested at the
date of grant and have all ordinary and normal rights of other shares of the
Company’s common stock. The Company estimated the fair value of the common
shares at date of grant to be $40,500 based on the closing share price of the
Company’s common stock on the day prior to the grant date and recognized this
amount in its consolidated financial statements as of June 30, 2010.
8. INCOME TAXES
The Company’s net income (loss)
before income taxes totaled $356,818 and ($3,915,792) for the years ended June
30, 2010 and 2009, respectively. The total provision for income taxes, consist
of the following:
|
|
|
For the Year Ended June 30,
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
Current taxes:
|
|
|
|
|
|
|
|
Federal
|
$
|
-
|
|
$
|
-
|
|
|
State
|
|
-
|
|
|
-
|
|
|
Foreign
|
|
-
|
|
|
-
|
|
|
Deferred taxes
|
|
|
|
|
|
|
|
Federal
|
|
-
|
|
|
-
|
|
|
State
|
|
-
|
|
|
-
|
|
|
Foreign
|
|
-
|
|
|
-
|
|
|
Total
|
$
|
-
|
|
$
|
-
|
|
32
|
WEST CANYON ENERGY CORP. AND SUBSIDIARY
|
|
(An Exploration Stage Company)
|
|
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
A reconciliation of the provision
for income taxes with amounts determined by applying the statutory U.S. Federal
income tax rate to income (loss) before income taxes is as follows:
|
|
|
For the Year Ended June 30,
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
Computed Tax Expense (Benefit) at U.S.
Statutory Rate
|
$
|
124,886
|
|
$
|
(1,334,692
|
)
|
|
Columbian Subsidiary Tax Rate Differential
|
|
1,571
|
|
|
33,718
|
|
|
Nondeductible Items
|
|
14,175
|
|
|
78,200
|
|
|
Change in Valuation Allowance
|
|
(142,697
|
)
|
|
1,220,583
|
|
|
Other
|
|
2,065
|
|
|
2,191
|
|
|
|
|
|
|
|
|
|
|
Total Provision (Benefit)
|
$
|
-
|
|
$
|
-
|
|
The tax effect of temporary
differences which give rise to significant portions of deferred tax assets or
liabilities at June 30, 2010 are as follows:
|
|
|
As of June 30, 2010
|
|
|
|
|
|
|
|
Deferred Noncurrent Tax Asset:
|
|
|
|
|
Net Operating Loss Carryforwards
|
$
|
109,657
|
|
|
Amortizable Assets
|
|
1,360,820
|
|
|
Total
Deferred Noncurrent Tax Asset
|
|
1,470,477
|
|
|
Valuation Allowance
|
|
(1,470,477
|
)
|
|
|
$
|
-
|
|
Deferred tax assets have resulted
primarily from the Company’s future deductible temporary differences. In
assessing the realizability of deferred tax assets, management considers whether
it is more likely than not that some portion, or all, of the deferred tax asset
may not be realized. The Company’s ability to realize the deferred tax assets
depends upon the generation of sufficient future taxable income to allow the
utilization of the deductible temporary differences and tax planning strategies.
Management evaluates the reliability of the deferred tax assets and the need for
a valuation allowance annually. At this time, based on current facts and
circumstances, potential benefit of the deferred tax assets has not been
recognized in the consolidated financial statements because the Company cannot
be assured it is more likely than not it will utilize the deferred tax assets in
future years. At June 30, 2010, the Company has a net operating loss
carryforward of $109,657 that expires in 2028. The Company had no uncertain tax
positions as of June 30, 2010. The Company’s tax returns for 2005 and subsequent years remain subject to examination by tax authorities.
