UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
8-K
CURRENT
REPORT
Pursuant
to Section 13 or 15(d) of the Securities Exchange Act of
1934
Date
of Report (Date of earliest event reported): August 3,
2007
BLACKSANDS
PETROLEUM, INC.
(Exact
name of registrant as specified in its charter)
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Nevada
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000-51427
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20-1740044
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(State
or other jurisdiction
of
incorporation)
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Commission
File Number)
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(I.R.S.
Employer
Identification
No.)
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Suite
1250, 645 7th
Avenue, SW, Calgary, Alberta
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T2P
4G8
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(Address
of principal executive offices)
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(Zip
Code)
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(403)
806-1677
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(Registrant’s
telephone number, including area
code)
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(Former
Address If Changed since Last Report)
Check
the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions (see General Instruction A.2. below)
o
Written communications
pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o
Soliciting material pursuant to Rule
14a-12 under the Exchange Act (17 CFR 240.14a-12)
o
Pre-commencement communications pursuant
to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o
Pre-commencement communications pursuant
to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
Except
for historical information, this report contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended
(the
“Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”). Such forward-looking statements involve risks and
uncertainties, including, among other things, statements regarding our business
strategy, future revenues and anticipated costs and expenses. Such
forward-looking statements include, among others, those statements including
the
words “expects”, “anticipates”, “intends”, “believes” and similar language. Our
actual results may differ significantly from those projected in the
forward-looking statements. Factors that might cause or contribute to such
differences include, but are not limited to, those discussed in the section
“Risk Factors.” We undertake no obligation to publicly release any revisions to
the forward-looking statements or reflect events or circumstances after the
date
of this report.
Although
we believe that the expectations reflected in these forward-looking statements
are based on reasonable assumptions, there are a number of risks and
uncertainties that could cause actual results to differ materially from such
forward-looking statements. These factors include among others:
| · |
Risks
associated with conventional and unconventional oil
exploration;
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| · |
Our
ability to raise capital to fund capital
expenditures;
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Our
ability to find, acquire, market and develop conventional and
unconventional oil properties;
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| · |
Oil
price volatility;
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| · |
Uncertainties
in the estimation of oil reserves;
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| · |
Operating
hazards attendant to the conventional and unconventional oil
business;
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| · |
Availability
and cost of materials and
equipment;
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| · |
Delays
in anticipated start-up dates;
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| · |
Actions
or inactions of third-party operators of our
properties;
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Our
ability to find and retain skilled
personnel;
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Regulatory
developments;
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Environmental
risks; and
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General
economic conditions.
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EXPLANATORY
NOTES
The
terms
“the Company,” “we,” “us,” and “our” refer to Blacksands Petroleum, Inc., a
Nevada corporation. “Access”
refers to Access Energy Inc., a company incorporated pursuant to the laws of
the
Province of Ontario. The “Companies” refers to the two companies after having
giving effect to the Purchase (as defined below).
This
Report on Form 8-K contains summaries of the material terms of various
agreements executed in connection with the transactions described herein. The
summaries of these agreements are subject to, and qualified in their entirety
by, reference to these agreements, all of which are incorporated herein by
reference.
2
All
financial figures in this Current Report are denominated in U.S. Dollars unless
stated otherwise. At July 16, 2007, the exchange rate as reported by Bloomberg
was Cdn$1.00 equaled US$1.0433.
Item
1.01. Entry into a Material Definitive Agreement
On
August
3, 2007 (the “Closing Date”), pursuant to a Common Stock Purchase Agreement
(“Purchase Agreement”), we purchased (the “Purchase”) 600 newly issued shares of
common stock, of Access, representing 75.0% of its common stock for an aggregate
sum of Cdn$3,427,935.23, approximately US$3,213,000, and common stock
purchase warrants to acquire 1,500,000 of our shares of common stock (the
“Burden Warrants”). Prior to the Purchase, we considered ourselves a “shell”
company as that term is defined in Rule 12b-2 of the Exchange Act. By
consummating the Purchase, we succeeded at our business plan which was to enter
the unconventional petroleum industry by acquiring a suitable target company.
The unconventional petroleum industry is generally understood to mean the
recovery of oil from oil sands or tar sands together with natural gas deposits
located in proximity to the sands. A copy of the Purchase Agreement is attached
as Exhibit 10.21 to this Report and is incorporated by reference.
For
a
description of the Purchase and the material agreements entered into in
connection with the Purchase, please see the disclosures set forth in Item
2.01
to this Report, which are incorporated into this item by reference.
Item
2.01. Completion of Acquisition or Disposition of Assets
BACKGROUND
General
Background of the Purchase
Access
was formed in August 2005 for the purpose of acquiring rights for oil and gas
exploration and development on lands in Western Canada and the United States,
including lands controlled by the Buffalo River Dene Nation in Northern
Saskatchewan (the “Dene” or “Dene Nation”). Initial financing to begin
negotiations was secured, but as they progressed, additional financing was
required. We were introduced to Access through investors interested in its
potential.
In
April
2006, Darren R. Stevenson signed an employment agreement with us to become
our
President, Chief Executive Officer, Chief Financial Officer, and Secretary.
For
the duration of 2006, he assisted raising capital for Blacksands from
sophisticated and institutional investors based in Europe and North America
and
evaluating various conventional and unconventional oil and gas opportunities
of
which Access was one. He assisted with the negotiations between Access and
the
Dene in an effort to structure a viable commercial opportunity which would
encourage additional investment.
On
March
23, 2006, Access signed an Authorization and Access Permit with the Dene Nation
to provide Access with the right to complete non-invasive exploration on the
Dene’s land, including mapping macroseepage and bitumen deposits visible on the
surface.
3
On
November 3, 2006, Access and the Buffalo River Dene Development Corporation
(“BRDDC”), a corporation representing the Dene Nation, signed a non-binding
joint venture agreement (the “Joint Venture Agreement”) which, among other
things, contemplated permitting Access to explore and develop oil and gas
reserves on certain of the Dene’s traditional lands.
On
November 10, 2006, we entered into an Exclusivity Agreement (“Exclusivity
Agreement”) with Access where it agreed that in exchange for Cdn$100,000, Access
would refrain from soliciting or encouraging the submissions of proposals or
offers from any person other than us relating to the purchase of equity in
Access or all or a significant portion of its assets until March 10, 2007.
The expiration date of the agreement was subsequently extended on two occasions
for no additional consideration. The agreement is set to expire on August 8,
2007. A copy of the Exclusivity Agreement is annexed as Exhibit 10.9 to this
Report and is incorporated by reference.
As
Access’ negotiations with the Dene continued, it sought an amendment to the
Joint Venture Agreement (the “Amendment”) which would grant it exclusive and
enforceable rights to conduct exploration and development on the Dene’s
traditional land. To assist the negotiations with the Dene, and to fulfill
one of their negotiating requirements, on May 17, 2007, we placed Cdn$250,000
into escrow along with a loan agreement (“Loan Agreement”) and a promissory note
(“Note”), which evidenced Access’ obligations to us. By the terms of the Loan
Agreement, if we consummated the Purchase, the proceeds of the loan would be
paid to Access as part of the purchase price and the Note would be cancelled.
Prior to receiving our written instructions, the escrow agent was not to release
any funds to Access. The escrow agreement provided that unless we and Access
issued joint written instructions to release the funds to Access by June 1,
2007, the escrow agent was to return the funds to us and destroy the Note and
Loan Agreement. On June 11, 2007, the escrow agent released Cdn$100,000 of
the
loan proceeds to the Dene (through Access) which was used to pay for work
performed by Dene contractors and an additional $125,000 on August 2, 2007.
Copies of the Loan Agreement, Note, and Escrow Agreement are annexed as Exhibits
10.12, 10.13, and 10.14, respectively, to this Report and are incorporated
by
reference.
On
May
18, 2007, Access and the BRDDC executed an amendment (“Amendment”) to the Joint
Venture Agreement which granted Access exclusive, enforceable rights to access
the Dene’s land for the purpose of oil and gas exploration and development. On
the Closing Date, we consummated the Purchase and the funds remaining in the
Escrow Account were released to Access as part of the purchase
price.
Access’
Business
Access
is
a development stage company engaged in the business of conventional and
unconventional oil and gas exploration in Western Canada and the United States
whose only operations to date have been to negotiate the Joint Venture Agreement
and the Amendment thereto, and assist in the negotiations of a preliminary
Impact/Benefit Agreement (“Impact/Benefit Agreement”) between the A10 project
and the Dene Nation. In connection with its entry into the Joint Venture
Agreement, Access paid the Dene Cdn$375,000 as a non-refundable deposit. An
additional $125,000 was paid to the Dene upon Access receiving standard post
closing documents. On Access’ behalf, Dene contractors performed work such as
road construction. As of the Closing Date, Access owed such contractors
approximately Cdn$189,000 for such work which was paid for out of the purchase
price.
4
The
initial exploration project is named “A10” (“A10”) and lies on a portion of the
land controlled by the Dene Nation subject to Treaty 10 (“Treaty 10”) in western
Saskatchewan on the border with Alberta (the “Project Land”). The Dene Nation is
a party to Treaty 10 (“Treaty 10”) with Her Majesty the Queen in the Right of
Canada (the “Crown”) which recognizes lands and water belonging to the Dene
Nation whose territory is situated partly in the Province of Saskatchewan and
partly in the Province of Alberta. Upon entering into Treaty 10 the Dene Nation
did not cede, release, surrender or yield to the Crown any or all rights, titles
and privileges whatsoever to the Dene’s traditional territories. Lands and
waters described in Treaty 10 form a part of the traditional territories of
the
Dene Nation.
5
Source:
Indian Northern Affairs, Canada
In
connection with our initial exploration, on May 24, 2007, we purchased two
dimensional seismic data relating to various data lines totaling approximately
750 kilometers in length within the Project Land. We had the data analyzed
and
believe that on the basis of the preliminary analysis that certain areas of
interest show promising indications for further exploration. We are conducting
additional technical data-seeking and evaluation.
DESCRIPTION
OF OUR BUSINESS
Transaction
with Access
Joint
Venture Agreement and Amendment
The
Joint
Venture Agreement and Amendment represent an innovative partnering with the
Dene
Nation for exploration and development, rather than taking the traditional
route
of seeking permits from the Province of Saskatchewan in order to conduct
development. Pursuant to the Joint Venture Agreement and the Amendment, the
BRDDC granted Access exclusive rights to access the lands’ surface to explore
and develop the petroleum deposits on the Project Land. The BRDDC has not
granted any licenses, leases, permits, or entered into any agreements with
other
parties, including any governmental entity or First Nations people, necessary
for the exploration, development, or exploitation of any such deposits. The
parties agreed to make applications jointly at the sole expense of Access,
for
any such licenses, leases, permits or agreements that are required.
6
Access
will be considered the Operator of various projects (each a “Project”), as
described in the 1990
Operating Procedure of the Canadian Association of Petroleum Landmen
(“CAPL”)
which
sets forth many standard contract terms used in connection with development
and
management of petroleum producing properties.
A
Project is defined in the Joint Venture Agreement as (i) in the case of a
gas or conventional oil discovery, the drilling, completion and tie-in of a
single gas well or conventional oil well and (ii) in the case of a heavy oil
discovery, an oil sands pool development including all drilling, completions
and
facilities in conjunction with such discovery.
Being
the
Operator means Access will have overall supervision, direction and control
of
contemplated exploration and development. Access is permitted to select, subject
to a formal bid process, and direct a suitable engineering firm to manage the
startup, management, and ongoing requirements of each Project, and to engage
in
actual extraction efforts of petroleum deposits.
The
Dene
shall have an interest in revenues generated from each Project after Access
recovers its development costs (a “Carried Interest”). Under certain
circumstances, the Dene are entitled to increase their Carried Interest in
a
Project.
The
term
of the Joint Venture Agreement and Amendment is for a period of 20 years and
thereafter for so long as there is continuous production from the Project Land
in commercial quantities.
Impact/Benefit
Agreement
On
May
24, 2007, our representatives and those from Access and the Dene Nation attended
a signing ceremony of the non-binding statement of principles known as the
Impact/Benefit Agreement signed by the Dene and the A10 project. The
parties contemplate executing a definitive agreement with respect to the issues
addressed in the Impact/Benefit Agreement in the near future.
The
Impact/Benefit Agreement sets forth the framework for several obligations of
Access in favor of the Dene and incorporates the terms of the CAPL. The term
of
the Impact/Benefit Agreement will be for a period of twenty (20) years from
the
date of execution. The parties agree that one year prior to the expiration
of
the initial term, A10 will initiate a review of the Impact/Benefit Agreement
with the Dene. Either party may terminate the Impact/Benefit Agreement by
providing the other party with 30 days notice of an intention to terminate.
Purchase
of Access’ Common Stock
We
paid
the purchase price in four segments: (i) Cdn$3,077,935.23 in cash;
(ii) release of approximately Cdn$250,000 held in escrowed funds in
exchange for cancellation of the Note; (iii) $100,000 that we paid Access
pursuant to the Exclusivity Agreement; and (iv) the Burden Warrants. The Burden
Warrants were granted to H. Reg F. Burden, the sole stockholder of Access prior
to the Purchase. We obtained the cash portion of the purchase price from funds
released from restricted cash held in an escrow account. See Management’s
Discussion and Analysis—Liquidity.
7
Shareholders
Agreement
As
a
condition to the Purchase, we entered into a Unanimous Shareholders Agreement
(the “Stockholders Agreement”) with Access and Mr. Burden (we, Mr. Burden and
any future stockholder is a “Stockholder”). During the term of the Stockholders
Agreement, and except as described below, no Stockholder can transfer, sell,
assign or otherwise dispose (each a “Transfer”) of any of their shares of
Access’ common stock shares other than pursuant to the terms of the Stockholders
Agreement and any Transfers in violation of the Stockholders Agreement are
null
and void. A copy of the Stockholders Agreement is annexed as Exhibit 10.19
to
this Report and is incorporated by reference.
Other
provisions of the Stockholders Agreement include the following:
Annual
Budget
Blacksands
is required to make sufficient capital contributions to Access according to
its
annual plan and budget until Access’ internal resources are adequate to fund its
annual plan without such contributions.
Corporate
Governance
Access’
Board of Directors now consists of four members. Provided that we own at least
30% of Access’ issued and outstanding common stock (together with his affiliates
and permitted transferees; the “Blacksands Threshold”), we may designate (and
remove at will) three members of the Board (each a “Blacksands Designee”). Our
initial designees are the members of our own Board of Directors, Mr. Stevenson,
Mr. Rick Wilson and Mr. Bruno Mosimann. Provided that Mr. Burden owns at least
10% of Access’ issued and outstanding common stock (together
with his affiliates and permitted transferees; the
“Burden Threshold”), he may nominate (and remove at will) one member of the
Board (the “Burden Designee”). His initial designee is Mr. Paul Parisotto who
has also become a member of our Board of Directors.
Where
a
transaction is required by law to be approved by a vote of Access’ stockholders,
when approved by Access’ Board of Directors and where the Burden Designee has
voted to approve such transaction, all Access’ stockholders shall be required to
vote their shares in favor of the transaction.
Other
than as described above, no arrangements or understandings exist among Access’
stockholders with respect to the election of members of Access’ Board of
Directors.
Preemptive
Rights
Subject
to certain exclusions, the Stockholders Agreement grants Stockholders which
own
at least 10% of common stock certain preemptive rights such that Access may
not
issue or sell its equity securities or rights to acquire its equity securities
to a third party unless it first offers its Stockholders the right to purchase
on a proportional basis, such equity securities on the same terms as it proposes
to issue or sell to a third party. This provision does not apply if the issuance
or sale is pursuant to Access’ initial public offering. In the event that
Stockholders do not elect to purchase all of the offered securities, Access
may
then sell all or any part of the remaining offered securities to such third
party.
8
Rights
of First Refusal
Subject
to certain limitations, a
Stockholder wishing to make a transfer (a “Transferring Stockholder”) of any or
all of its shares of Access common stock (the “Transfer Shares”) must provide
advance written notice thereof to the other Stockholders and Access. Thereafter,
Access has 15 days to exercise a right of first refusal for all or a portion
of
the Transfer Shares on the same terms on which the Transferring Stockholder
is
proposing to sell to a third party. If Access fails or declines to fully
exercise such right, other Stockholders have an additional 15 days to exercise
their own proportional right of first refusal.
Mr.
Burden has the right to transfer shares of Access’ common stock to officers and
directors of Access without such transfers being subject to our right of first
refusal. He may also do so to persons who executed a consulting contract with
Access which has been approved by its Board of Directors. Mr. Parisotto,
the President and sole stockholder of Coniston Investment Corp. (“Coniston”), a
consultant to Access, has similar rights. We have similar rights to transfer
shares of Access’ common stock to officers, directors, and consultants of ours
and of Access.
Rights
of Co-Sale
Subject
to certain limitations, if neither Access nor the other Stockholders exercise
their rights of first refusal with respect to all of the Transfer Shares, the
Transferring Stockholder must, within seven days, give further notice to the
other Stockholders that they have rights of co-sale (a “Co-Sale Right”) to sell
their own Co-Sale Allocation to the proposed purchaser in place of the Transfer
Shares on the same terms and price as the Transferring Stockholder is proposing
to transfer its shares. A Stockholder’s Co-Sale Allocation is defined as the
number of Shares owned by the Stockholder on the date of the notice, multiplied
by a fraction, the numerator of which is the total number of Shares held by
such
Stockholder on the date of the notice, and the denominator of which shall be
the
total number of Shares held by all Stockholders on the date of the
notice.
Pull-Along
Rights
The
Stockholders Agreement also contains a pull along right (the “Pull Along Right”)
which provides that if Stockholders who own in the aggregate at least 50% of
the
outstanding common shares have received an offer from any non-affiliate to
buy
all of the outstanding common stock and common stock equivalents of Access,
which would directly or indirectly result in all Stockholders receiving cash
in
exchange for their common stock or common stock equivalents, as the case may
be,
equal to or greater than the fair market value (as defined) for such stock
or
common stock equivalents (including, without limitation, pursuant to a merger),
the selling Stockholders shall be deemed to have accepted the
offer.
Third
Party Purchase Option
So
long
as the Blacksands Threshold is met, if we receive a bona fide offer, which,
if
consummated, would result in a change of control of Blacksands, then Blacksands
shall have the right, to purchase up to 100% of Access’ common stock and common
stock equivalents that it does not then own. The purchase price for such
securities shall be determined by the trading price on a national securities
exchange or as established by Access’ Board of Directors in good faith.
Blacksands must give at least 90 days notice to the other stockholders before
exercising this option. Blacksands is not permitted to exercise this option
if
another third party offer at a higher price has been received and discussions
regarding it are ongoing or if Access has filed (and not withdrawn) a
registration statement for a public offering.