9. COMMITMENTS
On July 2, 2008, the Company
entered into a consulting agreement with Summit Consulting Limited (“Summit
Consulting”) to retain the services of Mr. Shane Reeves as President and
Director of the Company. Pursuant to the terms of the agreement, the Company has
agreed to pay monthly management fees of $8,000 as compensation for the services
to be rendered. In addition, the agreement provides for the issuance of 100,000
shares of common stock, upon entering into the agreement and upon each annual
renewal of the agreement. On July 22, 2008, the Company approved the issuance of
100,000 shares of common stock, to Mr. Reeves pursuant to the terms of the
agreement. On January 29, 2009, the Company entered into an amending agreement
with Summit Consulting to extend the term of the consulting agreement from July
2, 2009, to December 31, 2009, and provided for the issuance of an additional
100,000 shares of restricted stock. On January 1, 2010, the Company entered an
amending agreement with Summit Consulting (“Second Amendment”). The Second
Amendment provides for a monthly management fee of $10,000 and the issuance of
500,000 shares of common stock upon entering into the agreement and 500,000
shares of common stock on each annual renewal of the agreement. The Second Amendment expires on January 1, 2012. During 2010 the
Company recognized $40,500 of non-cash compensation expense related to the
600,000 shares issued.
33
|
WEST CANYON ENERGY CORP. AND SUBSIDIARY
|
|
(An Exploration Stage Company)
|
|
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
10. SUBSEQUENT EVENTS
The Company has evaluated subsequent events through November 15, 2010.
On October 27, 2010, the Company
entered into a letter agreement with Petrodorado Energy Ltd. (“Petrodorado”)
with respect to the sale by the Company of its wholly-owned subsidiary
PetroSouth Energy Corp. BVI, including the Company’s interest in the Talora
Exploration Block but excluding the Company’s interest in the Buenavista Block,
to Petrodorado for $1.5 million. Upon executing the letter agreement,
Petrodorado advanced the entire $1.5 million purchase price to the Company. The
Company is obligated to pay a 6.0% finder fee, or $90,000, to its asset broker,
and used $600,000 of the proceeds to repay the September 2009 Note. The balance
of the proceeds will be used for general working capital purposes.
34
Item 9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure
None
Item 9A. Controls and Procedures
Disclosure Controls and
Procedures
We maintain disclosure controls
and procedures that are designed to ensure that information required to be
disclosed in our reports filed under the
Securities Exchange Act of 1934
, as amended, is recorded, processed, summarized and reported within the
time periods specified in the Securities and Exchange Commission's rules and
forms, and that such information is accumulated and communicated to our
management, including our President (who is acting as our principal executive
officer and our principal financial officer and principle accounting officer) to
allow for timely decisions regarding required disclosure.
As of June 30, 2010, the end of
our fiscal year covered by this report, we carried out an evaluation, under the
supervision and with the participation of our President (also our principal
executive officer and our principal financial and accounting officer) of the
effectiveness of the design and operation of our disclosure controls and
procedures. Based on the foregoing, our President (also our principal executive
officer and our principal financial and accounting officer) concluded that our
disclosure controls and procedures were effective as of the end of the period
covered by this annual report.
Management’s Report on Internal
Control over Financial Reporting
Our management is responsible for
establishing and maintaining adequate internal control over financial reporting.
Responsibility, estimates and judgments by management are required to assess the
expected benefits and related costs of control procedures. The objectives of
internal control include providing management with reasonable, but not absolute,
assurance that assets are safeguarded against loss from unauthorized use or
disposition, and that transactions are executed in accordance with management’s
authorization and recorded properly to permit the preparation of consolidated
financial statements in conformity with accounting principles generally accepted
in the United States. Our management assessed the effectiveness of our internal
control over financial reporting as of June 30, 2010. In making this assessment,
our management used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (“COSO”) in
Internal
Control-Integrated Framework
. Our management has concluded that, as of June
30, 2010, our internal control over financial reporting was effective.
This annual report does not
include an attestation report of our company’s registered public accounting firm
regarding internal control over financial reporting. Management’s report was not
subject to attestation by our Company’s registered public accounting firm
pursuant to rules of the Securities and Exchange Commission that permit our
company to provide only management’s report in this annual report.