9
Termination
The
Stockholders Agreement shall terminate upon the earliest of (i) Access’
initial public offering, (ii) the consummation of a sale of all or
substantially all of its assets; (iii) the merger, consolidation, or
reorganization in which Stockholders immediately prior to such transaction
own
immediately following such transaction less than 50% of the surviving entity
or
its parent or (iv) the written consent of at least a majority of
Stockholders including us (if the Blacksands Threshold is met) or Mr. Burden
(if
the Burden Threshold is met).
History
of the Company
We
were
incorporated in the State of Nevada on October 12, 2004 as Lam Liang Corp.
Our
business plan was to design, produce and sell fashionable computer laptop cases
for women through a subsidiary. In November, 2004, we acquired 99.94% ownership
in a privately-held Thai company which was dissolved on June 5, 2006. On
May 6, 2006, three of our directors resigned and two new directors were
appointed to our Board of Directors and we exited our business
plan.
To
indicate our new business focus, that of making a strategic acquisition in
the
unconventional oil industry, we filed an amendment to our Articles of
Incorporation with the Nevada Secretary of State on June 9, 2006 which
changed our name to “Blacksands Petroleum, Inc.” and increased our authorized
capital stock from 75,000,000 shares of common stock, par value $0.001, to
310,000,000 shares, comprised of 300,000,000 shares of common stock, par value
$0.001, and 10,000,000 shares of preferred stock, par value $0.001.
On
June
21, 2006 we effected a 30:1 forward stock split in the form of a dividend.
The
dividend was paid to stockholders of record as of the close of business on
June 21, 2006. Immediately prior to the split we had 2,100,000 shares of
common stock issued and outstanding. Immediately following the split we had
63,000,000 shares of common stock issued and outstanding.
In
furtherance of our business plan, on May 6, 2006 we issued $1 million of
convertible debentures to two non-affiliates in reliance on Regulation D under
the Securities Act. Effective August 9, 2006 the debentures were converted
into an aggregate of 1,000,000 units (“Units”). Each Unit consisted of one share
of our common stock and one common stock purchase warrant to purchase a share
of
our common stock at a price of $3.00 per share at any time during the two year
period that commenced on October 1, 2006.
Effective
August 9, 2006 we issued an aggregate of 10,854,700 Units at $1 per Unit to
49
persons in reliance on Section 4(2), Regulation D or Regulation S under the
Securities Act. We derived total gross proceeds of $10,854,700 from this sale
of
Units which was placed into a restricted cash escrow account pending our making
a strategic acquisition in the unconventional oil industry.
10
The
Purchase constituted the strategic transaction that we had been seeking in
the
unconventional petroleum industry. We obtained the funds for the purchase price
from a restricted cash escrow account into which the proceeds of the private
placement and debenture offering had been placed.
Shortly
after the filing of this Report, we will cancel 30,000,000 shares of common
stock.
Business
Strategy
We
plan
to explore the A10 Project Land in order to discover and develop heavy oil
and
bitumen deposits.
Exploration
To Date
Over
the
last 20 years, approximately 14 wells were drilled on the Project Land by
various companies which were exploring the land for traditional oil and gas
deposits (the “Existing Wells”).
As
described above, on May 24, 2007 we purchased seismic data relating to portions
of the Project Land. While a preliminary analysis of the seismic data has been
prepared, work on the technical details is continuing. After analyzing the
data,
we will select the areas of our greatest interest.
Summer
Program
The
Company commenced its summer program after concluding the Purchase and expect
to
spend a minimum of at least Cdn$1 million in preliminary exploration efforts.
We
expect to conduct our summer program (“Summer Program”) without requiring
additional financing. These initial activities would include (i) aerial surveys
of the topography; (ii) using certain emerging technologies, such as conducting
satellite and airborne geophysical surveys with various frequencies of
electromagnetic waves seeking microseepage and macroseepage; (iii) seeking
access to the Existing Wells to recover the well cuttings (rock removed while
drilling) to search for the presence of hydrocarbon staining of other materials
from the cutting; (iv) structuring our proposed winter program; and
(v) securing the necessary permits required for any winter
activities.
Winter
Program
Our
proposed exploratory program for the winter of 2007-2008 (“Winter Program”) will
be defined based on the results of the Summer Program and our capital resources
at the beginning of the winter. While difficult to predict, the budget for
such
program will likely exceed $1 million if we do not seek additional financing.
We
will require, and plan to seek, additional financing to begin the Winter Program
that we would like to conduct. Possible activities could include exploratory
drilling and the acquisition of additional seismic data. Road access to the
Project Land is restricted to the winter months, because when the land is not
frozen there is an unacceptable environmental impact and the topography may
not
permit such access otherwise.
11
Employees
We
currently have one employee, Mr. Stevenson. Access currently has no full time
employees. Mr. Stevenson is not covered by a collective bargaining agreement.
We
believe that our relationship with him is satisfactory.
We
believe that assembling a team of highly qualified employees will be key to
our
success. In particular, we want to retain a drilling coordinator, geologist,
geophysicist, and operations manager.
Competition
The
petroleum industry is highly competitive. See “Risk Factors.” We compete with
other exploration stage companies for financing from a limited number of
investors that are prepared to make investments in junior companies exploring
for conventional and unconventional resources. The presence of competing oil
and
gas exploration companies, both major and independent, may impact on our ability
to raise additional capital in order to fund our exploration program 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.
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.
Competition
to reserve oil drilling rigs, other equipment, and qualified personnel is
intense. We would have wanted to begin reserving equipment and crews beginning
in June 2007 to begin work in early December 2007 or shortly thereafter. A
substantial amount of equipment and qualified crews were already committed
to
working on other projects before the Purchase was consummated. We do not know
what resources remain available for our use during our Winter Program. If
insufficient resources are available, we may have to limit our Winter Program,
perhaps substantially.
Rights
of First Nations to Surface and Subsurface Access of Land
Treaty
10, which applies to the traditional lands of the Dene Nation and the Project
Land, recognizes the Dene’s right to control surface access to their land.
Current law reserves the right of the Province of Saskatchewan to grant rights
to access the subsurface of the Dene’s land. Any subsurface rights granted by
the province would be encumbered by the Dene who control surface access rights,
which have been granted exclusively to Access pursuant to the Joint Venture
Agreement and Amendment. The Dene are a nation of over 1,500 people whose
traditional land encompasses 85,800 square miles within the area of Treaty
10
(“Treaty 10”).
12
Environmental
Regulations
The
oil
and gas industry, including the oil sands industry, is heavily regulated. See
“Risk Factors.” This industry is also subject to regulation and intervention by
governments in such matters as land tenure, royalties, taxes including income
taxes, government fees, production rates, environmental protection controls,
the
reduction of greenhouse gas emissions, the export of crude oil, natural gas
and
other products, the awarding or acquisition of exploration and production,
oil
sands or other interests, the imposition of specific drilling obligations,
control over the development and abandonment of fields and mine sites (including
restrictions on production) and possibly expropriation or cancellation of
contract rights.
Before
proceeding with most major projects, we must obtain regulatory approvals.
The regulatory approval process can involve stakeholder consultation,
environmental impact assessments and public hearings, among other things.
In addition, regulatory approvals may be subject to conditions including
security deposit obligations and other commitments. Failure to obtain
regulatory approvals, or failure to obtain them on a timely basis on
satisfactory terms, could result in delays, abandonment or restructuring of
projects and increased costs.
In
late
2002, the Government of Canada ratified the Kyoto Protocol, an international
agreement designed to manage greenhouse gas emissions, which became effective
on
February 16, 2005. Other than as described in the 2005 Kyoto Plan,
relatively few details regarding its implementation in Canada have been provided
by the federal government. Numerous uncertainties regarding details of the
Kyoto
Protocol's implementation remain and there can be no assurance that future
rules
and regulations will not affect our ability to operate as planned. It may become
necessary to develop and install certain equipment to mitigate adverse effects
of rules and regulations on emission controls with a significant increase in
capital or operating costs. If emissions cannot be physically controlled or
mitigated to the satisfaction of new rules and regulations, tax or other fiscal
means may be introduced to penalize us or otherwise increase our operating
costs.
Changes
in environmental regulation could have an adverse effect on us from the
standpoint of product demand, product reformulation and quality, methods of
production and distribution and costs, and financial results. For example,
requirements for cleaner-burning fuels could cause additional costs to be
incurred, which may or may not be recoverable in the marketplace. The
complexity and breadth of these issues make it extremely difficult to predict
their future impact on us. Management anticipates that the implementation
of new and increasingly stringent environmental regulations will increase
necessary capital expenditures and operating expenses from present estimates.
Compliance with environmental regulation can require significant expenditures
and failure to comply with environmental regulation will result in the
imposition of fines and penalties, liability for clean up costs and damages
and
the loss of important permits.
13
Other
Government Regulations
Our
proposed business will be affected by numerous laws and regulations, including
energy, conservation, tax and other laws and regulations relating to the energy
industry. Any extraction operations will require permits or authorizations
from
federal, provincial or local agencies. See “Risk Factors.”
In
Saskatchewan, the legislated mandate for the responsible development of the
province's oil and gas resources is set out in the The
Department of Energy, Mines and Energy Act
(R.S.,
1985, c. E-7) which provides the Minister with the responsibility for the
exploration, development, management and conservation of non-renewable
resources. The
Oil and Gas Act
(R.S.,
1985, c. O-7) allows for the orderly exploration, and development of oil and
gas
in the province and optimizes recovery of these resources. The exploration
of
oil shales, which includes oil sands, is regulated under The
Oil
Shale Regulations of 1964 (Sask. Reg. 555/64),
as
amended from time to time, and under The
Mineral Resources Act, 1959.
These
regulations apply to oil shale rights that are the property of the Province
of
Saskatchewan and establish the terms under which exploration permits and leases
are granted. Since 2005, the Province of Saskatchewan has undertaken a
consultation review process with all stakeholders in an effort to update the
oil
sands and oil shale regulations. This update is intended to align regulations
better with other regimes in the country and to encourage exploration and
development activity in the Province.
In
Saskatchewan, the legislated mandate for the responsible development of the
province's oil and gas resources is set out in the The Department of Energy
and
Mines Act that provides the Minister with the responsibility for the
exploration, development, management and conservation of non-renewable
resources. The Oil and Gas Act allows the orderly exploration for, and
development of, oil and gas in the province and optimizes recovery of these
resources. The exploration of oil shales, which includes oil sands, is regulated
under The Oil Shale Regulations, 1964, as amended from time to time, made under
The Mineral Resources Act, 1959. These regulations apply to oil shale rights
that are the property of the Province and establish the terms under which
exploration permits and leases are granted. Since 2005, the Province of
Saskatchewan has undertaken a consultation review process with all stakeholders
in an effort to update the oil sands and oil shale regulations. This update
is
intended to align regulations better with other regimes in the country and
to
encourage exploration and development activity in the Province.
14
Industry
Overview
Our
change in business plan has taken place over the past 12 months, during a
historically strong market for oil and natural gas. The average monthly price
for West Texas Intermediate (WTI) crude oil and natural gas (Henry Hub Nymex),
currently, as compared to the prior year, is as follows:
CLY0
- CRUDE OIL Cash (NYMEX)
Natural
Gas EmiNY (QG, NYMEX)
Source:
Omega Research © 1997
15
SAGD
involves drilling two parallel horizontal wells, generally between 2,300 and
3,300 feet long, with about 16 feet of vertical separation. Steam is injected
into the shallower well, where it heats the bitumen that then flows by gravity
to the deeper producing well. The injected steam heats the crude
oil
or
bitumen
and
lowers its viscosity
which
allows it to flow down into the lower well. The water and crude
oil
or
bitumen
is
recovered to the surface by several methods such as natural steam lift where
some of the recovered hot water condensate flashes in the riser and lifts the
column of fluid to the surface, by gas lift where a gas (usually natural gas)
is
injected into the riser to lift the column of fluid, or by pumps such as
progressive
cavity pumps
that
work well for moving high-viscosity fluids with suspended solids.
The
SAGD
process is not entirely without drawbacks however; it requires large amounts
of
fresh water and wastewater handling facilities, abundant and cheap natural
gas
or electricity in order to create the steam, and thus produces additional carbon
dioxide emissions than with other methods. Relying upon gravity drainage, it
also requires comparatively thick and homogeneous reservoirs.
More
efficient processes are still being developed, such as derivative processes
that
include methods by which non condensable or condensable gas is mixed with the
steam.
Tar
sands
are mined to extract the oil-like bitumen which is upgraded into synthetic
crude
oil or refined directly into petroleum products by specialized refineries.
Conventional oil is extracted by drilling traditional wells into the ground
whereas tar sand deposits are mined using strip mining techniques, or persuaded
to flow into producing wells by in situ techniques which reduce the bitumen’s
viscosity with steam and/or solvents.
After
excavation, hot water and caustic soda is added to the sand, and the resulting
slurry is piped to the extraction plant where it is agitated and the oil skimmed
from the top. Provided that the water chemistry is appropriate to allow bitumen
to separate from sand and clay, the combination of hot water and agitation
releases bitumen and the tar sand, and allows small air bubbles to attach to
the
bitumen droplets. The bitumen froth floats to the top of separation vessels,
and
is further treated to remove residual water and fine solids. Bitumen is much
thicker than traditional crude oil, so it must be either mixed with lighter
petroleum (either liquid or gas) or chemically split before it can be
transported by pipeline for upgrading into synthetic crude oil. Recent
enhancements to this method allow the extraction plants to recover over 90%
of
the bitumen in the sand.
RISK
FACTORS
ANY
INVESTMENT IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. ADDITIONAL RISKS
AND UNCERTAINTIES NOT CURRENTLY KNOWN TO US OR THAT WE CURRENTLY DEEM IMMATERIAL
MAY ALSO BECOME IMPORTANT FACTORS THAT MAY HARM OUR BUSINESS. THE TRADING PRICE
OF OUR COMMON STOCK COULD DECLINE DUE TO ANY OF THESE RISKS AND
UNCERTAINTIES.
16
We
are a
new enterprise intending to engage in the business of unconventional oil
extraction and development. The business of acquiring, developing and producing
oil reserves is inherently risky. This section is organized as
follows:
· Risks
related to our business
· Risks
related to our financial condition
· Risks
relating to our industry; and
· Risks
related to our common stock
Risks
Related To Our Business
We
Have No Operating History. Accordingly, You Have No Basis Upon Which To Evaluate
Our Ability To Achieve Our Business Objectives.
We
are a
development stage company and have no current operations. Access is also a
development stage company without operations and only the rights and obligations
set forth in the Joint Venture Agreement and Amendment. Our business plan
involves our engagement in global conventional and unconventional oil operations
which may include our acquisition and development of interests, in Western
Canada and elsewhere, of oil sands or tar sands properties. As a proposed
unconventional oil exploration and development company with no operating
history, property interests, or related assets, it is difficult for potential
investors to evaluate our business. Our proposed operations are therefore
subject to all of the risks inherent in the establishment of a new business
enterprise and must be considered in light of the expenses, difficulties,
complications and delays frequently encountered in connection with the formation
of any new business, as well as those risks that are specific to the
unconventional oil industry. Investors should evaluate us in light of the
delays, expenses, problems and uncertainties frequently encountered by companies
developing markets for new products, services and technologies. We may never
overcome these obstacles.
Our
business is speculative and dependent upon the implementation of our business
plan and our ability to enter into agreements with third parties for the rights
to exploit unconventional oil reserves on terms that will be commercially viable
for us.
Our
Assets Have Limited Value By Themselves.
Through
the Joint Venture Agreement and Amendment, the Dene Nation granted Access
exclusive rights to access the Project Lands’ surface to explore and develop oil
and gas reserves. The Joint Venture Agreement does not purport to grant any
licenses, leases, permits, or agreements with other third parties, including
any
government entity or other First Nations peoples, necessary for the exploration,
development, and exploitation of any such deposits. We have not obtained any
such rights from other parties, some of which may not be able to be secured
on
acceptable terms to us if at all. Failure to obtain such rights could prevent
us
from executing our business plan.
17
We
Have Not Yet Established Any Reserves On The Project Land and There Is No
Assurance That We Ever Will.
There
are
numerous uncertainties inherent in estimating quantities of bitumen resources,
including many factors beyond our control, and no assurance can be given that
the recovery of bitumen will be realized. In general, estimates of recoverable
bitumen resources are based upon a number of factors and assumptions made as
of
the date on which the resource estimates were determined, such as geological
and
engineering estimates which have inherent uncertainties and the assumed effects
of regulation by governmental agencies and estimates of future commodity prices
and operating costs, all of which may vary considerably from actual results.
All
such estimates are, to some degree, uncertain and classifications of resources
are only attempts to define the degree of uncertainty involved. For these
reasons, estimates of the recoverable bitumen, the classification of such
resources based on risk of recovery, prepared by different engineers or by
the
same engineers at different times, may vary substantially. No estimates of
commerciality or recoverable bitumen resources can be made at this time, if
ever.
Our
Business May Suffer If We Do Not Attract And Retain Talented
Personnel.
Our
success will depend in large measure on the abilities, expertise, judgment,
discretion integrity and good faith of our management and other personnel in
conducting our intended business. We presently have a small management team
which we intend to expand in conjunction with our planned operations and growth.
The loss of a key individual or our inability to attract suitably qualified
staff could materially adversely impact our business.
We
have
an employment agreement with Mr. Stevenson. This agreement expires on April
22,
2008 and is automatically renewable annually unless one party gives notice
of
non-renewal. Access has a management contract with Coniston (“Coniston
Agreement”). The Coniston Agreement terminates on October 31, 2007 and is
automatically renewable unless one party gives notice of non-renewal. As a
practical matter, these agreements will not assure the retention of Mr.
Stevenson or Mr. Parisotto and we may not be able to enforce all of their
provisions either generally or its non-competition provisions specifically.
A
copy of the Coniston Agreement is attached as Exhibit 10.1 to this Current
Report and is incorporated by reference.
That
the Purchase Was Not Consummated Until Mid-Summer May Give Us Insufficient
Time
To Reserve Or Procure Necessary Equipment or Personnel To Conduct Our Winter
Program.
The
Purchase was completed on August 3, 2007. Competition to reserve oil drilling
rigs, other equipment, and qualified personnel is intense. Had the Purchase
occurred earlier, we would have wanted to begin reserving equipment and crews
beginning in June 2007 to begin work during early December 2007 or shortly
thereafter. A substantial amount of equipment and qualified crews were already
committed to working on other projects before the Purchase was consummated.
We
do not know what resources remain available for our use during our Winter
Program. If insufficient resources are available, we may have to limit our
Winter Program, perhaps substantially.
18
We
May Not Be Able To Establish Unconventional Oil Operations or Manage Our Growth
Effectively, Which May Harm Our Profitability.
Our
strategy envisions establishing and expanding our unconventional oil business.
If we fail to effectively establish unconventional oil operations and thereafter
manage our growth, our financial results could be adversely affected. Growth
may
place a strain on our management systems and resources. We must continue to
refine and expand our business development capabilities, our systems and
processes and our access to financing sources. As we grow, we must continue
to
hire, train, supervise and manage new employees. We cannot assure you that
we
will be able to:
| · |
meet
our capital needs;
|
| · |
expand
our systems effectively or efficiently or in a timely manner;
|
| · |
allocate
our human resources optimally;
|
| · |
identify
and hire qualified employees or retain valued employees; or
|
| · |
incorporate
effectively the components of any business that we may acquire in
our
effort to achieve growth.
|
If
we are
unable to manage our growth, our operations and our financial results could
be
adversely affected by inefficiency, which could diminish our profitability.
Our
Lack Of Diversification Will Increase The Risk Of an Investment In Us, As Our
Financial Condition May Deteriorate If We Fail To Diversify.
Our
business will focus on the unconventional oil industry in a single property.
Larger companies have the ability to manage their risk by diversification.
However, we will lack diversification, in terms of both the nature and
geographic scope of our business. As a result, we will likely be impacted more
acutely by factors affecting our industry or the regions in which we operate
than we would if our business were more diversified, enhancing our risk profile.
If we cannot diversify our operations, our financial condition and results
of
operations could deteriorate.
Relationships
Upon Which We May Rely Are Subject To Change, Which May Diminish Our Ability
To
Conduct Our Operations.
To
develop our business, it will be necessary for us to establish business
relationships which may take the form of joint ventures with private parties
and
contractual arrangements with other unconventional oil companies, including
those that supply equipment and other resources that we expect to use in our
business. We may not be able to establish these relationships, or if
established, we may not be able to maintain them. In addition, the dynamics
of
our relationships with strategic partners may require us to incur expenses
or
undertake activities we would not otherwise be inclined to in order to fulfill
our obligations to these partners or maintain our relationships. If our
strategic relationships are not established or maintained, our business
prospects may be limited, which could diminish our ability to conduct our
operations.
19
An
Increase In Royalties Payable May Make Our Operations
Unprofitable.
Any
development project of our resource assets will be directly affected by the
royalty regime applicable. The economic benefit of future capital expenditures
for the project is, in many cases, dependent on a satisfactory royalty regime.
There can be no assurance that the provincial governments will not adopt a
new
royalty regime that will make capital expenditures uneconomic or that the
royalty regime currently in place will remain unchanged. In addition to
royalties payable to the government, we have granted a 1.25% nonconvertible
overriding royalty based on 100% production from A10’s production to Coniston
pursuant to the Coniston Agreement. See “Executive Compensation—Agreements With
Officers, Directors And Consultants—Paul Parisotto.”
Access
May Sell Interests in the Projects.
In
the
future, Access may sell, lease, farmout, or otherwise transfer a portion of
its
working interest or carried interest in a given Project. It may also transfer
a
portion of its rights under the Joint Venture Agreement and Amendment. Any
reduction of Access’ interests will result in lower revenues once a Project
enters production. In addition, there can be no assurance that any or all of
these transfers will be on economically beneficial terms.
Our
Management Team Does Not Have Extensive Experience In U.S. Public Company
Matters, Which Could Impair Our Ability To Comply With Legal And Regulatory
Requirements.
Our
management team has had limited U.S. public company management experience or
responsibilities, which could impair our ability to comply with legal and
regulatory requirements such as the Sarbanes-Oxley Act of 2002 and applicable
U.S. federal securities laws, including filing required reports and other
information required on a timely basis. There can be no assurance that our
management will be able to implement and affect programs and policies in an
effective and timely manner that adequately respond to increased legal,
regulatory compliance and reporting requirements imposed by such laws and
regulations. Our failure to comply with such laws and regulations could lead
to
the imposition of fines and penalties and result in the deterioration of our
business.
Because
Our Officers Have Other Business Interests, They May Not Be Able To Devote
A
Sufficient Amount Of Time To Our Business Operation, Causing Our Business To
Fail.
Each
of
Mr. Stevenson, Mr. Wilson, and Mr. Parisotto is involved with other mineral
or
petroleum exploration companies and unable to devote all of their respective
business time and effort to us. Our officers and directors presently possess
adequate time to attend to our interests. In the future, our management will
use
their best efforts to devote sufficient time to the management of our business
and affairs and, provided additional staff may be retained on acceptable terms,
our management will engage additional officers and other staff should additional
personnel be required. However, it is possible that our demands on management's
time could increase to such an extent that they come to exceed their available
time, or that additional qualified personnel cannot be located and retained
on
commercially reasonable terms. This could negatively impact our business
development.
20
Because
Our Officers And Directors Are Involved Or Affiliated With Other Oil and Gas
Exploration Companies, They May Have Conflicts Of Interest With
Us.
Both
Mr.
Stevenson and Mr. Rick Wilson, one of our Directors, is involved or affiliated
with one or more other resource exploration companies. As a result of these
relationships, they may have or may develop conflicts of interest with
us.
Competition
In Obtaining Rights To Acquire and Develop Unconventional Oil Reserves and
To
Market Our Production May Impair Our Business.
The
unconventional oil industry is highly competitive. Other unconventional oil
companies may seek to acquire property leases and other properties and services
we will need to operate our business in the areas in which we expect to operate.
This competition has become increasingly intense as the price of oil on the
commodities markets has risen in recent years. A number of other companies
have
entered or have indicated they are planning to enter the oil sands business
and
begin production of bitumen and synthetic crude oil or expand their existing
operations. It is difficult to assess the number, level of production and
ultimate timing of all of the potential new producers or where existing
production levels may increase.
Additionally,
other companies engaged in our proposed line of business may compete with us
from time to time in obtaining capital from investors. Competitors include
larger companies, which, in particular, may have access to greater resources,
may be more successful in the recruitment and retention of qualified employees
and may conduct their own refining and petroleum marketing operations, which
may
give them a competitive advantage. If we are unable to compete effectively
or
adequately respond to competitive pressures, this inability may materially
adversely affect our results of operation and financial condition.
The
oil
industry competes with other industries in the supply of energy, fuel, and
related products to consumers. A number of other ventures have announced plans
to enter the unconventional oil development business or expand existing
operations. Development of new projects or expansion of existing operations
could materially increase the supply of synthetic crude oil in the marketplace.
Depending upon the levels of future demand, increased supplies could negatively
impact the prices obtained for oil.
Our
success depends on the ability of our management and employees to interpret
market and geological data correctly and to interpret and respond to economic,
market and other conditions in order to locate and adopt appropriate investment
opportunities, monitor such investments, and ultimately, if required, to
successfully divest such investments. Our future success also depends on our
ability to identify, attract, hire, train, retain and motivate other highly
skilled technical, managerial, and marketing personnel. Competition for such
personnel is intense, and there can be no assurance that we will be able to
successfully attract, integrate or retain sufficiently qualified
personnel.
Losses
And Liabilities Arising From Uninsured Or Under-Insured Hazards Could Have
a
Material Adverse Effect On Our Business.
Our
proposed unconventional oil operations will be subject to the customary hazards
of recovering, transporting and processing hydrocarbons, such as fires,
explosions, gaseous leaks, migration of harmful substances, blowouts and oil
spills. A casualty occurrence might result in the loss of equipment or life,
as
well as injury, property damage or other liability. We have not made a
determination as to the amount and type of insurance that we will carry. It
cannot be assured that our insurance will be sufficient to cover any such
casualty occurrences or disruptions. Our operations could be interrupted by
natural disasters or other events beyond our control. Losses and liabilities
arising from uninsured or under-insured events could have a material adverse
effect on our business, financial condition and results of
operations.
21
Risks
Related To Our Financial Condition
The
Companies Have a History Of Losses, an Accumulated Deficit, and Expect To
Continue To Incur Losses for the Foreseeable Future.
On
a pro
forma basis, the Companies’ incurred combined losses of $308,302 for the 12
months ended October 31, 2006 and $1,183,748 for the six months ended April
30,
2007, cumulative losses of $1,528,806 since their respective inceptions, and
a
combined stockholders’equity of $10,364,184 at April 30, 2007. We expect to lose
money for the foreseeable future while we explore and develop petroleum reserves
on the Project Lands.
We
Will Require Significant Additional Financing In Order To Continue Our
Exploration Activities Or We Will
Fail.
After
giving effect to the Purchase, the Companies had $7,020,350 cash on hand.
(The
figure quoted is in U.S. dollars, although $57,506 of that amount was held
in Canadian dollars.) Our
Summer Program calls for a minimum of Cdn$1 million to be spent on exploration
efforts. Based on the results of the Summer Program and availability of capital,
plans for exploration during the winter of 2007-2008 (“Winter Program”) will be
formulated. Any money not spent during the Summer Program will be available
to
fund the Winter Program. Operating
costs of the Summer and Winter Programs may be greater than we anticipate,
such
that we may have to seek additional funds sooner than otherwise
expected. We
currently are in the exploration stage and we have no revenue from operations
and we are experiencing significant negative cash flow.
We
will
be dependent on raising capital, debt or equity, from outside sources to pay
for
further exploration and development of our property. Such capital may not be
available to us when we need it on terms acceptable to us if at all. The
issuance of additional equity securities by us will result in a dilution to
our
current stockholders which could depress the trading price of our common stock.
Obtaining debt financing 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 be
required to scale back or cease our operations. The terms of securities we
issue
in future capital transactions may be more favorable to our new investors,
and
may include preferences, superior voting rights and the issuance of warrants
or
other derivative securities, and issuances of incentive awards under equity
employee incentive plans, which may have a further dilutive effect.
We
may
incur substantial costs in pursuing future capital financing, including
investment banking fees, legal fees, accounting fees, securities law compliance
fees, and other costs. We may also be required to recognize non-cash expenses
in
connection with certain securities we may issue, such as convertible notes
and
warrants, which may adversely impact our financial condition.
22
Our
Independent Auditors Have Expressed Doubt About Our Ability To Continue As
A
Going Concern. This Could Make It More Difficult For Us To Raise Funds and
Adversely Affect Our Relationships With Lenders, Investors And
Suppliers.
Our
independent registered public accounting firm, Sherb & Co. (“Sherb”),
included an explanatory paragraph that expresses doubt as to our ability to
continue as a going concern in the footnotes to the financial statements
contained in our report on Form 10-Q for the quarter ended April 30, 2007.
Although we believe that as a result of our recent financings, shift in business
plan and Purchase, that we can overcome such doubt in the future, we cannot
provide any assurance that we will in fact operate our business profitably
or
obtain sufficient financing to sustain our business in the event we are not
successful in our efforts to generate sufficient revenue and operating cash
flow. Accordingly, there can be no assurance that Sherb’s report on our future
financial statements for any future period will not include a similar
explanatory paragraph if we are unable to successfully implement our business
plan. Sherb’s expression of such doubt or our inability to overcome the factors
leading to such doubt could have a material adverse effect on our relationships
with prospective customers, lenders, investors and suppliers, and therefore
could have a material adverse effect on our business.
Risks
Related To Our Industry
Exploration
For Petroleum Products Is Inherently Speculative. There Can Be No Assurance
That
We Will Ever Establish Commercial Discoveries.
Exploration
for economic reserves of oil and gas is subject to a number of risk factors.
Few
properties that are explored are ultimately developed into producing oil or
gas
wells. Our properties are in the exploration stage only and are without proven
reserves of oil and gas. We may not establish commercial discoveries on any
of
our properties.
There
are
numerous uncertainties inherent in estimating quantities of unconventional
oil
resources, including many factors beyond our control, and no assurance can
be
given that expected levels of resources or recovery of unconventional oil will
be realized. In general, estimates of recoverable unconventional oil resources
are based upon a number of factors and assumptions made as of the date on which
resource estimates are determined, such as geological and engineering estimates
which have inherent uncertainties and the assumed effects of regulation by
governmental agencies and estimates of future commodity prices and operating
costs, all of which may vary considerably from actual results. All such
estimates are, to some degree, uncertain and classifications of resources are
only attempts to define the degree of uncertainty involved. For these reasons,
estimates of the recoverable unconventional oil, the classification of such
resources based on risk of recovery, prepared by different engineers or by
the
same engineers at different times, may vary substantially.
23
Prices
And Markets For Oil Are Unpredictable and Tend To Fluctuate Significantly,
Which
Could Reduce Profitability, Growth and the Value of Our Proposed
Business.
Our
revenues and earnings, if any, will be highly sensitive to the price of oil.
Prices for oil are subject to large fluctuations in response to relatively
minor
changes in the supply of and demand for oil, market uncertainty and a variety
of
additional factors beyond our control. These factors include, without
limitation, weather conditions, the condition of the Canadian, U.S. and global
economies, the actions of the Organization of Petroleum Exporting Countries,
governmental regulations, political stability in the Middle East and elsewhere,
war, or the threat of war, in oil producing regions, the foreign supply of
oil,
the price of foreign imports and the availability of alternate fuel sources.
Significant changes in long-term price outlooks for crude oil could have a
material adverse effect on us. For example, market fluctuations of oil prices
may render uneconomic the mining, extraction and upgrading of tar sands reserves
containing relatively lower grades of bitumen.
Natural
gas prices realized by us are affected primarily by North American supply and
demand and by prices of alternate sources of energy. All of these factors
are beyond our control and can result in a high degree of price volatility
not
only in crude oil and natural gas prices, but also fluctuating price
differentials between heavy and light grades of crude oil, which can impact
prices for sour crude oil and bitumen. Oil and natural gas prices have
fluctuated widely in recent years and we expect continued volatility and
uncertainty in crude oil and natural gas prices. A prolonged period of low
crude oil and natural gas prices could affect the value of our crude oil and
gas
properties and the level of spending on growth projects, and could result in
curtailment of production on some properties. Accordingly, low crude oil
prices in particular could have an adverse impact on our financial condition
and
liquidity and results of operations. A key component of our business strategy
is
to produce sufficient natural gas to meet or exceed internal demands for natural
gas purchased for consumption in our operations, creating a price hedge which
reduces our exposure to gas price volatility. However, there are no assurances
that we will be able to continue to increase production to keep pace with
growing internal natural gas demands.
We
Are Exposed To Fluctuations In The Exchange Rate Between The U.S. Dollar And
The
Canadian Dollar.
Substantially
all our cash is denominated in U.S., Dollars while substantially all our costs
of operations are paid in Canadian Dollars. Over the past three years, the
U.S.
Dollar has depreciated against he Canadian Dollar by approximately one-third.
This has effectively devalued our cash position vis a vis our operating costs.
Our financial statements and the pro forma financial statements included herein
are presented in U.S. dollars. Continued fluctuations in exchange rates between
the U.S. and Canadian dollar may give rise to foreign currency exposure, either
favorable or unfavorable, creating another element of uncertainty.
Existing
Environmental Regulations Impose Substantial Operating Costs Which Could
Adversely Effect Our Business.
Environmental
regulation affects nearly all aspects of our operations. These regulatory
regimes are laws of general application that apply to us in the same manner
as
they apply to other companies and enterprises in the energy industry.
Unconventional oil sand extraction operations present environmental risks and
hazards and are subject to environmental regulation pursuant to a variety of
federal, provincial and municipal laws and regulations. Environmental
legislation provides for, among other things, restrictions and prohibitions
on
spills, releases or emissions of various substances produced in association
with
oil operations. The legislation also requires that facility sites be operated,
maintained, abandoned and reclaimed to the satisfaction of applicable regulatory
authorities. Compliance with such legislation can require significant
expenditures and a breach may result in the imposition of fines and penalties,
some of which may be material.
24
In
addition to these specific, known requirements, we expect future changes to
environmental legislation, including anticipated legislation for air pollution
and greenhouse gases that will impose further requirements on companies
operating in the energy industry. Changes in environmental regulation could
have
an adverse effect on us from the standpoint of product demand, product
reformulation and quality, methods of production and distribution and costs,
and
financial results. For example, requirements for cleaner-burning fuels
could cause additional costs to be incurred, which may or may not be recoverable
in the marketplace. The complexity and breadth of these issues make it
extremely difficult to predict their future impact on us. Management
anticipates capital expenditures and operating expenses could increase in the
future as a result of the implementation of new and increasingly stringent
environmental regulations.
Abandonment
and Reclamation Costs Are Unknown and May Be Substantial.
Certain
environmental regulations govern the abandonment of project properties and
reclamation of lands at the end of their economic life, the costs of which
may
be substantial. A breach of such regulations may result in the issuance of
remedial orders, the suspension of approvals, or the imposition of fines and
penalties, including an order for cessation of operations at the site until
satisfactory remedies are made. It is not possible to estimate with certainty
abandonment and reclamation costs since they will be a function of regulatory
requirements at the time.
Changes
In the Granting of Governmental Approvals Could Raise Our Costs and Adversely
Affect Our Business.
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 expiration. 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.
Amendments
To Current Laws and Regulations Governing Our Proposed Operations Could Have
a
Material Adverse Impact On Our Proposed Business.
Our
business will be subject to substantial regulation under provincial and federal
laws relating to the exploration for, and the development, upgrading, marketing,
pricing, taxation, and transportation of unconventional oil and related products
and other matters. Amendments to current laws and regulations governing
operations and activities of unconventional oil extraction operations could
have
a material adverse impact on our proposed business. In addition, there can
be no
assurance that income tax laws, royalty regulations and government incentive
programs related to the unconventional oil industry generally, will not be
changed in a manner which may adversely affect us and cause delays, inability
to
complete or abandonment of properties.
25
Our
Inability to Obtain Necessary Facilities Could Hamper Our
Operations.
Unconventional
oil extraction and development activities are dependent on the availability
of
equipment, transportation, power and technical support in the particular areas
where these activities will be conducted, and our access to these facilities
may
be limited. To the extent that we conduct our activities in remote areas, needed
facilities may not be proximate to our operations, which will increase our
expenses. Demand for such limited equipment and other facilities or access
restrictions may affect the availability of such equipment to us and may delay
exploration and development activities. The quality and reliability of necessary
facilities may also be unpredictable and we may be required to make efforts
to
standardize our facilities, which may entail unanticipated costs and delays.
Shortages or the unavailability of necessary equipment or other facilities
will
impair our activities, either by delaying our activities, increasing our costs
or otherwise.
We
Are Subject To Technology Risks In All Of Our Proposed Unconventional Oil
Operations.
We
currently plan to employ commercially proven technologies in all of our
unconventional oil operations. Our intent is to employ these commercially proven
technologies in concert but tied together in a fashion which is innovative
to
the resource with which we are operating. Arranging these technologies as
conceptualized may result in unforeseen issues and challenges that may require
engineering remediation. There is no assurance that capital and operating cost
performance as anticipated from the use of these proven technologies will be
realized.
We
May Have Difficulty Distributing Our Production.