Inherent limitations on
effectiveness of controls
Internal control over financial
reporting has inherent limitations which include but is not limited to the use
of independent professionals for advice and guidance, interpretation of existing
and/or changing rules and principles, segregation of management duties, scale of
organization, and personnel factors. Internal control over financial reporting
is a process which involves human diligence and compliance and is subject to
lapses in judgment and breakdowns resulting from human failures. Internal
control over financial reporting also can be circumvented by collusion or
improper management override. Because of its inherent limitations, internal
control over financial reporting may not prevent or detect misstatements on a
timely basis, however these inherent limitations are known features of the
financial reporting process and it is possible to design into the process
safeguards to reduce, though not eliminate, this risk. Therefore, even those
systems determined to be effective can provide only reasonable assurance with
respect to financial statement preparation and presentation. Projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.
35
Changes in Internal Control over
Financial Reporting
There have been no changes in our
internal controls over financial reporting that occurred during the year ended
June 30, 2010 that have materially or are reasonably likely to materially
affect, our internal controls over financial reporting.
Item 9B. Other Information
None.
PART III
Item 10. Directors, Executive Officers and Corporate
Governance
All directors of our Company hold
office until the next annual meeting of the security holders or until their
successors have been elected and qualified. The officers of our Company are
appointed by our board of directors and hold office until their death,
resignation or removal from office. Our directors and executive officers, their
ages, positions held, and duration as such, are as follows:
Name
|
Position
Held
with the Company
|
Age
|
Date First Elected or
Appointed
|
|
Shane Reeves
|
President, Chairman, Chief
Financial Officer, Treasurer and Director
|
36
|
July 2, 2008
|
Business Experience
The following is a brief account
of the education and business experience during at least the past five years of
each director, executive officer and key employee of our Company, indicating the
person’s principal occupation during that period, and the name and principal
business of the organization in which such occupation and employment were
carried out.
Shane Reeves – President, Chairman and Director
Shane Reeves has been actively
involved in the oil and gas industry over the last eight years where he has held
executive positions in both private and public oil and gas companies. Shane is
currently a partner in a Houston based, oil and gas fund, which provides
acquisition and developmental financing to North American energy companies.
Shane is also the Founder and
General Partner of Denver based Omni Capital, where he has served as a
consultant to numerous oil and gas companies in raising capital for the
development of proven properties as well as identifying new acquisition
opportunities with proven reserves and potential upside.
Prior to that, Shane has held the
position of Vice President of Investments with a New York based investment
banking firm and Account Executive with Morgan Stanley in Denver, Colorado.
Family Relationships
There are no family relationships
between any of our directors, executive officers and proposed directors or
executive officers.
36
Involvement in Certain Legal Proceedings
None of our directors, executive
officers, promoters or control persons has been involved in any of the following
events during the past five years:
|
1.
|
any bankruptcy petition filed by or against any business
of which such person was a general partner or executive officer either at
the time of the bankruptcy or within two years prior to that
time;
|
|
|
|
|
2.
|
any conviction in a criminal proceeding or being subject
to a pending criminal proceeding, excluding traffic violations and other
minor offences;
|
|
|
|
|
3.
|
being subject to any order, judgment or decree, not
subsequently reversed, suspended or vacated, of any court of competent
jurisdiction, permanently or temporarily enjoining, barring, suspending or
otherwise limiting his involvement in any type of business, securities or
banking activities; or
|
|
|
|
|
4.
|
being found by a court of competent jurisdiction in a
civil action, the Securities and Exchange Commission or the Commodity
Futures Trading Commission to have violated federal or state securities or
commodities law, and the judgment has not been reversed, suspended, or
vacated.
|
Compliance with Section 16(a) of the Securities Exchange Act
of 1934
Section 16(a) of the Securities
Exchange Act of 1934 requires our executive officers and directors and persons
who own more than 10% of our common stock to file with the Securities and
Exchange Commission initial statements of beneficial ownership, reports of
changes in ownership and annual reports concerning their ownership of our common
stock and other equity securities, on Forms 3, 4 and 5 respectively. Executive
officers, directors and greater than 10% shareholders are required by the SEC
regulations to furnish us with copies of all Section 16(a) reports that they
file.
Based solely on our review of the
copies of such forms received by us, or written representations from certain
reporting persons, we believe that during fiscal year ended June 30, 2010, all
filing requirements applicable to our officers, directors and greater than 10%
percent beneficial owners were complied with.