In
order
to sell the oil that we are able to produce, we will have to make arrangements
for storage and distribution to the market. We will rely on local infrastructure
and the availability of transportation for storage and shipment of our products,
but infrastructure development and storage and transportation facilities may
be
insufficient for our needs at commercially acceptable terms in the localities
in
which we operate. This could be particularly problematic to the extent that
our
operations are conducted in remote areas that are difficult to access, such
as
areas that are distant from shipping or pipeline facilities. These factors
may
affect our ability to explore and develop properties and to store and transport
our oil production and may increase our expenses.
Furthermore,
weather conditions or natural disasters, actions by companies doing business
in
one or more of the areas in which we will operate, or labor disputes may impair
the distribution of oil and in turn diminish our financial condition or ability
to maintain our operations.
26
Challenges
to Title to Our Properties May Impact Our Financial Condition.
Title
to
oil interests is often not capable of conclusive determination without incurring
substantial expense. While we intend to make appropriate inquiries into the
title of properties and other development rights we acquire, title defects
may
exist. In addition, we may be unable to obtain adequate insurance for title
defects, on a commercially reasonable basis or at all. If title defects do
exist, it is possible that we may lose all or a portion of our right, title
and
interests in and to the properties to which the title defects relate. If our
property rights are reduced, our ability to conduct our exploration, development
and production activities may be impaired.
Risks
Related To Our Common Stock
There
Is No Established Trading Market For Our Common Stock Which May Impair Your
Ability To Sell Your Common Stock.
Our
common stock is currently quoted on the Over-the-Counter Bulletin Board under
the symbol “BSPE.” There has been no established trading market for our common
stock since our inception. The lack of an active market may make it difficult
to
obtain accurate quotations of the price of our common stock and impair your
ability to sell your common stock at the time you wish to sell them or at a
price that you consider reasonable. The lack of an active market may also reduce
the fair market value of your common stock. An inactive market may also impair
our ability to raise capital by selling shares of capital stock and may impair
our ability to acquire other companies or technologies by using common stock
as
consideration.
The
Market Price of Our Common Stock Is Likely To Be Highly Volatile and Subject
To
Wide Fluctuations.
Assuming
we are able to establish and maintain an active trading market for our common
stock, the market price of our common stock is likely to be highly volatile
and
could be subject to wide fluctuations in response to a number of factors that
are beyond our control, including:
| · |
fluctuations
in revenue from our unconventional oil business as new reserves come
to
market;
|
| · |
announcements
of acquisitions, reserve discoveries or other business initiatives
by our
competitors;
|
| · |
changes
in the demand for oil, including changes resulting from the introduction
or expansion of alternative fuels;
|
| · |
announcements
by relevant governments pertaining to incentives for alternative
energy
development programs;
|
| · |
quarterly
variations in our revenues and operating
expenses;
|
| · |
dilution
caused by our issuance of additional shares of common stock and other
forms of equity securities, which we expect to make in connection
with
future capital financings to fund our operations and growth, to attract
and retain valuable personnel and in connection with future strategic
partnerships with other companies;
|
| · |
significant
sales of our common stock, including sales by selling stockholders
and by
future investors in future offerings we expect to make to raise additional
capital;
|
| · |
changes
in analysts’ estimates affecting us, our competitors or our
industry;
|
27
| · |
changes
in the valuation of similarly situated companies, both in our industry
and
in other industries;
|
| · |
announcements
of technological innovations or new products available to the
unconventional oil industry;
|
| · |
changes
in the accounting methods used in or otherwise affecting our industry;
or
|
| · |
fluctuations
in interest rates and the availability of capital in the capital
markets;
|
These
and
other factors are largely beyond our control, and the impact of these risks,
singly or in the aggregate, may result in material adverse changes to the market
price of our common stock and our results of operations and financial
condition.
Our
Operating Results May Fluctuate Significantly, and These Fluctuations May Cause
Our Stock Price To Decline.
Our
operating results will likely vary in the future as the result of fluctuations
in our revenues and operating expenses, including the coming to market of oil
reserves that we are able to develop, expenses that we incur, the price of
oil
in the commodities markets and other factors. If our results of operations
do
not meet the expectations of current or potential investors, the price of our
common stock may decline.
Applicable
SEC Rules Governing the Trading of “Penny Stocks” Will Limit the Trading and
Liquidity of Our Common Stock, Which May Affect the Trading Price of Our Common
Stock.
Our
common stock is presently considered to be a “penny stock” and is subject to SEC
rules and regulations which impose limitations upon the manner in which such
shares may be publicly traded and regulate broker-dealer practices in connection
with transactions in such stocks. Penny stocks generally are equity securities
with a price of less than $5.00 (other than securities registered on certain
national securities exchanges, provided that current price and volume
information with respect to transactions in such securities is provided by
the
exchange or system).
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 that provides information about penny stocks and the risks in the
penny
stock market. The broker-dealer must also 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. In
addition, the penny stock rules generally require that prior to a transaction
in
a penny stock, the broker-dealer 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 a stock that becomes subject to the penny stock rules which may
increase the difficulty investors may experience in attempting to liquidate
such
securities.
28
NASD
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, the National Association
of
Securities Dealers (“NASD”) 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, the NASD believes
that
there is a high probability that speculative low priced securities will not
be
suitable for at least some customers. NASD 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 common stock.
We
Do
Not Expect To Pay Dividends In The Foreseeable Future.
We
do not
intend to declare dividends for the foreseeable future, as we anticipate that
we
will reinvest any future earnings in the development and growth of our business.
Therefore, investors will not receive any funds unless they sell their common
stock, and stockholders may be unable to sell their common stock on favorable
terms or at all. Investors cannot be assured of a positive return on investment
or that they will not lose the entire amount of their investment in the common
stock.
MANAGEMENT’S
DISCUSSION AND ANALYSIS
Prior
to
our acquisition of Access’ common stock, we were a development stage company
with no revenues. We expect that the Purchase will cause our plan of operation,
results of operations and capital resources to differ materially from our
financial position as it existed prior to the Purchase.
During
the summer of 2007, we expect to spend a
minimum
of
Cdn$1
million in preliminary exploration efforts. We expect to conduct our summer
program (“Summer Program”) without requiring additional financing. Our Winter
Program will be defined based on the results of the Summer Program and the
availability of capital. While difficult to predict, the tentative budget for
such program will be a
minimum
of
Cdn$1
million even if we do not seek additional financing.
Effect
of Purchase of Access Common Stock
We
paid
the purchase price to Access, which made arrangements to pay third parties
money
owed as of the Closing Date. Such arrangements include (figures include the
payment of Canadian Goods and Service Tax, as applicable):
| · |
Cdn$1,948,298
(approximately US$1.870,000) in consulting fees and expenses to Coniston
Investment Corp., a company controlled by Mr. Parisotto, the President
of
Access. See “Executive Compensation—Agreements with Officers, Directors,
and Consultants—Paul Parisotto.”
|
29
| · |
Cdn$924,499
(approximately US$889,000) in principal and interest under three
loan
agreements; See "—Liquidity and Capital Resources—Cash Flows from
Financing Activities;" and
|
| · |
Cdn
$125,000 (approximately US$120,000) directly to the Dene pending
receipt
of final closing documents and miscellaneous outstanding
matters.
|
Selected
Financial Information of Blacksands
|
As
At April 30, 2007
|
|
As
At October 31, 2006
|
|||||
|
Current
Assets
|
$
|
11,403,308
|
$
|
11,651,339
|
|||
|
Total
Assets
|
$
|
11,532,829
|
$
|
11,692,566
|
|||
|
Current
Liabilities
|
$
|
1,168,645
|
$
|
100,038
|
|||
|
Stockholders’
Equity
|
$
|
10,364,184
|
$
|
11,592,528
|
|||
Results
of Operations
Blacksands
For
the
six months ended April 30, 2007, and since our inception on October 12, 2004,
we
have not generated any revenue.
We
incurred total operating expenses of $1,420,726 for the six months ended April
30, 2007, as compared to total operating expenses of $4,778 for the six months
ended April 30, 2006. These expenses consisted of general operating expenses
incurred in connection with the day-to-day operation of our business and the
preparation and filing of our periodic reports as well as the salary paid to
Mr.
Stevenson. The significant operating expenses include professional fees of
$209,792 for the six months ended April 30, 2007 incurred in connection with
filing of SEC periodic reports, audit and accounting fees and general corporate
matters in connection with change of name, stock-split and issuance of shares
of
common stock as compared with professional fees of $625 for the six months
ended
April 30, 2006. The office and administration expenses of $55,846 for the six
months ended April 30, 2007 include rent, travel, telephone and other office
expenses as compared to office and administration expenses of $4,111 for the
six
months ended April 30, 2006. During the six months ended April 30, 2007, we
incurred exploration expenses of $1,124,029 compared to exploration expenses
of
$0 for the six months ended April 30, 2006. During the six months ended
April 30, 2007, we incurred exploration expenses of $1,124,029, compared to
exploration expenses of $0 for the six months ended April 30, 2006. The
exploration expense related to the purchase of certain seismic data for a
portion of the Project Land and consulting fees paid to analyze the data.
We
earned
total interest income of $238,260 for the six months ended April 30, 2007,
as
compared to total interest income of $0 for the six months ended April 30,
2006.
The interest was earned on the proceeds of a private placement of our common
stock and common stock purchase warrants on August 9, 2006 of
$10,854,700.
Our
total
comprehensive loss for the six months ended April 30, 2007 was $1,183,748,
as
compared to a total comprehensive loss of $2,955 for the six months ended April
30, 2006, and a total comprehensive loss of $1,508,622 from inception on October
12, 2004 to April 30, 2007.
30
Access
For
the
six months ended April 30, 2007, and since its inception on August 26, 2005,
Access had not generated any revenue.
Access
incurred total operating expenses of Cdn$181,503
for the six months ended April 30, 2007, as compared to total operating
expenses of Cdn$147,373 for the six months ended April 30, 2006. These expenses
consisted of general operating expenses incurred in connection with the
day-to-day operation of our business, management fees and accounting, audit
and
legal for April 30, 2007 of Cdn$149,194 as compared with Cdn$145,598 for
the six months ended April 30, 2006. The office and administration expenses
of
Cdn$2,073 for the six months ended April 30, 2007 include rent, travel,
telephone and other office expenses as compared to office and administration
expenses of Cdn$5,188 for the six months ended April 30, 2006.
Access’
total comprehensive loss for the six months ended April 30, 2007 was
Cdn$181,503, as compared to total comprehensive loss of Cdn$147,373 for the
six
months ended April 30, 2006, and a total comprehensive loss of Cdn$527,279
from
inception on August 25, 2005 to April 30, 2007.
Critical
Accounting Policies
Our
financial statements are based on the selection and application of generally
accepted accounting principles, which require us to make estimates and
assumptions about future events that affect the amounts reported in our
financial statements and the accompanying notes. Future events and their effects
cannot be determined with certainty. Therefore, the determination of estimates
requires the exercise of judgment. Actual results could differ from those
estimates, and any such differences may be material to our financial statements.
We believe that our policies may involve a higher degree of judgment and
complexity in their application than our other accounting policies and represent
the critical accounting policies used in the preparation of our financial
statements. If different assumptions or conditions were to prevail, the results
could be materially different from our reported results. Our significant
accounting policies are presented in the notes to our financial
statements.
When
we
prepare our consolidated financial statements, we use estimates and assumptions
that may affect reported amounts and disclosures. We base these estimates on
historical results and various other assumptions believed to be reasonable,
the
results of which form the basis for making estimates concerning the carrying
value of assets and liabilities that are not readily available from other
sources. Actual results could differ from the amounts previously estimated,
which were based on the information available at the time the estimates were
made. Changes in estimates are recorded if and when better information becomes
available.
We
consider an accounting estimate to be critical if: (1) the accounting estimate
requires us to make an assumption about a matter that was highly uncertain
at
the time the estimate was made, and (2) changes in the estimate that are
reasonably likely to occur from period to period, or use of a different estimate
that we reasonably could have used in the current period, could have a material
impact on our consolidated results of operations or financial
condition.
31
As
we
were, until recently, a development stage company with no revenues, we do not
yet have an Audit Committee.
New
Accounting Pronouncements
In
December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based Payment,
which is a revision of SFAS No. 123, Accounting for Stock-Based Compensation.
SFAS No. 123(R) supersedes APB Opinion No. 25, Accounting for Stock Issued
to
Employees, and amends SFAS No. 95, Statement of Cash Flows. Generally, the
approach in SFAS No. 123(R) is similar to the approach described in SFAS No.
123. However, SFAS No. 123(R) requires all share-based payments to employees,
including grants of employee stock options, to be recognized in the income
statement based on their fair values. Pro forma disclosure is no longer an
alternative. The new standard became effective for us in the first interim
or
annual reporting period beginning after December 15, 2005. We adopted this
standard effective for the year ended October 31, 2006.
In
May
2005, the FASB issued SFAS No. 154, “Accounting Changes and Error
Corrections” (“SFAS 154”). SFAS 154 replaces Accounting Principles
Board Opinion No. 20 “Accounting Changes” and SFAS No. 3,
“Reporting Accounting Changes in Interim Financial Statements-An Amendment of
APB Opinion No. 28.” SFAS 154 provides guidance on the accounting for
and reporting of accounting changes and error corrections. SFAS 154
requires “retrospective application” of the direct effect of a voluntary change
in accounting principle to prior periods’ financial statements where it is
practicable to do so. SFAS 154 also redefines the term “restatement” to
mean the correction of an error by revising previously issued financial
statements. SFAS 154 is effective for accounting changes and error
corrections made in fiscal years beginning after December 15, 2005 unless
adopted early. We do not expect the adoption of SFAS 154 to have a material
impact on our consolidated financial position, results of operations or cash
flows, except to the extent that the statement subsequently requires
retrospective application of a future item.
In
February 2006, the FASB issued SFAS No. 155, Accounting for Certain Hybrid
Financial Instruments (“SFAS No. 155”), which amends SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities (“SFAS
No. 133”) and SFAS No. 140, Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities (“SFAS No. 140”). SFAS
No. 155 permits fair value measurement for any hybrid financial instrument
that contains an embedded derivative that otherwise would require bifurcation,
establishes a requirement to evaluate interests in securitized financial assets
to identify interests that are freestanding derivatives or hybrid financial
instruments containing embedded derivatives. SFAS 155 is effective for all
financial instruments acquired or issued after the beginning of an entity’s
first fiscal year that begins after September 15, 2006. Earlier adoption is
permitted as of the beginning of an entity’s fiscal year, provided the entity
has not yet issued financial statements, including financial statements for
any
interim period for that fiscal year. We do not expect the adoption of
SFAS 155 to have a material impact on our consolidated financial position,
results of operations or cash flows.
In
March
2006, the FASB issued SFAS No. 156, Accounting for Servicing of Financial
Assets (“SFAS No. 156”), which amends FASB Statement No. 140 (“SFAS No. 140”).
SFAS 156 may be adopted as early as January 1, 2006, for calendar year-end
entities, provided that no interim financial statements have been issued. Those
not choosing to early adopt are required to apply the provisions as of the
beginning of the first fiscal year that begins after September 15, 2006 (e.g.,
January 1, 2007, for calendar year-end entities). The intention of the new
statement is to simplify accounting for separately recognized servicing assets
and liabilities, such as those common with mortgage securitization activities,
as well as to simplify efforts to obtain hedge-like accounting.
Specifically, the FASB said FAS No. 156 permits a service using derivative
financial instruments to report both the derivative financial instrument and
related servicing asset or liability by using a consistent measurement
attribute, or fair value. We do not expect the adoption of SFAS 155 to
have a material impact on our consolidated financial position, results of
operations or cash flows.
32
In
September 2006, the FASB issued FASB Statement No. 157. This Statement defines
fair value, establishes a framework for measuring fair value in generally
accepted accounting principles, and expands disclosures about fair value
measurements. This Statement applies under other accounting pronouncements
that
require or permit fair value measurements, the Board having previously concluded
in those accounting pronouncements that fair value is a relevant measurement
attribute. Accordingly, this Statement does not require any new fair value
measurements. However, for some entities, the application of this Statement
will
change current practices. This Statement is effective for financial statements
for fiscal years beginning after November 15, 2007. Earlier application is
permitted provided that the reporting entity has not yet issued financial
statements for that fiscal year. Management believes this Statement will have
no
impact on our financial statements once adopted.
Liquidity
and Capital Resources
As
of the
Closing Date, the combined companies had cash on hand of
$7,020,350.
Revenues
Neither
we nor Access has had any revenue since our respective inceptions.
Net
Cash Used In Operating Activities
On
May 24, 2007, we purchased certain seismic data relating to a portion of
the Project Land for $1,045,000 in cash, $45,000 of which from our working
capital accounts and $1 million from our restricted cash account held in escrow.
The $1 million was released from escrow by the instructions of four purchasers
in the private placement described below.
Cash
Flows from Financing Activities
Cash
provided by financing activities for the year ended October 31, 2006 and the
six
months ended April 30, 2007 was (i) $1 million from our issuance of
convertible debentures and (ii) $10,854,700
as
proceeds from a private placement of our Units.
As
part
of the purchase price, we paid Cdn$850,000 in outstanding principal, plus
Cdn$74,499 in accrued and unpaid interest on indebtedness from three loan
agreements with unaffiliated parties. Each of the loans bore interest at 8%,
were due between March 2008 and May 2009, and contained no prepayment
penalties.
33
Effective
May 6, 2006 we issued $1 million principal amount of our Debentures to two
Accredited Investors pursuant to the exemption from the registration
requirements of the Securities Act, provided by Rule 506 of Regulation D and
Section 4(2) of the Securities Act. The Debentures were unsecured, bore interest
at the rate of 9% per annum, which interest began to accrue commencing 150
days
from issuance, and were for a term of three years. The Debentures were payable
in consecutive monthly installments of principal and interest, commencing 150
days from the date of their issuance.
The
Debentures were converted at October 1, 2006 at a rate of $1 to one Unit. The
Debentures had not accrued interest prior to their conversion.
Effective
August 9, 2006, we consummated the sale of 10,854,700 Units of our securities
in
a private placement to Accredited Investors. The offering was conducted pursuant
to the exemption from the registration requirements of the Securities Act
provided Section 4(2) of the Securities Act, Regulation D, and Regulation S.
Some Units were offered and sold to persons who were neither resident in, nor
citizens of, the United States. The private placement consisted of the sale
of
Units, offered at a price of $1.00 per Unit and derived total gross proceeds
of
$10,854,700.
We
obtained the funds for the Purchase from the proceeds of a private placement
of
our Units, $10,854,700, held in a restricted cash account pending the
acquisition in the unconventional petroleum industry.
Off-Balance
Sheet Arrangements
We
have
no off-balance sheet arrangements.
DESCRIPTION
OF PROPERTY
Access
has rights to explore and develop petroleum reserves in properties subject
to
the Joint Venture Agreement and Amendment. See “Background—Access’
Business.”
Blacksands’
executive offices are located at Suite 1250, 645 7th
Avenue,
SW, Calgary, Alberta, T2P 4G8 Canada and its phone number is (403) 806-1677.
Totaling approximately 1,756 sq. ft./m2.
Blacksands
leases the space from Peloton Exploration Corp. pursuant to a lease expiring
on
March 30, 2008, with monthly rental payments of approximately Cdn$6,600.
Prior
to
the Acquisition, Access’ executive offices were shared with those of Coniston.
We have not decided where to locate the executive offices of the combined
companies.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS
AND MANAGEMENT
The
following table sets forth information with respect to the beneficial ownership
of our common stock known by us as of August 3, 2007 by:
| · |
each
person or entity known by us to be the beneficial owner of more than
5% of
our common stock;
|
34
| · |
each
of our directors;
|
| · |
each
of our executive officers; and
|
| · |
all
of our directors and executive officers as a
group.
|
|
Title
of Class
|
Name
of Beneficial Owner
|
|
Amount
and Nature of Beneficial Ownership
|
|
Percentage
of
Class(1)
|
|
||||
|
Common
Stock
|
Darren
R. Stevenson
|
500,000
|
0.6
|
%
|
||||||
|
Common
Stock
|
Bruno
Mosimann
|
0
|
0
|
%
|
||||||
|
Common
Stock
|
Rick
Wilson
|
0
|
0
|
%
|
||||||
|
Common
Stock
|
Paul
Parisotto
|
0
|
|
0
|
%
|
|||||
|
Common
Stock
|
All
officers and directors as a group (4 persons)
|
|
500,000
|
0.6
|
%
|
|||||
The
address for Darren R. Stevenson and Rick Wilson is Suite 1250, 645 7th
Avenue,
SW, Calgary, Alberta, T2P 4G8. The address for Bruno Mosimann is
Herbstackerstreet 27, Ch-8472 Seuzach, Switzerland. The address for Paul
Parisotto is 401 Bay Street, Suite 2700, PO Box 152, Toronto, Ontario MSH
2Y4.
DIRECTORS
AND EXECUTIVE OFFICERS,
PROMOTERS
AND CONTROL PERSONS
Directors
serve until the next annual meeting of the stockholders; until their successors
are elected or appointed and qualified, or until their prior resignation or
removal. Officers serve for such terms as determined by our Board of Directors.
Each officer holds office until such officer’s successor is elected or appointed
and qualified or until such officer’s earlier resignation or removal. No family
relationships exist between any of our present directors and
officers.
The
following table sets forth certain information, as of the date of this report,
with respect to our directors and executive officers.
|
Name
|
Positions
Held
|
Age
|
Date
of Election
or
Appointment
as
Director
|
|||
|
Darren
R. Stevenson
|
|
President,
Chief Executive Officer, Secretary, Director
|
|
35
|
|
May
2006
|
|
Bruno
Mosimann
|
|
Director
|
|
62
|
|
May
2006
|
|
Rick
Wilson
|
Director
|
49
|
February
2007
|
|||
|
Paul
Parisotto
|
Director,
President of Access
|
46
|
July
2007
|
Darren
R. Stevenson,
35, is
an oil and gas executive with experience in technology corporate
turnarounds and mergers and acquisitions. Prior to joining us, Mr. Stevenson
spent four years in The Hague and Amsterdam with Royal Dutch Shell
PLC's consultancy business, Shell Global Solutions. Serving as a business
development director, he led a team in technology and commercial business
development in support of Shell’s business pursuits in Europe, the Middle East
and Russia. Mr. Stevenson graduated from the University of British
Columbia, and over the past 15 years has held a variety of technical and
commercial roles in the oil and gas industry including reservoir and process
engineering, refinery operations and some entrepreneurial pursuits in technology
transfer for fuel cells, software development and aviation. He has also worked
for companies such as Syncrude Canada, Shell Canada and the University of
British Columbia Industry Liaison Office. Mr. Stevenson joined Shell Global
Solutions in 2002, and he is currently the President, CEO and a director of
Bighorn Petroleum Ltd.
35
Bruno
Mosimann,
62, is
an investment manager, resident in Switzerland. He is the president and managing
director of Romofin AG, a firm that supplies asset management services to its
customers. Mr. Mosimann has also served as an officer of various listed
companies. Mr. Mosimann’s other management and directorial experience includes
serving as a vice-president of DRC Resources Corp., a director of Relay Mines
Ltd., and a director of U-Twin Holdings Inc.
Rick
Wilson,
49, has
been in the mining and natural resource industry for over twenty years. Since
2006, Mr. Wilson has been the President of Regent Ventures Ltd., a company
engaged in the acquisition, exploration and development of mineral resource
properties. Regent Ventures currently has an active drilling project in Nevada
and is also involved in the oil and gas industry in Poland. Prior to serving
as
its President, Mr. Wilson was a director of Regent Ventures from 1993 to 2006.
Mr. Wilson also served as the President of Emerson Explorations/GBS Gold
International Inc. from 1998 to 2006, during which time that company raised
over
$62 million dollars to acquire and develop two publicly trading Australian
gold
mines.
Paul
Parisotto,
46, is
an executive with significant investment banking experience. Since December
2004, Mr. Parisotto has served as a director, President and Chief Executive
Officer of Arizona Star Resource Corp. (“Arizona Star”), a publicly traded
company listed on the TSX Venture Exchange as well as the American Stock
Exchange. Mr. Parisotto is also the sole director, stockholder and president
of
Coniston Investment Corp. (“Coniston”) a firm which provides investment banking
services such as raising equity and debt and mergers and acquisitions advisory
services to small public and private market capitalization companies. Since
its
formation in 1999, Coniston has helped raised a total of $75 million for
companies in a variety of industries, including mining, technology and
biotechnology. Mr. Parisotto is a former director of Nevada Pacific Gold Ltd.,
a
company recently taken over by US Gold Corp., the former Vice President and
Director of HSBC Securities (Canada) Inc. from March 1998 to June 1999 and
a
former Senior Vice President (Corporate Finance) of Marleau, Lemire Securities
Inc. from January 1995 to January 1998. Prior to Mr. Parisotto’s investment
banking experience he served as the Manager, Original Listings of the Toronto
Stock Exchange from November 1985 to December 1994.
Code
of Ethics
Concurrently
with the Purchase, we adopted a written code of ethics. We believe that the
code
of ethics is reasonably designed to deter wrongdoing and promote honest and
ethical conduct; provide full, fair, accurate, timely and understandable
disclosure in public reports; comply with applicable laws; ensure prompt
internal reporting of code violations; and provide accountability for adherence
to the code.
36
Board
Committees
We
presently have no board committees. We intend to appoint such persons and form
such committees as are required to meet the corporate governance requirements
imposed by the national securities exchanges at such time, if ever, we become
subject to such requirements. Therefore, we intend that a majority of our
directors will eventually be independent directors and at least one director
will qualify as an “audit committee financial expert.” Additionally, we expect
to appoint an audit committee, nominating committee and compensation committee,
and to adopt charters relative to each such committee. Until further
determination, the full board will undertake the duties of the audit committee,
compensation committee and nominating committee. We do not currently have an
“audit committee financial expert” since we currently do not have an audit
committee in place.
EXECUTIVE
COMPENSATION
|
SUMMARY
COMPENSATION TABLE
|
||||||||||
|
Name
and Position
|
Year
|
Salary
($)
|
Total
Compensation ($)
|
|||||||
|
Darren
R. Stevenson, Principal Executive Officer, Director(1)
|
2006
|
29,461
|
(2)
|
20,000
|
||||||
|
2005
|
N/A
|
N/A
|
||||||||
|
Anchana
Chayawatana, Principal Executive Officer, Director(3)
|
2006
|
-
|
-
|
|||||||
|
2005
|
-
|
-
|
||||||||
|
Prapaipan
Chayawatana(4)
|
2006
|
-
|
-
|
|||||||
|
2005
|
-
|
-
|
||||||||
|
Anongnat
Chansangachom(5)
|
2006
|
-
|
-
|
|||||||
|
2005
|
-
|
-
|
||||||||
|
(1)
|
Darren
Stevenson became our President, Secretary, Chief Executive Officer
on
April 24, 2006 and became a director on May 5,
2006.
|
|
(2)
|
Pursuant
to an Employment Agreement that we entered into with Mr. Stevenson
on
April 22, 2006, he is entitled to an annual salary of Cdn$60,000.
In our
fiscal year ended October 31, 2006, we paid him $29,461 for the 2006
fiscal year.
|
|
(3)
|
Anchana
Chayawatana resigned as our President, Chief Executive Officer and
Chairman on April 24, 2006 and resigned as a director on May 6,
2006.
|
|
(4)
|
Prapaipan
Chayawatana resigned as our Treasurer, Chief Financial Officer and
principal accounting officer on April 24, 2006 and resigned as a
Director
on May 6, 2006.
|
|
(5)
|
Anongnat
Chansangachom resigned as our Secretary on April 24, 2006 and resigned
as
a Director on May 6, 2006.
|
37
|
OUTSTANDING
EQUITY AWARDS (OPTIONS) AT FISCAL
YEAR-END
|
|
Name
|
Number
of Securities Underlying Unexercised Options (#)
Exercisable
|
Number
of Securities Underlying Unexercised Options (#)
Unexercisable
|
Option
Exercise Price
($)
|
Option
Expiration Date
|
|||||||||
|
Darren
R. Stevenson, Principal Executive Officer
|
500,000
|
500,000(1
|
)
|
2.00
|
April
14, 2008
|
||||||||
|
(1)
|
500,000
options become exercisable upon the close of a public or private
offering
of our securities resulting in gross proceeds of at least $50
million.
|
Agreements
With Officers, Directors And Consultants
Darren
R. Stevenson
As
of
April 22, 2006 we entered into a two year employment agreement with
Mr. Stevenson whereby he serves as our President, Chief Executive Officer,
and Chief Financial Officer. The employment agreement is automatically renewable
for successive one year periods subject to the right of either party to provide
60 days notice of non-renewal. Mr. Stevenson’s annual salary is $60,000 and upon
the consummation of a public offering or private placement of our securities
resulting in aggregate gross proceeds of at least $50 million, his salary shall
increase to $120,000. The agreement also provides that, subject to compliance
with applicable legal and regulatory guidelines and requirements, Mr. Stevenson
may receive bonus compensation with respect to any financings or strategic
transactions introduced by him to us. At our request, Mr. Stevenson is to also
serve as an officer or director of any of our subsidiaries at such additional
compensation as we and him may agree.
Simultaneous
with his entering into the employment agreement, Mr. Stevenson entered into
a
Stock Purchase Agreement with our then majority stockholder, pursuant to which
he purchased 1,000,000 shares (on a pre-split basis) of our common stock for
$25,000. Pursuant to employment agreement, we had the right to repurchase the
shares from him at any time, or from time to time, for an aggregate purchase
price of $50,000. We made this purchase, of 30,000,000 on a post-split basis,
effective November 6, 2006.
Pursuant
to the Stock Option Agreement, we granted Mr. Stevenson options to purchase
(on
a post-split basis) 1,000,000 shares of common stock at an exercise price of
$2.00 per share. 500,000 of such options have become exercisable, and 500,000
options will become exercisable upon the close of a public or private offering
of our securities resulting in gross proceeds of at least $50 million. All
of
the options expire on April 14, 2008.
38
Paul
Parisotto
Mr.
Parisotto is the President and sole director and stockholder of Coniston
which executed the Coniston Agreement in November 2005. Access agreed to pay
Coniston Cdn$260,000 per year, plus the applicable goods and services tax,
for
management, consulting and advisory services on matters with respect to the
acquisition, exploration, development and production of hydrocarbons in western
Canada and United States. It also contains a change of control provision which
provides that if a change of control were to occur without Coniston’s prior
consent, Coniston would owe Coniston an additional Cdn$135,000. The Purchase
constituted a change of control to which Coniston consented to in advance.
The
Coniston Agreement terminates on October 31, 2007 and automatically renews
for
one year periods unless one party provides at least 60 days prior notice of
non-renewal.
Coniston
was paid Cdn$459,333 in accrued and unpaid consulting fees and Cdn$428,964
in
accrued expenses (approximately US$851,430 in the aggregate). In addition,
Coniston was paid Cdn$1,060,000 (approximately US$1,016,000) due to Access’
entry into the Joint Venture Agreement and Amendment with the Dene Nation.
Coniston was paid these amounts from a portion of the purchase price. Coniston
is also entitled to a 1.25% nonconvertible overriding royalty based on 100%
production from A10’s production. Coniston will receive this royalty and other
success fees as it may negotiate with Access for future projects where it is
fundamental to the consummation of a similar project with us or Access. The
royalty is governed by Article 3 of the 1997 Canadian Association of Petroleum
Landmen Farmout & Royalty Procedure, which sets forth many standard contract
terms used in connection with development and management of petroleum producing
properties.
Mehran
Farmanara
Mr.
Farmanara is an independent chartered accountant who has provided us with
accounting and bookkeeping services for the past year. He prepares our monthly
financial statements and assists in preparing the financial statements included
in our securities filings. He was paid approximately
Cdn$18,460 during 2006, and has accrued approximately Cdn$25,500 for the six
months ended June 30, 2007.
2006
Stock Option Plan
On
June
26, 2006 our Board of Directors and the holders of a majority (55.2%) of our
then outstanding common stock approved our 2006 Stock Option Plan (the “2006
Plan”). The purpose of the 2006 Plan is to provide an incentive to attract and
retain directors, officers, consultants, advisors and employees whose services
are considered valuable, to encourage a sense of proprietorship and to stimulate
an active interest of such persons into our development and financial success.
Under the 2006 Plan, we are authorized to issue incentive stock options intended
to qualify under Section 422 of the Internal Revenue Code of 1986, as amended,
nonqualified stock options and restricted stock. The 2006 Plan is administered
by our Board of Directors. As of the date of this report, there were no stock
options outstanding under the 2006 Plan.
39
Compensation
of Directors
None
of
our directors received any compensation for their services as
directors.
CERTAIN
RELATIONSHIPS AND RELATED
TRANSACTIONS
AND DIRECTOR INDEPENDENCE
Mr.
Parisotto is the President and sole Director and Stockholder of Coniston which
provides consulting services to Access. As part of the purchase price, Coniston
was paid approximately Cdn$1,948,000 (approximately US$1.87 million).
Cdn$1,060,000 was a success fee payable upon Access’ entry into the Joint
Venture Agreement and Amendment with the Dene Nation. The remainder was accrued
and unpaid consulting fees and expenses. No payments of principal were made
before payment in full and no interest was charged on the unpaid balance, as
the
oral arrangement was that it would be paid when Access had the available
funds.
Coniston
is also entitled to a 1.25% nonconvertible overriding royalty based on 100%
production when and if A10 commences production. Coniston is also entitled
to
receive this royalty and other success fees as it may negotiate with Access
for
future projects where it is fundamental to the consummation of a similar project
with us or Access. It is impossible to quantify the present dollar value of
Coniston’s royalty interest since a great deal of additional exploration will be
required for us to begin preparing a plan for production and the uncertainty
associated with any petroleum development.
Mr.
Burden currently owns 25% of Access’ issued and outstanding common stock. Prior
to the Purchase, Mr. Burden was the sole stockholder of Access. We are required
to provide the necessary capital for Access’ operations until it has sufficient
cash flow to do so itself. Thus, Mr. Burden benefits from the growth of Access
both as a result of our capital infusions and Access’ cash flow over time. It is
impossible to quantify the present dollar value of these capital
contributions.
DESCRIPTION
OF SECURITIES
Authorized
Capital Stock
Our
Articles of Incorporation authorize the issuance of 300,000,000 shares of common
stock, $0.001 par value and 10,000,000 shares of preferred stock, $0.001 par
value.
Capital
Stock Issued and Outstanding
As
of
June 1, 2006 there were 74,854,700 shares of our common stock issued and
outstanding and no shares of preferred stock issued and outstanding.
On
May 6,
2006, our Board of Directors approved a 30:1 forward stock split in the form
of
a dividend which was effected on June 21, 2006. The dividend was paid to
stockholders of record as of the close of business on June 21, 2006. Immediately
prior to the split we had 2,100,000 shares of common stock issued and
outstanding. Immediately following the split we had 63,000,000 shares of common
stock issued and outstanding. We will cancel 30,000,000 shares shortly after
the
filing of this Report.
40
Description
of Common Stock
Holders
of our common stock are entitled to one vote for each share held on all matters
submitted to a stockholder vote. Holders of our common stock do not have
cumulative voting rights. Therefore, holders of a majority of our common stock
voting for the election of directors can elect all of the directors. Holders
of
our common stock representing a majority of the voting power of the capital
stock issued, outstanding and entitled to vote, represented in person or by
proxy, are necessary to constitute a quorum at any meeting of stockholders.
A
vote by the holders of a majority of our outstanding common stock is required
to
effectuate certain fundamental corporate changes such as liquidation, merger
or
an amendment to the articles of incorporation.
Holders
of common stock are entitled to share in all dividends that our Board of
Directors, in its discretion, declares from legally available funds. In the
event of a liquidation, dissolution or winding up, each outstanding share
entitles its holder to participate pro rata in all assets that remain after
payment of liabilities and after providing for each class of stock, if any,
having preference over our common stock. Holders of our common stock have no
pre-emptive rights, no conversion rights and there are no redemption provisions
applicable to our common stock.
Description
of Preferred Stock
Our
Articles of Incorporation authorize the issuance of up to 10,000,000 shares
of
blank check preferred stock, $0.001 par value. Pursuant to the terms of the
preferred stock, our Board of Directors is vested with authority to divide
the
shares of preferred stock into series and fix and determine the relative rights
and preferences of the shares of any such series. Once authorized, the dividend
or interest rates, conversion rates, voting rights, redemption prices, maturity
dates and similar characteristics of the preferred stock will be determined
by
our Board of Directors, without the necessity of obtaining further approval
of
our stockholders.
Description
of Warrants
Investor
Warrants
Warrants
(“Investor Warrants”) representing the right to purchase an aggregate of
10,854,700 shares of common stock are issued and outstanding as of the date
of
this Report. Each warrant entitles the holder thereof to purchase one share
of
our common stock at an exercise price of $3.00 per share, subject to adjustment,
at any time during the two year period that commenced October 1,
2006.
The
Investor Warrants contain a call provision which provides that in the event
the
closing bid price of a share of our common stock as traded on the
Over-the-Counter Bulletin Board (or such other exchange or stock market on
which
our common stock may then be listed or quoted) equals or exceeds $4.00
(appropriately adjusted for any stock split, reverse stock split, stock
dividend, etc.) for at least five consecutive trading days during any period
of
30 consecutive trading days during which a registration statement has been
effective, we, upon thirty days written notice given to the holders, may call
the Investor Warrant at a redemption price equal to $0.01 per share of common
stock then purchasable pursuant to the warrant. To exercise the call provision
(i) we must simultaneously call all of the Investor Warrants on the same terms
and (ii) all of the shares of common stock issuable upon exercise of the
Investor Warrants (the “Warrant Shares”) must either (A) be registered pursuant
to an effective registration statement which has not been suspended and for
which no stop order is in effect, and pursuant to which the holder is able
to
sell Warrant Shares at all times during the 30 day notice period or (B) no
longer constitute Registrable Securities (as defined in the Registration Rights
Agreement described below). Notwithstanding any such notice, the holder has
the
right to exercise the Investor Warrant prior to the end of the notice period.