Code of Ethics
Effective September 12, 2007, our
company's board of directors adopted a Code of Business Conduct and Ethics that
applies to, among other persons, our company's President (being our principal
executive officer and our principal financial accounting officer), as well as
persons performing similar functions. As adopted, our Code of Business Conduct
and Ethics sets forth written standards that are designed to deter wrongdoing
and to promote:
|
|
1.
|
honest and ethical conduct, including the ethical
handling of actual or apparent conflicts of interest between personal and
professional relationships;
|
|
|
|
|
|
|
2.
|
full, fair, accurate, timely, and understandable
disclosure in reports and documents that we file with, or submit to, the
Securities and Exchange Commission and in other public communications made
by us;
|
|
|
|
|
|
|
3.
|
compliance with applicable governmental laws, rules and
regulations;
|
|
|
|
|
|
|
4.
|
the prompt internal reporting of violations of the Code
of Business Conduct and Ethics to an appropriate person or persons
identified in the Code of Business Conduct and Ethics; and
|
|
|
|
|
|
|
5.
|
accountability for adherence to the Code of Business
Conduct and Ethics.
|
Our Code of Business Conduct and
Ethics requires, among other things, that all of our company's personnel shall
be accorded full access to our President with respect to any matter which may
arise relating to the Code of Business Conduct and Ethics. Further, all of our
company's personnel are to be accorded full access to our company's board of
directors if any such matter involves an alleged breach of the Code of Business
Conduct and Ethics by our President.
37
In addition, our Code of Business
Conduct and Ethics emphasizes that all employees, and particularly managers
and/or supervisors, have a responsibility for maintaining financial integrity
within our company, consistent with generally accepted accounting principles,
and federal, provincial and state securities laws. Any employee who becomes
aware of any incidents involving financial or accounting manipulation or other
irregularities, whether by witnessing the incident or being told of it, must
report it to his or her immediate supervisor or to our company's President. If
the incident involves an alleged breach of the Code of Business Conduct and
Ethics by the President, the incident must be reported to any member of our
board of directors. Any failure to report such inappropriate or irregular
conduct of others is to be treated as a severe disciplinary matter. It is
against our company policy to retaliate against any individual who reports in
good faith the violation or potential violation of our company's Code of
Business Conduct and Ethics by another.
We will provide a copy of the
Code of Business Conduct and Ethics to any person without charge, upon request.
Requests can be sent to: West Canyon Energy Corp., 20333 State Highway 249,
Suite 200-11, Houston, TX 77070-26133.
Board and Committee Meetings
Our board of directors held no
formal meetings during the year ended June 30, 2010. All proceedings of the
board of directors were conducted by resolutions consented to in writing by all
the directors and filed with the minutes of the proceedings of the directors.
Such resolutions consented to in writing by the directors entitled to vote on
that resolution at a meeting of the directors are, according to the Nevada
General Corporate Law and our Bylaws, as valid and effective as if they had been
passed at a meeting of the directors duly called and held.
Our company currently does not
have standing nominating, compensation or audit committees or committees
performing similar functions nor does our company have a written nominating,
compensation or audit committee charter. Our board of directors does not believe
that it is necessary to have such committees because it believes that the
functions of such committees can be adequately performed by our directors.
Nomination Process
As of June 30, 2010, we did not
effect any material changes to the procedures by which our shareholders may
recommend nominees to our board of directors. Our board of directors does not
have a policy with regards to the consideration of any director candidates
recommended by our shareholders. Our board of directors has determined that it
is in the best position to evaluate our company’s requirements as well as the
qualifications of each candidate when the board considers a nominee for a
position on our board of directors. If shareholders wish to recommend candidates
directly to our board, they may do so by sending communications to the President
of our company at the address on the cover of this annual report.
Audit Committee
Currently our audit committee consists
of our entire board of directors.
During fiscal 2010 aside from
quarterly review teleconferences, there were no meetings held by this committee.
The business of the audit committee was conducted though these teleconferences
and by resolutions consented to in writing by all the members and filed with the
minutes of the proceedings of the audit committee.
Audit Committee Financial Expert
Our board of directors has
determined that it does not have a member of its audit committee that qualifies
as an "audit committee financial expert" as defined in Item 407(d)(5)(ii) of
Regulation S-K.
Item 11. Executive Compensation
The particulars of the compensation
paid to the following persons:
|
|
(a)
|
our principal executive officer;
|
|
|
|
|
|
|
(b)
|
each of our two most highly compensated executive
officers who were serving as executive officers at the end of the years
ended June 30, 2010 and 2009; and
|
38
|
|
(c)
|
up to two additional individuals for whom disclosure
would have been provided under (b) but for the fact that the individual
was not serving as our executive officer at the end of the years ended
June 30, 2010 and 2009,
|
who we will collectively refer to as the named executive
officers of our Company, are set out in the following summary compensation
table, except that no disclosure is provided for any named executive officer,
other than our principal executive officers, whose total compensation did not
exceed $100,000 for the respective fiscal year:
Name
and Principal
Position
|
Year
|
Salary
($)
|
Bonus
($)
|
Stock
Awards
($)
|
Option
Awards
($)
|
Non-Equity
Incentive
Plan
Compensa-
tion
($)
|
Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings
($)
|
All
Other
Compensa-
tion
($)
|
Total
($)
|
Shane Reeves
(1)
President, Chief Executive Officer, Financial Officer and
Treasurer
|
2010
2009
|
Nil
Nil
|
Nil
Nil
|
40,500
130,000
|
Nil
Nil
|
Nil
Nil
|
Nil
Nil
|
108,000
96,000
|
148,500
226,000
|
Felipe Pimienta
Barrios
(2)
Former Chief Financial Officer and
Treasurer
|
2010
2009
|
20,000
82,171
|
Nil
Nil
|
Nil
20,000
|
Nil
Nil
|
Nil
Nil
|
Nil
Nil
|
Nil
Nil
|
20,000
102,171
|
|
(1)
|
Mr. Reeves was appointed as our President, Chief
Executive Officer, Chairman and Director on July 2, 2008 and was appointed
Chief Financial Officer and Treasurer on November 30, 2009.
|
|
|
|
|
(2)
|
Mr. Barrios became our Chief Financial Officer and
Treasurer on March 28, 2007 and resigned on November 30,
2009
|
2010 Grants of Plan-Based Awards
The Company made no plan-based equity and non-equity awards
grants to named executives in 2010.
Outstanding Equity Awards at Fiscal Year End
The Company had no unexercised options, stock that had not
vested or equity incentive plan awards for any of our named executive officers
as of June 30, 2010.
Option Exercises
During our Fiscal year ended June 30,
2010 there were no options exercised by our named officers.
Compensation of Directors
Other than the list below, we do
not have any agreements for compensating our directors for their services in
their capacity as directors, although such directors are expected in the future
to receive stock options to purchase shares of our common stock as awarded by
our board of directors.
On July 2, 2008, the Company
entered into a consulting agreement with Summit Consulting Limited (“Summit
Consulting”) to retain the services of Mr. Shane Reeves as President and
Director of the Company. Pursuant to the terms of the agreement, the Company has
agreed to pay monthly management fees of $8,000 as compensation for the services
to be rendered. In addition, the agreement provides for the issuance of 100,000
shares of common stock, upon entering into the agreement and upon each annual
renewal of the agreement. On July 22, 2008, the Company approved the issuance of
100,000 shares of common stock, to Mr. Reeves pursuant to the terms of the
agreement. On January 29, 2009, the Company entered into an amending agreement
with Summit Consulting to extend the term of the consulting agreement from July
2, 2009, to December 31, 2009, and provided for the issuance of an additional
100,000 shares of restricted stock. On January 1, 2010, the Company entered into
an amending agreement with Summit Consulting (“Second Amendment”). The Second Amendment provides for a monthly management fee of
$10,000 and the issuance of 500,000 shares of common stock upon entering into
the agreement and 500,000 shares of common stock on each annual renewal of the
agreement. The Second Amendment expires on January 1, 2012.