41
Consultant
Warrants
As
of
August 1, 2006, we granted Gregg Layton warrants (“Consultant Warrants”) to
purchase 200,000 shares of our common stock (on a post split basis), 100,000
of
which have become exercisable. The remaining 100,000 become exercisable if
we
conduct an offering of our common stock raising at least $50 million in gross
proceeds. The exercise price of the Consultant Warrants is $2.00 per share,
and
they are exercisable until July 31, 2008.
Burden
Warrants
As
part
of the Purchase price, we granted the Burden Warrants to Mr. Burden. Warrants
to
purchase 1,500,000 shares of our common stock were issued as of the Closing
Date. The Burden Warrants become exercisable upon the consummation of a major
transaction, such as Access has entered into with the Dene, to which Mr.
Burden’s contribution was fundamental. The affirmative vote of our Board of
Directors and Access’ Board of Directors are required on this point for the
Burden Warrants to become exercisable. The exercise price of the Burden Warrants
is $2.00 per share, and they are exercisable during the 60 months following
the
Closing Date.
Description
of Options
As
of
April 22, 2006 we granted 1,000,000 non-statutory stock options to
Mr. Stevenson. Each option is exercisable, upon vesting, to purchase one
share of our common stock at a price of $2.00 per share through April 14, 2008.
500,000 of such options have become exercisable, 500,000 will become exercisable
when we conduct an offering of its common stock raising at least $50 million
in
gross proceeds.
Six
million options are issuable under the 2006 Plan. No options have been issued
under the 2006 Plan as of the date of this report. See Executive
Compensation—2006 Stock Option Plan.
Registration
Rights of Common Stock
We
are
required to file a registration statement (“Registration Statement”) as soon as
practicable with the SEC for the resale of the shares of our common stock
included as part of the Units and underlying the Investor Warrants and the
Burden Warrants (“Registrable Securities”). We are required to have the
Registration Statement declared effective (“Effective Date”) as soon as
practicable following such filing.
42
If
we
decided to register and offer our securities for cash, either for our own
account or another’s, except a registration relating solely to an employee
benefit plan or other securities issued to employees or consultants or relating
to a Securities Act Rule 145 transaction, a registration on Form S-4 in
connection with a merger, acquisition or similar event, we are required to
give
notice to all holders of Registrable Securities and include as part of the
Registration Statement all of the Registrable Securities requested by the
holders (a “Piggyback Registration”).
If
a
Piggyback Registration involves an underwritten public offering, the right
of
any holder to participate shall be conditioned on such holder’s participation in
the underwriting and its entry into a customary form of underwriting agreement.
If the underwriter determines that marketing factors require a limitation of
the
number of shares of our common stock or the amount of other securities to be
underwritten, the underwriter may exclude some or all Registrable Securities
from the registration and underwriting. In the event we initiate a Piggyback
Registration, the number of shares to be included in the registration and
underwriting shall be allocated first to us, then to holders of Registrable
Securities on a pro rata basis.
Prior
to
the effective date of the Registration Statement, we may not, without the prior
written consent of the holders representing a majority of the Registrable
Securities, file or request the acceleration of any other registration statement
filed with the SEC. Following the Effective Date, if the Registration Statement
is not available for use by any holder of Registrable Securities, we may not,
without the prior written consent of holders representing a majority of the
Registrable Securities, file any other registration statement or an amendment
thereto or request the acceleration of the effectiveness or any other
registration statement, except for a registration on Form S-8 or Form
S-4.
Our
obligations to maintain the availability of the Registration Statement for
resale is limited by our right to notify holders of Registrable Securities
that
our Board of Directors has determined in good faith (due to the existence or
in
anticipation of any acquisition, financing activity or other transaction in
which we are involved, or disclosure of information which is in our best
interest not to publicly disclose, or any event or condition of similar
significance to us) that the registration and distribution of the Registrable
Securities to be covered or covered by such registration statement would be
seriously detrimental to us and our stockholders, and to require that holders
discontinue their disposition of Registrable Securities for up to 30 trading
days in any 12 month period.
Transfer
Agent
Our
transfer agent is Continental Stock Transfer & Trust Company, 17 Battery
Pl., 8th Fl., New York, NY 10004.
MARKET
PRICE OF AND DIVIDENDS ON COMMON
EQUITY
AND OTHER STOCKHOLDER MATTERS
Our
common stock is quoted on the Over-the-Counter Bulletin Board under the symbol
“BSPE.” Our common stock is also quoted on the “pink sheets.”
43
The
following table sets forth, for the fiscal quarters indicated, the high and
low
closing bid prices per share of our common stock, as derived from quotations
provided by Bloomberg, LP. Such quotations reflect inter-dealer prices, without
retail mark-up, mark-down or commission and may not represent actual
transactions.
On
June
29, 2007, our closing bid price was $2.15 per share.
|
Quarter
Ended
|
High
Bid
|
Low
Bid
|
||||||||
|
January
31, 2005
|
(1)
|
|
||||||||
|
April
30, 2005
|
(1)
|
|
||||||||
|
July
31, 2005
|
(1)
|
|
||||||||
|
October
31, 2005
|
(2
|
)
|
$
|
0.02733
|
||||||
|
January
31, 2006
|
(1)
|
|
||||||||
|
April
30, 2006
|
(1)
|
|
||||||||
|
July
31, 2006
|
(1)
|
|
||||||||
|
October
31, 2006
|
$
|
2.00
|
$
|
2.01
|
||||||
|
January
31, 2007
|
$
|
2.05
|
$
|
2.10
|
||||||
|
April
30, 2007
|
$
|
2.10
|
$
|
2.20
|
||||||
| (1) |
No
historical data was available.
|
| (2) |
A
single trade occurred in the
quarter.
|
As
of
July 16, 2007, there were approximately 72 record holders of our common stock
and 74,854,700 shares of our common stock outstanding which includes 30,000,000
shares to be cancelled.
Dividends
We
have
never declared any cash dividends with respect to our common stock. Future
payment of dividends is within the discretion of our Board of Directors and
will
depend on our earnings, capital requirements, financial condition and other
relevant factors. Although there are no material restrictions limiting, or
that
are likely to limit, our ability to pay dividends on our common stock, we
presently intend to retain future earnings, if any, for use in our business
and
have no present intention to pay cash dividends on our common
stock.
Equity
Compensation Plans
Securities
authorized for issuance under equity compensation plans as of June 1, 2007
are as follows:
|
Plan
category
|
Number
of securities to be issued upon exercise of outstanding options,
warrants
and rights
|
Weighted-average
exercise price of outstanding options, warrants and rights
|
Number
of securities remaining available for future issuance under equity
compensation plans (excluding securities reflected in column
(a))
|
|||||||
|
(a)
|
(b)
|
(c)
|
||||||||
|
Equity
compensation plans approved by security holders
|
1,000,000
|
2.00
|
6,000,000
|
|||||||
|
Equity
compensation plans not approved by security holders
|
200,000
|
2.00
|
0
|
|||||||
|
Total
|
1,200,000
|
2.00
|
6,000,000
|
|||||||
44
Option
Issuance
As
of
April 22, 2006 we entered into a Stock Option Agreement with Mr. Stevenson
as a means of providing him with performance incentives in his role as our
President, Secretary and Chief Executive Officer. On June 26, 2006, stockholders
representing 55.2% of our then issued and outstanding common stock ratified
the
Stock Option Agreement by written consent. Under the Stock Option Agreement,
Mr.
Stevenson received options to purchase up to 1,000,000 shares of our common
stock. 500,000 of these options have already become exercisable and an
additional 500,000 options will become exercisable if we conduct a placement
of
our common stock with gross proceeds of at least $50 million. All of the
options, once vested, are exercisable at $2.00 per share. All these options
are
non-qualified options, and none of the options are included in the 6,000,000
options which may be granted under our 2006 Plan. As of the date of this report,
Mr. Stevenson has not exercised any of his options.
Non-Plan
Warrant Issuance
As
of
August 1, 2006, we issued the Consultant Warrants to purchase 200,000 shares
of
our common stock (on a post split basis), 100,000 of which have become
exercisable. The remaining 100,000 become exercisable if we conduct an offering
of our common stock raising at least $50 million in gross proceeds. The exercise
price of the Consultant Warrants is $2.00 per share, and they are exercisable
until July 31, 2008. No stockholder ratification was sought for the grant
of Consultant Warrants.
LEGAL
PROCEEDINGS
From
time
to time we may be named in claims arising in the ordinary course of business.
Currently, no legal proceedings or claims are pending against or involve us
that, in the opinion of management, could reasonably be expected to have a
material adverse effect on its business and financial condition.
45
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON
ACCOUNTING AND FINANCIAL DISCLOSURE
On
October 26, 2006, we notified De Joya Griffith & Company, LLC (“De Joya”)
that we were terminating our relationship with them as our principal independent
accountant on that date. The termination of De Joya was approved by our Board
of
Directors. De Joya had been our principal independent accountant for the fiscal
year ended October 31, 2005. The report of De Joya on our financial statements
for the year ended October 31, 2005 contained no adverse opinion or disclaimer
of opinion, nor was it qualified or modified as to uncertainty, audit scope
or
accounting principle except that such report was modified to include an
explanatory paragraph with respect to our ability, in light of our lack of
revenues and history of losses, to continue as a going concern.
In
connection with the audit for the year ended October 31, 2005 and during the
subsequent interim period through July 31, 2006 and through October 26, 2006,
there were no disagreements between us and De Joya on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope
or
procedures, which disagreements, if not resolved to their satisfaction, would
have caused De Joya to make reference to the subject matter of the disagreement
in connection with their reports.
In
connection with the audit of the fiscal year ended October 31, 2005 and during
the subsequent interim period through July 31, 2006 and through October 26,
2006, De Joya did not advise us of any matter required to be disclosed pursuant
to Item 304(a)(1)(B) of Regulation
S-B.
On
November 9, 2006, we engaged Sherb as our principal independent accountant
for
the fiscal year ending October 31, 2006. Sherb’s appointment was approved by our
Board of Directors.
We
consulted Sherb in connection with the preparation of our unaudited financial
statements for the quarters ended April 30, 2006 and July 31, 2006, but such
consultations were not on any matters or in any capacity that would require
disclosure under Item 304(a)(2) of Regulation S-B. These consultations involved
Sherb reviewing an open items list provided by our former accountants with
our
responses to the items on the list. We asked Sherb whether they believed our
responses were adequate. We believe disclosure under Item 304(a)(2) of
Regulation S-B is not required because the consultations were not
regarding:
| · |
the
application of accounting principles to a specific completed or
contemplated transaction, or the type of audit opinion that might
be
rendered on our financial statements, nor was either written or oral
advise provided by Sherb & Co., LLP that was an important factor
considered by us in reaching a decision as to the accounting, auditing
or
financial reporting issue; or
|
| · |
any
matter that was subject to disagreement with the former accountant.
|
46
RECENT
SALES OF UNREGISTERED SECURITIES
On
October 12, 2004, we issued 30,000,000 shares of common stock (on a post-split
basis) to our initial officer, Anchana Chayawatana, for $5,000 in reliance
on
Section 4(2) of the Securities Act.
Effective
April 18, 2006, we issued 1,000,000 stock options to Mr. Stevenson in reliance
on Section 4(2) under the Securities Act. Each option is exercisable, upon
vesting, for the purchase of one share of our common stock at a price of $2.00
per share. 500,000 of such options have already become exercisable and 500,000
options will become exercisable upon the close of an offering of our common
stock resulting in gross proceeds of at least $50 million.
On
May 6,
2006, we issued $1 million of convertible debentures to two non-affiliates
in
reliance on Regulation D under the Securities Act. Effective August 9,
2006, the debentures were converted into an aggregate of 1,000,000 Units.
Effective
August 9, 2006 we issued an aggregate of 10,854,700 Units at $1 per unit to
49
persons in reliance on Section 4(2), Regulation D or Regulation S under the
Securities Act. We derived total gross proceeds of $10,854,700 from this sale
of
Units.
In
none of these transactions was there an underwriter
or were any commissions paid.
INDEMNIFICATION
OF DIRECTORS AND OFFICERS
Nevada
Law
Nevada
Revised Statutes (“NRS”) Sections 78.7502 and 78.751 provide us with the power
to indemnify any of our directors and officers. The director or officer must
have conducted himself in good faith and reasonably believe that his conduct
was
in, or not opposed to our best interest. In a criminal action, the director,
officer, employee or agent must not have had reasonable cause to believe his
conduct was unlawful.
Under
NRS
Section 78.751, advances for expenses may be made by agreement if the director
or officer affirms in writing that he believes he has met the standards and
will
personally repay the expenses if it is determined such officer or director
did
not meet the standards.
Bylaws
Our
Bylaws provide that we shall have the power to indemnify any person who was
or
is a party or is threatened to be made a party to any threatened, pending,
or
completed action, or suit by or in our right to procure a judgment in our favor
by reason of the fact that he is or was a director, officer, employee, or agent
of ours, or is or was serving at our request as a director, officer, employee,
or agent of another corporation, partnership, joint venture, trust, or other
enterprise, against expenses (including attorneys’ fees) judgments, fines, and
amounts paid in settlement actually and reasonably incurred by him in connection
with any such action, suit or proceeding, if he acted in good faith and in
a
manner he reasonably believed to be in or not opposed to our best interest,
if
with respect to any criminal action or proceeding, had no reasonable cause
to
believe his conduct was unlawful.
47
Our
Bylaws further provide that we have the power to indemnify any person who was
or
is a party or is threatened to be made a party to any threatened, pending,
or
completed action or suit by or in our right to procure a judgment in our favor
by reason of the fact that he is or was a director, officer, employee, or agent
of another corporation, partnership, joint venture, trust, or other enterprise,
against expenses (including attorneys’ fees) actually and reasonably incurred by
him in connection with the defense or settlement of such action or suit, if
he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to our best interest except that no indemnification may be made in
respect of any claim, issue, or matter as to which such a person shall have
been
adjudged to be liable for negligence or misconduct in the performance of his
duty to us, unless and only to the extent that the court in which the action
or
suit was brought shall determine on application that despite the adjudication
of
liability but in view of all circumstances of the case, the person is fairly
and
reasonably entitled to indemnity for such expenses as the court deems
proper.
Our
Bylaws also provide that we may purchase and maintain insurance for the benefit
of any person who is or was serving as a director, officer, employee or agent
of
our or any of our subsidiaries against a liability incurred by him as a
director, officer, employee or agent. We do not presently maintain such
insurance, although we may obtain it in the near future.
Articles
of Incorporation
Our
Articles of Incorporation provide a limitation of liability in that no director
or officer shall be personally liable to us or any of our stockholders for
damages for breach of fiduciary duty as director or officer involving any act
or
omission of any such director or officer, provided there was no intentional
misconduct, fraud or a knowing violation of the law, or unlawful payment of
dividends.
Our
Articles of Incorporation further provide that every person who was or is a
party to, or is threatened to be made a party to, or is involved in any action,
suite or proceeding, whether civil, criminal, administrative or investigative,
by reason of the fact that he, or a person of whom he is the legal
representative, is or was a director or officer of ours, or is or was serving
at
our request as a director or officer of another corporation, or as its
representative in a partnership, joint venture, trust or other enterprise,
shall
be indemnified and held harmless to the fullest extent legally permissible
under
the laws of the State of Nevada from time to time against all expense, liability
and loss (including attorneys’ fees, judgments, fines and amounts to be paid in
settlement) reasonably incurred or suffered by him in connection
therewith.
Indemnification
Under The Securities Act
Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to our directors, officers and controlling persons under Nevada law
or
otherwise, we have been advised that the opinion of the SEC is that such
indemnification is against public policy as expressed in the Securities Act
and
is, therefore, unenforceable. In the event a claim for indemnification against
such liabilities (other than payment by us for expenses incurred or paid by
our
director, officer or controlling person in successful defense of any action,
suit, or proceeding) is asserted by our director, officer or controlling person
in connection with the securities being registered, we will, unless in the
opinion of our counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction, the question of whether such
indemnification by us is against public policy in the Securities Act and will
be
governed by the final adjudication of such issue.
48
INDEX
TO EXHIBITS
Reference
is made to the disclosure set forth under Item 9.01(d) of this Current Report
on
Form 8-K, which disclosure is incorporated by reference.
DESCRIPTION
OF EXHIBITS
See
Exhibit Index below and the corresponding exhibits, which are incorporated
by
reference.
Item
3.02. Recent Sales of Unregistered Securities
Reference
is made to the disclosure set forth under Item 2.01 of this Current Report
on
Form 8-K, which disclosure is incorporated by reference.
Item
4.01. Changes in Registrant’s Certifying Accountant
Reference
is made to the disclosure set forth under Item 2.01 of this Current Report
on
Form 8-K, which disclosure is incorporated by reference.
Item
5.01. Changes in Control of the Registrant
As
a
result of the Purchase, we were deemed to have experienced a change in control,
with Access acquiring control of the Company. The disclosure set forth in Item
2.01 to this Current Report is incorporated by reference.
Item
5.02. Departure of Directors or Principal Officers; Election of Directors;
Appointment of Principal Officers
Reference
is made to the disclosure set forth under Item 2.01 of this Current Report
on
Form 8-K, which disclosure is incorporated by reference.
Item
5.06. Change in Shell Company Status
Reference
is made to the disclosure set forth under Item 2.01 of this Current Report
on
Form 8-K, which disclosure is incorporated herein by reference. As a result
of
the purchase of Access’ common stock described under Item 1.01 of this Current
Report on Form 8-K, the registrant believes that it is no longer a “shell
company” as that term is defined in Rule 405 of the Securities Act and Rule
12b-2 of the Exchange Act.
49
Item
9.01. Financial Statements and Exhibits
(a)
Financial Statements of Businesses Acquired
In
accordance with Item 9.01(a) Access’ audited financial statements as of May 31,
2007 are included with this Report beginning on Page F-1.
(b)
Pro Forma Financial Information
In
accordance with Item 9.01(b), unaudited pro forma consolidated financial
statements are included with the Report beginning on Page F-31. .
50
Access
Energy Inc.