39
Pension, Retirement or Similar Benefit Plans
There are no arrangements or
plans in which we provide pension, retirement or similar benefits for directors
or executive officers. We have no material bonus or profit sharing plans
pursuant to which cash or non-cash compensation is or may be paid to our
directors or executive officers, except that stock options may be granted at the
discretion of the board of directors or a committee thereof.
Indebtedness of Directors, Senior Officers, Executive
Officers and Other Management
None of our directors or
executive officers or any associate or affiliate of our Company during the last
two fiscal years is or has been indebted to our Company by way of guarantee,
support agreement, letter of credit or other similar agreement or understanding
currently outstanding.
Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters
The following table sets forth,
as of November 12, 2010, certain information with respect to the beneficial
ownership of our common shares by each shareholder known by us to be the
beneficial owner of more than 5% of our common shares, as well as by each of our
current directors and executive officers as a group. Each person has sole voting
and investment power with respect to the shares of common stock, except as
otherwise indicated. Beneficial ownership consists of a direct interest in the
shares of common stock, except as otherwise indicated.
Name and Address of
Beneficial Owner
|
Amount and Nature of
Beneficial Ownership
|
Percentage
of
Class
(1)
|
Shane Reeves
20333 State Highway 249
Suite 200-113
Houston, TX 77070
|
700,000
|
3.30%
|
|
Directors and Executive Officers as a
Group
(1)
|
700,000
|
3.30%
|
Johann Roland Vetter
189 Talisman Avenue
Vancouver, BC V5Y 2L6
|
5,653,333
|
26.66%
|
|
(1)
|
Under Rule 13d-3, a beneficial owner of a security
includes any person who, directly or indirectly, through any contract,
arrangement, understanding, relationship, or otherwise has or shares: (i)
voting power, which includes the power to vote, or to direct the voting of
shares; and (ii) investment power, which includes the power to dispose or
direct the disposition of shares. Certain shares may be deemed to be
beneficially owned by more than one person (if, for example, persons share
the power to vote or the power to dispose of the shares). In addition,
shares are deemed to be beneficially owned by a person if the person has
the right to acquire the shares (for example, upon exercise of an option)
within 60 days of the date as of which the information is provided. In
computing the percentage ownership of any person, the amount of shares
outstanding is deemed to include the amount of shares beneficially owned
by such person (and only such person) by reason of these acquisition
rights. As a result, the percentage of outstanding shares of any person as
shown in this table does not necessarily reflect the person’s actual
ownership or voting power with respect to the number of shares of common
stock actually outstanding on November 12, 2010. As of November 12, 2010,
there were 21,206,667 shares of our Company’s common stock issued and
outstanding
|
Changes in Control
We are unaware of any contract or
other arrangement the operation of which may at a subsequent date result in a
change in control of our Company.
40
Item 13. Certain Relationships and Related Transactions, and
Director Independence
Except as disclosed herein, no
director, executive officer, shareholder holding at least 5% of shares of our
common stock, or any family member thereof, had any material interest, direct or
indirect, in any transaction, or proposed transaction since the year ended June
30, 2010, in which the amount involved in the transaction exceeded or exceeds
the lesser of $120,000 or one percent of the average of our total assets at the
year end for the last three completed fiscal years.
Director
Independence
We currently act with one (1)
director, Shane Reeves. We have determined that our directors is not an
“independent director” as defined in NASDAQ Marketplace Rule 4200(a)(15).
Currently our audit committee
consists of our entire board of directors. We currently do not have nominating,
compensation committees or committees performing similar functions. There has
not been any defined policy or procedure requirements for shareholders to submit
recommendations or nomination for directors.
Our board of directors has
determined that it does not have a member of its audit committee who qualifies
as an “audit committee financial expert” as defined in as defined in Item
407(d)(5)(ii) of Regulation S-K.
From inception to present date,
we believe that the members of our audit committee and the board of directors
have been and are collectively capable of analyzing and evaluating our financial
statements and understanding internal controls and procedures for financial
reporting.
Item 14. Principal Accounting Fees and Services
The aggregate fees billed for the
most recently completed fiscal year ended June 30, 2010 and for the fiscal year
ended June 30, 2009 for professional services rendered by the principal
accountant for the audit of our annual financial statements and review of the
financial statements included in our quarterly reports on Form 10-Q and services
that are normally provided by the accountant in connection with statutory and
regulatory filings or engagements, including tax return preparation and tax
compliance for these fiscal periods were as follows:
|
|
Year Ended
|
|
|
June 30, 2010
|
June 30, 2009
|
|
Audit Fees
|
$89,177
|
$115,061
|
|
Audit Related Fees
|
Nil
|
Nil
|
|
Tax Fees
|
$10,788
|
$8,180
|
|
All Other Fees
|
Nil
|
Nil
|
|
Total
|
$99,965
|
$123,241
|
Effective May 6, 2003, the
Securities and Exchange Commission adopted rules that require that before our
independent auditors are engaged by us to render any auditing or permitted
non-audit related service, the engagement be:
-
approved by our audit committee (which consists of our entire board of
directors); or
-
entered into pursuant to pre-approval policies and procedures established
by the board of directors, provided the policies and procedures are detailed
as to the particular service, the board of directors is informed of each
service, and such policies and procedures do not include delegation of the
board of directors' responsibilities to management.
Our board of directors
pre-approves all services provided by our independent auditors. All of the above
services and fees were reviewed and approved by the board of directors either
before or after the respective services were rendered.
Our board of directors has
considered the nature and amount of fees billed by our independent auditors and
believes that the provision of services for activities unrelated to the audit is
compatible with maintaining our independent auditors’ independence.
41
PART IV
Item 15. Exhibits, Financial Statement Schedules
|
(a)
|
Financial Statements
|
|
|
|
|
|
|
(1)
|
Financial statements for our Company are listed in the
index under Item 8 of this document
|
|
|
|
|
|
|
(2)
|
All financial statement schedules are omitted because
they are not applicable, not material or the required information is shown
in the financial statements or notes thereto.
|
|
|
|
|
|
(b)
|
Exhibits
|
|
Number
|
Description
|
|
|
|
|
(3)
|
Articles of Incorporation
and Bylaws
|
|
|
|
|
3.1
|
Articles of Incorporation (incorporated by reference to
our registration statement on form SB-2 filed on January 6, 2006)
|
|
|
|
|
3.2
|
By-laws (incorporated by reference to our registration
statement on form SB-2 filed on January 6, 2006)
|
|
|
|
|
3.3
|
Articles of Merger (incorporated by reference to our
current report on Form 8-k filed on May 1, 2007)
|
|
|
|
|
3.4
|
Certificate of Change (incorporated by reference to our
current report on Form 8-k filed on May 1, 2007)
|
|
|
|
|
3.5
|
Articles of Merger filed with the Nevada Secretary of
State on March 27, 2008, effective April 11, 2008 (incorporated by
reference to our current report on Form 8-k filed on April 11, 2008)
|
|
|
|
|
(10)
|
Material Contracts
|
|
|
|
|
10.1
|
Share Exchange Agreement among all shareholders of
PetroSouth Energy Corp. BVI and our company dated September 30, 2007
(incorporated by reference to our current report, on Form 8-K filed on
October 3, 2007)
|
|
|
|
|
10.2
|
Commercial Agreement for the Talora Block between
Petroleum Equipment International (PEI), David Craven, and dated October
24, 2006 for 20% participation stake in the Tolara Block near Bogotá,
Colombia (incorporated by reference to our current report, on Form 8-K
filed on October 3, 2007)
|
|
|
|
|
10.3
|
Buenavista Assignment Agreement between UTI, PetroSouth
Energy Corp., BVI, Petroleum Equipment International Ltda. dated August