(An
Exploration Stage Company)
|
For
the three and six month periods ended April 30, 2007 and April 30,
2006
|
||
|
Balance
Sheet, April 30, 2007
|
F-2
|
|
|
Statement
of Operations and Comprehensive Income
|
F-3
|
|
|
Statement
of Shareholders Equity
|
F-4
|
|
|
Statement
of Cash Flows
|
F-5
|
|
|
Notes
to Financial Statements
|
F-6
|
|
|
For
the years ended October 31, 2006 and October 31, 2005
|
||
|
Balance
Sheet, April 30, 2007
|
F-16
|
|
|
Statement
of Operations
|
F-17
|
|
|
Statement
of Shareholders Equity
|
F-18
|
|
|
Statement
of Cash Flows
|
F-19
|
|
|
Notes
to Financial Statements
|
F-20
|
|
|
Pro
Forma Financial Statements
|
F-30 |
F-1
Access
Energy Inc.
(An
Exploration Stage Company)
Balance
Sheets
As
at April 30, 2007 and 2006
(Expressed
in Canadian dollars, except number of shares)
(Unaudited)
|
April
30,
2007
|
October
31,
2006
|
||||||
|
Assets
|
$
(Unaudited)
|
|
$
(Audited)
|
|
|||
|
Current
assets
|
|||||||
|
Cash
|
81,677
|
176,048
|
|||||
|
Amounts
receivable
|
21,268
|
-
|
|||||
|
102,945
|
176,048
|
||||||
|
Deferred
transactions costs (Note
7(b))
|
42,200
|
-
|
|||||
|
Oil
and gas property interests (Note
3)
|
1,524,698
|
511,393
|
|||||
|
1,669,843
|
687,441
|
||||||
|
Liabilities
|
|||||||
|
Current
liabilities
|
|||||||
|
Accounts
payable and accrued liabilities (Notes 5 and 7(a))
|
1,188,259
|
304,590
|
|||||
|
Current
portion of long-term liabilities (Note 4)
|
358,663
|
28,427
|
|||||
|
1,546,922
|
333,017
|
||||||
|
Long-term
liabilities (Note
4)
|
550,000
|
700,000
|
|||||
|
2,096,922
|
1,033,017
|
||||||
|
Capital
Stock and Deficit
|
|||||||
|
Capital
stock
|
|||||||
|
Authorized
|
|||||||
|
Unlimited
common shares, without par value
|
|||||||
|
Issued
|
|||||||
|
200
common shares
|
200
|
200
|
|||||
|
Exclusivity
agreement deposit (Note
7(b))
|
100,000
|
-
|
|||||
|
Deficit
|
(527,279
|
)
|
(345,776
|
)
|
|||
|
(427,079
|
)
|
(345,576
|
)
|
||||
|
1,669,843
|
687,441
|
||||||
See
accompanying notes to the financial statements.
F-2
Access
Energy Inc.
(An
Exploration Stage Company)
Statements
of Operation and Comprehensive Income
For
the three and six months endedApril 30, 2007 and 2006
(Expressed
in Canadian dollars, except number of shares)
(Unaudited)
|
Three
months ended
|
Six
months ended
|
Cumulative
from inception to
|
||||||||||||||
|
April
30, 2007
|
April
30, 2006
|
April
30, 2007
|
April
30, 2006
|
April
30, 2007
|
||||||||||||
|
$
|
$
|
$
|
$
|
$
|
||||||||||||
|
Expenses
|
||||||||||||||||
|
Management
fees (Note 5)
|
68,900
|
68,900
|
137,800
|
137,800
|
413,400
|
|||||||||||
|
Accounting,
audit and legal fees
|
10,794
|
2,610
|
11,394
|
2,610
|
34,186
|
|||||||||||
|
Office
and administrative
|
115
|
5,188
|
2,073
|
5,188
|
21,030
|
|||||||||||
|
Loss
before the under-noted
|
79,809
|
76,698
|
151,267
|
145,598
|
468,616
|
|||||||||||
|
Interest
on long-term debt
|
16,121
|
1,775
|
30,236
|
1,775
|
58,663
|
|||||||||||
|
Net
loss and comprehensive loss for the period
|
95,930
|
78,473
|
181,503
|
147,373
|
527,279
|
|||||||||||
|
Deficit,
beginning of period
|
431,349
|
68,900
|
345,776
|
-
|
-
|
|||||||||||
|
Deficit,
end of period
|
527,279
|
147,373
|
527,279
|
147,373
|
527,279
|
|||||||||||
|
Net
loss per share -
basic and diluted
|
480
|
392
|
908
|
737
|
2,636
|
|||||||||||
|
Weighted
average number of shares outstanding
|
200
|
200
|
200
|
200
|
200
|
|||||||||||
See
accompanying notes to the financial statements.
F-3
Access
Energy Inc.
(An
Exploration Stage Company)
Statement
of Shareholder’s Equity
For
the six months ended April 30, 2007
(Expressed
in Canadian dollars)
(Unaudited)
|
Common
shares
|
||||||||||||||||
|
Number
of
shares
|
|
Amount
|
|
Exclusivity
Agreement Deposit
|
|
Cumulative
deficit
|
|
Total
shareholder’s
equity
|
||||||||
|
#
|
$
|
$
|
$
|
$
|
||||||||||||
|
Balance,
October 31, 2005
|
200
|
200
|
-
|
-
|
200
|
|||||||||||
|
Net
loss for the year
|
-
|
-
|
-
|
(345,776
|
)
|
(345,776
|
)
|
|||||||||
|
Balance,
October 31, 2006
|
200
|
200
|
-
|
(345,776
|
)
|
(345,576
|
)
|
|||||||||
|
Exclusivity
agreement deposit
|
-
|
-
|
100,000
|
-
|
100,000
|
|||||||||||
|
Net
loss and comprehensive loss for the period
|
-
|
-
|
-
|
(181,503
|
)
|
(181,503
|
)
|
|||||||||
|
Balance,
April 30, 2007
|
200
|
200
|
100,000
|
(527,279
|
)
|
(427,079
|
)
|
|||||||||
See
accompanying notes to the financial statements.
F-4
Access
Energy Inc.
(An
Exploration Stage Company)
Statements
of Cash Flows
For
the three and six months ended April 30, 2007 and 2006
(Expressed
in Canadian dollars)
(Unaudited)
|
Cumulative
|
||||||||||||||||
|
from
|
||||||||||||||||
|
Three
months ended
|
Six
months ended
|
inception
|
||||||||||||||
|
April
30, 2007
|
April
30, 2006
|
April
30, 2007
|
April
30, 2006
|
to
April 30, 2007
|
||||||||||||
|
$
|
$
|
$
|
$
|
$
|
||||||||||||
|
Cash
flows from operating activities
|
||||||||||||||||
|
Net
(loss) for the period
|
(95,930
|
)
|
(78,473
|
)
|
(181,503
|
)
|
(147,373
|
)
|
(527,279
|
)
|
||||||
|
Items
not affecting cash
|
||||||||||||||||
|
Interest
expense
|
16,121
|
1,775
|
30,236
|
1,775
|
58,663
|
|||||||||||
|
(79,809
|
)
|
(76,698
|
)
|
(151,267
|
)
|
(145,598
|
)
|
(468,616
|
)
|
|||||||
|
Changes
in non-cash working capital
|
||||||||||||||||
|
Amounts
receivable
|
(5,675
|
)
|
(182
|
)
|
(21,268
|
)
|
(382
|
)
|
(21,268
|
)
|
||||||
|
Accounts
payable and accrued liabilities
|
(267,442
|
)
|
68,900
|
139,915
|
137,800
|
444,505
|
||||||||||
|
(352,926
|
)
|
(7,980
|
)
|
(32,620
|
)
|
(8,180
|
)
|
(45,379
|
)
|
|||||||
|
Cash
flows from financing activities
|
||||||||||||||||
|
Exclusivity
agreement deposit
|
-
|
-
|
100,000
|
-
|
100,000
|
|||||||||||
|
Issuance
of common shares
|
-
|
-
|
-
|
-
|
200
|
|||||||||||
|
Long-term
loans
|
150,000
|
300,000
|
150,000
|
300,000
|
850,000
|
|||||||||||
|
150,000
|
300,000
|
250,000
|
300,000
|
950,200
|
||||||||||||
|
Cash
flows from investing activities
|
||||||||||||||||
|
Property
acquisition, exploration and development
|
204,803
|
-
|
(311,751
|
)
|
-
|
(823,144
|
)
|
|||||||||
|
Increase
(decrease) in cash
|
1,877
|
292,020
|
(94,371
|
)
|
291,820
|
81,677
|
||||||||||
|
Cash,
beginning of period
|
79,800
|
-
|
176,048
|
200
|
-
|
|||||||||||
|
Cash,
end of period
|
81,677
|
292,020
|
81,677
|
292,020
|
81,677
|
|||||||||||
|
Supplemental
cash flow information
|
||||||||||||||||
|
Interest
paid
|
-
|
-
|
-
|
-
|
-
|
|||||||||||
|
Income
taxes paid
|
-
|
-
|
-
|
-
|
-
|
|||||||||||
|
Change
in accrued property acquisition,
exploration and development
expenditures
|
611,554
|
-
|
701,554
|
-
|
701,554
|
|||||||||||
|
Change
in accrued deferred transaction
costs
|
32,200
|
-
|
42,200
|
-
|
42,200
|
|||||||||||
See
accompanying notes to the financial statements.
F-5
Access
Energy Inc.
(An
Exploration Stage Company)
Notes
to Financial Statements
April
30, 2007 and 2006
(Expressed
in Canadian dollars)
(Unaudited)
1. Nature
of operations and going concern
Access
Energy Inc. (“Access Energy” or the “Company”) was incorporated on August 26,
2005 under the Business
Corporations Act (Ontario).
The
Company was inactive from August 26, 2005 to October 31, 2005. The Company
is
engaged in the acquisition, development and production of hydrocarbons in
western Canada and in western United States of America.
The
accompanying interim financial statements are prepared in accordance with
Canadian generally accepted accounting principles (“GAAP”) and follow the same
accounting policies and methods of application as the audited financial
statements of the Company for the year ended October 31, 2006 except as
disclosed in Note 2. They do not include all of the information and disclosures
required by Canadian GAAP for annual financial statements. In the opinion of
management, all adjustments considered necessary for fair presentation have
been
included in these financial statements. Operating results for the period ended
April 30, 2007 are not necessarily indicative of the results that may be
expected for the full year ended October 31, 2007. For further information,
see
the Company’s financial statements including the notes thereto for the year
ended October 31, 2006.
These
financial statements have been prepared in accordance with Canadian generally
accepted accounting principles, as applicable to a going concern. Accordingly,
they do not give effect to adjustments that would be necessary should the
Company be unable to continue as a going concern and therefore be required
to
realize its assets and liquidate its liabilities and commitments in other than
the normal course of business and at amounts different from those in the
accompanying financial statements. The Company has a need for financing for
working capital, and the exploration and development of its properties. The
Company's continuance as a going concern is dependent upon its ability to obtain
adequate financing and to reach profitable levels of operation. It
is not
possible to predict whether financing efforts will be successful or if the
Company will attain profitable levels of operations. These financial statements
do not include the adjustments that would be necessary should the Company be
unable to continue as a going concern. Such adjustments could be material.
See
Notes 4, 7(b) and 9.
2. Changes
in accounting policies
Financial
instruments
In
January 2005, the CICA issued three new standards relating to financial
instruments. These standards are
applicable for fiscal years beginning on or after October 1, 2006. The
Company
adopted
these
new standards effective November 1, 2006. These standards are as
follows:
|
(i)
|
Financial
instruments - Recognition and Measurement, Section
3855
|
This
standard prescribes when a financial asset, financial liability, or
non-financial derivative is to be recognized
on the balance sheet and whether fair value or cost-based measures are used.
It
also specifies how financial instrument gains or losses are to be
presented.
F-6
Access
Energy Inc.
(An
Exploration Stage Company)
Notes
to Financial Statements
April
30, 2007 and 2006
(Expressed
in Canadian dollars)
(Unaudited)
2. Changes
in accounting policies (Continued)
|
(ii)
|
Hedges,
Section 3865
|
|
This
standard is applicable when a company chooses to designate a hedging
relationship for accounting
purposes. It builds on the existing Accounting Guideline AcG-13 “Hedging
Relationships”,
and Section 1650 “Foreign Currency Translation”, by specifying how hedge
accounting
is applied and what disclosures are necessary when it is
applied.
|
|
(iii)
|
Comprehensive
income, Section 1530
|
This
standard introduces new rules for the reporting and display of comprehensive
income. Comprehensive
income, which is currently reported under U.S. GAAP, is the change in
shareholders’ equity (net assets) of an enterprise during a reporting period
from transactions and other events and circumstances from non-owner sources.
It
includes all changes in equity during a period except those resulting
from investments by owners and distributions to owners. These items include
minimum pension liability adjustments, holding gains and losses on certain
investments, gains and losses on certain
derivative instruments and foreign currency gains and losses related to
self-sustaining foreign operations
(cumulative translation adjustment).
For
the
period ended April 30, 2007, the Company did not have other comprehensive income
or loss, therefore the comprehensive loss for the period is equal to the net
loss for the period.
The
Company has determined that the adoption of these new policies had no material
impact on its financial statements and determined that no adjustments are
required for the three and six-month periods ended April 30, 2007.
F-7
Access
Energy Inc.
(An
Exploration Stage Company)
Notes
to Financial Statements
April
30, 2007 and 2006
(Expressed
in Canadian dollars)
(Unaudited)
3. Oil
and gas property interests
During
the period, the Company incurred property acquisition, exploration and
development costs as follows:
|
Balance,
October 31, 2006
|
$
|
511,393
|
||
|
Acquisition
Costs
|
250,000
|
|||
|
Consulting
Fees
|
145,000
|
|||
|
Other
|
618,305
|
|||
|
Total
incurred during the period
|
1,013,305
|
|||
|
Balance,
April 30, 2007
|
$
|
1,524,698
|
During
the six month period ended April 30, 2007, the Company spent funds to evaluate
and to acquire properties with oil and gas potential in northern Saskatchewan
and northern Alberta. The Company entered into a joint venture agreement on
November 3, 2006 with the Buffalo River Dene Nation (“BRDN”) to explore and
develop its traditional lands in northern Saskatchewan and Alberta (See Note
7(a)).
4. Long-term
liabilities
The
long-term liabilities consist of three loans made by three arm’s length third
parties to finance the operations of the Company in the amounts of $300,000,
$400,000, and $150,000, respectively. All three loans bear interest at 8% per
annum, calculated monthly on the principal, from April 3, 2006, May 17, 2006,
and February 14, 2007, respectively, the dates the funds were advanced. Interest
is payable annually on the anniversaries of the agreements. Each loan is for
a
period of twenty-four (24) months and each expires on the second anniversary
of
the date the funds were advanced. The Company is in default in payment of its
interest of $24,000 for the first year of the loan for $300,000 at April 30,
2007. Subsequent to April 30, 2007, the Company went into default for the
interest of $32,000 on the loan of $400,000. At this time, the Company does
not
have the capability to pay the loan interest. See Note 9.
5. Related
party transactions
On
November 1, 2005, the Company entered into an independent contractor agreement
with Coniston Investment Corp. (“Coniston”), to provide management, consulting
and advisory services to the Company (the “Services”). These services include
assisting the Company in negotiating joint venture agreements, assisting in
the
formation of a team of technical experts, and other consulting and advisory
services as required by the Company from
time
to time. The agreement automatically renews for consecutive one-year terms
unless terminated by either party in writing.
F-8
Access
Energy Inc.
(An
Exploration Stage Company)
Notes
to Financial Statements
April
30, 2007 and 2006
(Expressed
in Canadian dollars)
(Unaudited)
5. Related
party transactions (Continued)
Coniston’s
sole shareholder, President and CEO is the President and CEO of the Company.
Pursuant
to the agreement: (i) the
Company shall pay Coniston a fee of: (i) $260,000 per annum, payable monthly;
(ii) $1,000,000 (the “Dene Fee”) in the event the Company enters into an
agreement with the BRDN (See Note 3) and/or its associates or affiliates to
develop hydrocarbon opportunities in a defined area within Treaty 10 lands
which
includes the traditional and historically occupied and used lands of the BRDN;
and (iii) Coniston will also be entitled to receive a 1.25% non-convertible
overriding royalty based on 100% production (“GORR”) from any and all projects
that Coniston brings to the Company (the “Royalty Fee”).
During
the six-month period ended April 30, 2007, the Company recorded management
fees
of $137,800 including Goods and Services Tax (“GST”) (2006 - $137,800) pursuant
to this agreement. Included in accounts payable and accrued liabilities as
at
April 30, 2007 was $663,400 including GST (October 31, 2006 - $275,600) owing
to
Coniston consisting of unpaid management fees of $413,400 and additional oil
and
gas property investigation fees and out-of-pocket expenses of
$400,000.
The
above
transaction is in the normal course of operations and is measured at the
exchange amount, which is the amount of consideration established and agreed
to
by the related parties.
6. Income
taxes
The
estimated taxable income for the period is $nil. Based upon the level of
historical taxable income, it cannot be reasonably determined if the Company
will realize the benefits from future income tax assets or the amounts owing
from future income tax liabilities. Consequently, the future recovery or loss
arising from differences in tax values and accounting values have been reduced
by an equivalent estimated taxable temporary difference valuation allowance.
This estimated taxable temporary difference valuation allowance will be adjusted
in the period that it can be determined that it is more likely than not that
some or all of the future tax assets or future tax liabilities will be
realized.
For
further information about the Company's losses for tax purposes, refer to the
audited October 31, 2006 financial statements. The benefits of these losses
and
the estimated loss for the period are not recognized in these unaudited interim
financial statements.
F-9
Access
Energy Inc.
(An
Exploration Stage Company)
Notes
to Financial Statements
April
30, 2007 and 2006
(Expressed
in Canadian dollars)
(Unaudited)
7. Significant
agreements
| (a) |
On
November 3, 2006, the Company entered into a joint venture agreement
(“JV
Agreement”), which was amended on May 9, 2007, with BRDN to explore and
develop its traditional lands in northern Saskatchewan and Alberta.
Pursuant to the terms of the joint venture agreement, the Company
is
responsible for 100% of the costs to explore and develop any project
within the traditional lands. After all costs relating to a specific
project have been recouped, the BRDN is entitled to a 10% net profit
interest. Furthermore, the BRDN is entitled to earn up to an additional
20% interest in any project(s) by contributing its pro rata share
of the
costs to explore and develop any project(s). At April 30, 2007, $500,000
in acquisition costs has been recorded in relation to the agreement,
of
which $125,000 has been accrued at April 30,
2007.
|
| (b) |
On
November 10, 2006, the Company entered into an Exclusivity Agreement
(“Exclusivity Agreement”) with Black Sands Petroleum, Inc. (“Blacksands”),
amended April 30, 2007, relating to discussions regarding Blacksands’
possible purchase of a significant interest in the Company, for which
the
Company received compensation of $100,000. The compensation is
non-refundable unless there is a breach of the Exclusivity Agreement.