30, 2007 for participation stake in the Buenavista Block near Bogotá,
Colombia (incorporated by reference to our current report, on Form 8-K
filed on October 3, 2007)
|
|
|
|
|
10.4
|
Carbonera Exploration and Exploitation Contract
(incorporated by reference to our current report, on Form 8-K filed on
October 29, 2007)
|
|
|
|
|
10.5
|
Convertible Promissory Note dated January 17, 2008
(incorporated by reference to our current report, on Form 8-K filed on
February 1, 2008)
|
|
|
|
|
10.6
|
Farmout Agreement “North Semitropic Prospect” dated
February 1, 2008 (incorporated by reference to our current report, on Form
8-K filed on February 12, 2008)
|
42
|
Number
|
Description
|
|
|
|
|
10.7
|
March 25, 2008 letter of intent with Slope County Oil
Company (incorporated by reference to our current report, on Form 8-K
filed on April 3, 2008)
|
|
|
|
|
10.8
|
Convertible Promissory Note dated March 10, 2008
(incorporated by reference to our current report, on Form 8-K filed on
April 3, 2008)
|
|
|
|
|
10.9
|
Convertible Promissory Note dated February 5, 2008 and
entered into on April 30, 2008 (incorporated by reference to our current
report, on Form 8-K filed on May 1, 2008)
|
|
|
|
|
10.10
|
Convertible Promissory Note dated June 2, 2008
(incorporated by reference to our current report, on Form 8-K filed on
June 9, 2008)
|
|
|
|
|
10.11
|
Assignment of Farmout Interest dated June 16, 2008
(incorporated by reference to our current report, on Form 8-K filed on
June 26, 2008)
|
|
|
|
|
10.12
|
Consulting agreement between our company and Summit
Consulting Limited dated effective the 2
nd
day of July 2008
(incorporated by reference to our current report, on Form 8-K filed on
July 29, 2008)
|
|
|
|
|
10.13
|
Executive Employment Agreement with Felipe Pimienta
Barrios (incorporated by reference to our current report, on Form 8-K
filed on January 30, 2009)
|
|
|
|
|
10.14
|
Amending Agreement with Summit Consulting Limited
(incorporated by reference to our current report, on Form 8-K filed on
January 30, 2009)
|
|
|
|
|
10.15
|
Agreement between Petrosouth Energy Corporation Sucursal
Colombia and Delavco Energy Colombia Inc. Sucursal Colombia (incorporated
by reference to our current report, on Form 8-K filed on September 24,
2009)
|
|
|
|
|
10.16
|
Promissory Note dated September 22, 2009 (incorporated by
reference to our current report, on Form 8-K filed on September 24, 2009)
|
|
|
|
|
(14)
|
Code of Ethics
|
|
|
|
|
14.1
|
Code of Ethics (incorporated by reference to our annual
report on Form 10-KSB filed on September 28, 2007)
|
|
|
|
|
(21)
|
Subsidiaries of the Small Business Issuer
|
|
|
|
21.1
|
PetroSouth Energy Corp. BVI, a British Virgin Islands
corporation
Petrosouth Energy Corporation Sucursal Colombia, a
Colombian corporation
|
|
|
|
|
(31)
|
Section 302 Certifications
|
|
|
|
|
31.1*
|
CEO and CFO Certification pursuant to Rule 13a-14(a)
under the Securities Exchange Act of 1934
|
|
|
|
|
(32)
|
Section 906 Certification
|
|
|
|
|
32.1*
|
CEO and CFO Certification pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
* Filed herewith.
43
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
|
|
WEST CANYON ENERGY CORP.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date: November 15, 2010
|
/s/
Shane Reeves
|
|
|
Shane Reeves
|
|
|
President, Chief Executive Officer, Chief
Financial Officer,
|
|
|
Treasurer and Director
|
|
|
(Principal Executive Officer, Principal
Financial Officer and
|
|
|
Principal Accounting Officer)
|
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
|
Signature
|
|
Title
|
Date
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Shane Reeves
|
|
|
November 15, 2010
|
|
Shane Reeves
|
|
President, Chief Executive Officer, Chief Financial Officer, Treasurer and Director
|
|
44
West Canyon Energy (CE) (USOTC:WCYN)
과거 데이터 주식 차트
부터 11월(11) 2024 으로 12월(12) 2024
West Canyon Energy (CE) (USOTC:WCYN)
과거 데이터 주식 차트
부터 12월(12) 2023 으로 12월(12) 2024