In
the event the Company and Blacksands finalize a purchase agreement,
the
monies paid under the Exclusivity Agreement are to be applied in
their
entirety to monies otherwise payable by Blacksands to the Company
in
exchange for shares. Discussions and negotiations are ongoing. The
Company
has reflected the $100,000 as equity at April 30, 2007. At April
30, 2007,
the Company has deferred costs of $42,200 with respect to this proposed
transaction.
|
8. Difference
between Canadian and United States generally accepted accounting principles
(“GAAP”)
The
Company prepares its financial statements in accordance with accounting
principles generally accepted
in Canada (Canadian GAAP), which differ in certain respects from those
principles that the Company would have followed had its financial statements
been prepared in accordance with accounting principles
generally accepted in the United States (U.S. GAAP). The significant measurement
differences between Canadian and U.S. GAAP and their effect on the financial
statements are described below.
Balance
sheet
There
are
no balance sheet measurement differences between Canadian and U.S.
GAAP.
F-10
Access
Energy Inc.
(An
Exploration Stage Company)
Notes
to Financial Statements
April
30, 2007 and 2006
(Expressed
in Canadian dollars)
(Unaudited)
Blacksands
follows the policy of accounting for oil and gas property costs using the
successful efforts method as recommended by FAS 19. Access Energy Inc. follows
the full cost method of accounting. Access Energy's financial statements have
been adjusted to reflect the successful efforts method of accounting for oil
and
gas property costs for the purposes of preparing Proforma consolidated financial
statements to ensure consistent accounting policies are applied.
Statement
of operations
There
are
no statement of operations differences between Canadian and U.S.
GAAP.
8. Difference
between Canadian and United States generally accepted accounting principles
(“GAAP”)(continued)
Statements
of cash flows
There
were no significant differences between the statements of cash flows under
Canadian GAAP as compared to U.S. GAAP, except for the subtotal before change
in
non-cash working capital, whose presentation is not permitted under U.S.
GAAP.
Recent
U.S. accounting pronouncements
|
(i)
|
Income
Taxes
|
In
June
2006, the FASB Interpretation No. 48, “Accounting for Uncertainty in Income
Taxes - an interpretation of FASB Statement No. 109”. Interpretation No. 48
clarifies the accounting for uncertainty in income taxes recognized in an
enterprise’s financial statements in accordance with FASB Statement No. 109,
“Accounting for Income Taxes”. This Interpretation is effective for fiscal years
beginning after December 15, 2006. The Company will assess the effect, if any,
the adoption of this interpretation will have on its financial statements and
related disclosures.
| (ii) |
Fair
Value Measurements
|
In
September 2006, the FASB issued FAS No. 157, “Fair Value Measurements” (“FAS
157”), which defines fair value, establishes a framework for measuring fair
value and expands disclosures about fair value measurements. FAS 157 is
effective for financial statements issued for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal years, and is
applicable beginning in the first quarter of 2008. The Company is currently
evaluating the impact that FAS 157 will have on its financial
statements.
F-11
Access
Energy Inc.
(An
Exploration Stage Company)
Notes
to Financial Statements
April
30, 2007 and 2006
(Expressed
in Canadian dollars)
(Unaudited)
Recent
U.S. accounting pronouncements (continued)
| (iii) |
The
Fair Value Option for Financial Assets and Financial
Liabilities
|
In
February 2007, the FASB issued FAS No. 159, “The Fair Value Option for Financial
Assets and Financial Liabilities - Including an amendment of FASB Statement
No.
115”, (“FAS 159”) which permits entities to choose to measure many financial
instruments and certain other items at fair value at specified election dates.
A
business entity is required to report unrealized gains and losses on items
for
which the fair value option has been elected in earnings at each subsequent
reporting date.
F-12
Access
Energy Inc.
(An
Exploration Stage Company)
Notes
to Financial Statements
April
30, 2007 and 2006
(Expressed
in Canadian dollars)
(Unaudited)
8. Difference
between Canadian and United States generally accepted accounting principles
(GAAP)
(continued)
This
statement is expected to expand the use of fair value measurement. FAS 159
is
effective for financial statements issued for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal years, and is
applicable beginning in the
first
quarter of 2008. The Company is currently evaluating the impact that FAS 159
will have on its financial statements.
Recent
Canadian accounting pronouncements
| (iv) |
Capital
Disclosures and Financial Instruments - Disclosures and
Presentation
On
December 1, 2006, the CICA issued three new accounting standards:
Handbook
Section 1535, “Capital Disclosures”, Handbook Section 3862, “Financial
Instruments - Disclosures” and Handbook Section 3863, “Financial
Instruments - Presentation.” Section 1535 specifies the disclosure of (i)
an entity’s objectives, policies and processes for managing capital; (ii)
quantitative data about what the entity regards as capital; (iii)
whether
the entity has complied with any capital requirements; and (iv) if
it has
not complied, the consequences of such non-compliance. The new sections
3862 and 3863 replace Handbook Section 3861, “Financial Instruments -
Disclosure and Presentation,” revising and enhancing its disclosure
requirement and carrying forward unchanged its presentation requirements.
These new sections place increased emphasis on disclosures about
the
nature and extent of risks arising from financial instruments and
how the
entity manages those risks. The Company is currently evaluating the
impact
of these new accounting standards on its financial
statements.
|
9. Subsequent
Events
Subsequent
to April 30, 2007, the Company entered into a loan agreement with Blacksands.
The Company received a loan of $250,000 bearing interest at a rate of 9% per
annum. The principal and unpaid interest is payable on August 7, 2007. Interest
is payable at the start of each calendar month preceding the due date. In the
event that the Company defaults on its monthly interest payments, the interest
rate will increase to 15% per annum.
See
Note
4.
F-13
Auditors’
Report
To
the Shareholder of
Access
Energy Inc.
(An
Exploration Stage Company)
We
have
audited the balance sheet of Access
Energy Inc.
(An
Exploration Stage Company) as at October 31, 2006 and the statements of deficit,
operations and cash flows for the year ended October 31, 2006. These financial
statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements based
on
our audit.
We
conducted our audit in accordance with Canadian generally accepted auditing
standards and the standards of the Public Company Accounting Oversight Board
(United States). These standards require that we plan and perform an audit
to
obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In
our
opinion, these financial statements present fairly, in all material respects,
the financial position of the Company as at October 31, 2006 and the results
of
its operations and its cash flows for the year ended October 31, 2006 in
accordance with Canadian generally accepted accounting principles.
| McGOVERN, HURLEY, CUNNINGHAM, LLP | |||
 |
|||
|
Chartered
Accountants
Licensed
Public Accountants
|
Toronto,
Ontario
December
4, 2006 except for Notes 4, 6 and 9,
which
are
as at July 12, 2007
F-14
Comments
by the Auditors for U.S. Readers on Canada-U.S. Reporting
Conflict
In
the
United States, reporting standards for auditors require the addition of an
explanatory paragraph (following the opinion paragraph) when the financial
statements are affected by conditions and events that cast substantial doubt
on
the Company’s ability to continue as a going concern, such as those described in
note 1 to the financial statements. Our report to the shareholder dated December
4, 2006, except for Notes 4, 6 and 9 which are as at July 12, 2007, is expressed
in accordance with Canadian reporting standards which do not permit a reference
to such events and conditions in the auditors’ report when these are adequately
disclosed in the financial statements.
| McGOVERN, HURLEY, CUNNINGHAM, LLP | |||
|
|||
|
Chartered
Accountants
Licensed
Public Accountants
|
Toronto,
Ontario
December
4, 2006 except for Notes 4, 6 and 9,
which
are
as at July 12, 2007
F-15
Access
Energy Inc.
(An
Exploration Stage Company)
Balance
Sheets
As
at October 31, 2006 and 2005
(Expressed
in Canadian dollars)
|
2006
|
|
2005
|
|
||||
|
$
|
$
|
||||||
|
(unaudited)
|
|||||||
|
Assets
|
|||||||
|
Current
assets
|
|||||||
|
Cash
|
176,048
|
200
|
|||||
|
Oil
and gas property interests (Note
3)
|
511,393
|
-
|
|||||
|
687,441
|
200
|
||||||
|
Liabilities
|
|||||||
|
Current
liabilities
|
|||||||
|
Accounts
payable and accrued liabilities (Note 6)
|
304,590
|
-
|
|||||
|
Current
portion of long-term liabilities (Note 4)
|
28,427
|
-
|
|||||
|
333,017
|
-
|
||||||
|
Long-term
liabilities (Note 4)
|
700,000
|
-
|
|||||
|
1,033,017
|
-
|
||||||
|
Capital
Stock and Deficit
|
|||||||
|
Capital
stock (Note
5)
|
|||||||
|
Authorized
|
|||||||
|
Unlimited
common shares, without par value
|
|||||||
|
Issued
|
|||||||
|
200
common shares
|
200
|
200
|
|||||
|
Deficit
|
(345,776
|
)
|
-
|
||||
|
(345,576
|
)
|
-
|
|||||
|
687,441
|
200
|
||||||
See
accompanying notes to the financial
statements.
F-16
Access
Energy Inc.
(An
Exploration Stage Company)
Statement
of Operations and Comprehensive Income
For
the years ended October 31, 2006 and 2005
(Expressed
in Canadian dollars, except number of shares)
|
2006
|
|
2005
|
|||||
|
$
|
$
|
||||||
|
(unaudited)
|
|||||||
|
Expenses
|
|||||||
|
Management
fees (Note 6)
|
275,600
|
-
|
|||||
|
Audit
and legal fees
|
22,792
|
-
|
|||||
|
Office
and administrative
|
18,957
|
-
|
|||||
|
Loss
before the undernoted
|
317,349
|
-
|
|||||
|
Interest
expense
|
28,427
|
-
|
|||||
|
Net
loss for the year
|
345,776
|
-
|
|||||
See
accompanying notes to the financial
statements.
F-17
Access
Energy Inc.
(An
Exploration Stage Company)
Statement
of Shareholder’s Equity
For
the years ended October 31, 2006 and 2005
(Expressed
in Canadian dollars)
|
Common
shares
|
Total
|
||||||||||||
|
|
|
Number
of
shares
|
|
Amount
|
|
Cumulative
deficit
|
|
shareholder’s
equity
|
|
||||
|
$
|
$
|
$
|
|||||||||||
|
Balance
upon incorporation
(August
25, 2006)
|
200
|
200
|
-
|
200
|
|||||||||
|
Net
loss for the year
|
-
|
-
|
-
|
-
|
|||||||||
|
Balance,
October 31, 2005 (unaudited)
|
200
|
200
|
-
|
200
|
|||||||||
|
Net
loss for the year
|
-
|
-
|
(345,776
|
)
|
(345,776
|
)
|
|||||||
|
Balance
, October 31, 2006
|
200
|
200
|
(345,776
|
)
|
(345,576
|
)
|
|||||||
See
accompanying notes to the financial
statements.
F-18
Access
Energy Inc.
(An
Exploration Stage Company)
Statements
of Cash Flows
For
the years ended October 31, 2006 and 2005
(Expressed
in Canadian dollars)
|
2006
|
|
2005
|
|||||
|
$
|
$
|
||||||
|
(unaudited)
|
|||||||
|
Cash
flows from operating activities
|
|||||||
|
Net
loss for the year
|
(345,776
|
)
|
-
|
||||
|
Items
not affecting cash
|
|||||||
|
Interest
expense
|
28,427
|
-
|
|||||
|
(317,349
|
)
|
-
|
|||||
|
Changes
in non-cash working capital
|
|||||||
|
Accounts
receivable
|
-
|
-
|
|||||
|
Accounts
payable and accrued liabilities
|
304,590
|
-
|
|||||
|
(12,759
|
)
|
-
|
|||||
|
Cash
flows from financing activities
|
|||||||
|
Long-term
loans
|
700,000
|
-
|
|||||
|
Issuance
of common shares
|
-
|
200
|
|||||
|
700,000
|
200
|
||||||
|
Cash
flows from investing activities
|
|||||||
|
Property
acquisition, exploration and development
|
(511,393
|
)
|
-
|
||||
|
Increase
in cash
|
175,848
|
200
|
|||||
|
Cash,
beginning of year
|
200
|
-
|
|||||
|
Cash,
end of year
|
176,048
|
200
|
|||||
|
Supplemental
cash flow information
|
|||||||
|
Interest
paid
|
-
|
-
|
|||||
|
Income
taxes paid
|
-
|
-
|
|||||
See
accompanying notes to the financial
statements.
F-19
Access
Energy Inc.
(An
Exploration Stage Company)
Notes
to Financial Statements
April
30, 2007 and 2006
(Expressed
in Canadian dollars)
1. Nature
of operations and going concern
Access
Energy Inc. (“Access Energy” or the “Company”) was incorporated on August 26,
2005 under the Business
Corporations Act (Ontario).
The
Company was inactive from August 26, 2005 to October 31, 2005. The Company
is
engaged in the acquisition, development and production of hydrocarbons in
western Canada and in western United States of America.
The
management of Access Energy has prepared these financial statements for the
year
ended October 31, 2006 in accordance with Canadian generally accepted accounting
principles, consistently applied. The
ability of the Company to realize the costs it has incurred to date on its
properties is dependent upon the Company being able to identify economically
recoverable reserves, to finance their development costs and to resolve any
environmental, regulatory, or other constraints which may hinder the successful
development of the reserves.
These
financial statements have been prepared in accordance with Canadian generally
accepted accounting principles, as applicable to a going concern. Accordingly,
they do not give effect to adjustments that would be necessary should the
Company be unable to continue as a going concern and therefore be required
to
realize its assets and liquidate its liabilities and commitments in other than
the normal course of business and at amounts different from those in the
accompanying financial statements. The Company has a need for financing for
working capital, and the exploration and development of its properties. The
Company's continuance as a going concern is dependent upon its ability to obtain
adequate financing and to reach profitable levels of operation. It
is not
possible to predict whether financing efforts will be successful or if the
Company will attain profitable levels of operations. See Notes 4 and
9.
2. Summary
of significant accounting policies
Use
of estimates
The
preparation of these financial statements in conformity with accounting
principles generally accepted in Canada requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities
and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period.
Cash
and cash equivalents
Cash
and
cash equivalents include cash and highly liquid money market instruments, which
have an original maturity of three months or less.
F-20
Access
Energy Inc.
(An
Exploration Stage Company)
Notes
to Financial Statements
April
30, 2007 and 2006
(Expressed
in Canadian dollars)
2. Summary
of significant accounting policies (Continued)
Foreign
exchange translation
The
reporting and functional currency of the Company is the Canadian dollar.
Currency transactions and balances are translated into the reporting currency
as
follows:
| · |
monetary
items are translated at the rates prevailing at the balance sheet
date;
|
| · |
non-monetary
items are translated at historical rates;
|
| · |
revenues
and expenses are translated at the average rates in effect during
applicable accounting periods except for depreciation and amortization
which are translated at historical rates;
|
| · |
exchange
gains and losses on foreign currency translation are included in
income
for the year.
|
Future
income taxes
The
Company uses the asset and liability method of accounting for future income
taxes. Under this method of tax allocation, future income tax assets and
liabilities are recognized for temporary differences between the tax and
accounting bases of assets and liabilities as well as for the benefit of losses
available to be carried forward to future years for tax purposes. The amount
of
future income tax assets recognized is limited to the amount that is more likely
than not to be realized.
Fair
value of financial instruments
The
Company’s financial instruments consist of cash, accounts payable and accrued
liabilities and long-term liabilities. Unless otherwise noted, it is
management’s opinion that the Company is not exposed to significant interest,
currency or credit risks arising from these financial instruments. The fair
values of these financial instruments approximate their carrying values due
to
the relative short-term nature of these instruments.
Oil
and gas interests
The
Company follows the full cost method of accounting for oil and gas properties
and equipment whereby all costs
of
acquiring, exploring for and developing oil and gas reserves are
capitalized.
The
Company regularly reviews the carrying value of its oil and gas properties,
which are currently unproven, by
reference to the project economics, the timing of exploration work, the work
programs and the exploration results achieved on the project. Where an
impairment occurs a charge to earnings would be made. Once commercial
production is achieved, the Company will apply a ceiling test to ensure that
capitalized costs do not exceed
total estimated future net revenues from the production of proved reserves
less
general and administrative
expenses, financing costs, site restoration costs and income
taxes related to future production. Any
reduction in value as a result of the ceiling test will be charged to operations
as additional depletion, depreciation,
and amortization. The Company did not apply a ceiling test in 2006 or 2005
because it is in the exploration stage and
no
proven reserves have been established.
F-21
Access
Energy Inc.
(An
Exploration Stage Company)
Notes
to Financial Statements
April
30, 2007 and 2006
(Expressed
in Canadian dollars)
2. Summary
of significant accounting policies (Continued)
Once
in
commercial production, capitalized costs of proven reserves and equipment will
be depleted using a unit-of-production
method based upon estimated proven reserves (energy content) net of royalties.
Unless a significant
amount of reserves is involved, proceeds received from the disposition of oil
and gas properties are credited
to the capitalized costs. In the event of a significant sale of reserves, a
proportionate amount of cost and accumulated depletion, based upon the ratio
of
reserves sold to total reserves, is removed from the capitalized costs and
the
resultant profit or loss is taken into income. The property is in the early
stage of exploration. To date, there has been no commercial production from
the
property and as a result no depletion has been recorded.
The
recoverability of the amounts shown for oil and gas properties is dependent
upon
the existence of economically
recoverable oil and gas reserves, maintaining title and beneficial interest
in
the properties, the ability of the
Company to obtain necessary financing to bring the reserves into production,
and
upon future profitable production
or proceeds from the disposition of properties. The amounts shown as oil and
gas
interests represent acquisition
costs to date.
Asset
retirement obligation
The
Company records the fair value of its asset retirement obligation (“ARO”) as a
liability in the period in which it incurs a legal obligation to restore an
oil
and gas property, typically when a well is drilled or other equipment
is
put in
place. The associated asset retirement costs are capitalized as part of the
carrying value of the oil and gas
property and once in production is depleted using a unit of production method
over the life of the proved reserves.
Subsequent to initial measurement, the obligation is adjusted at the end of
each
reporting period to reflect the passage of time and changes in estimated future
cash flows underlying the obligation. As at October 31, 2006 the Company has
not
incurred an ARO.
Revenue
recognition
Revenues
associated with the production and sale of crude oil and gas owned by the
Company are recognized when title to the product passes to the
purchaser.
Proceeds
from sale of crude oil and gas prior to the commencement of commercial
production are offset against capitalized
costs.
F-22
Access
Energy Inc.
(An
Exploration Stage Company)
Notes
to Financial Statements
April
30, 2007 and 2006
(Expressed
in Canadian dollars)
3. Oil
and gas property interests
During
the year, the Company incurred property acquisition, exploration and development
costs as follows:
|
Acquisition
Costs
|
$
|
250,000
|
||
|
Consulting
Fees
|
179,900
|
|||
|
Professional
Services
|
57,113
|
|||
|
Other
|
24,380
|
|||
|
Total
|
$
|
511,393
|
During
the year ended October 31, 2006, the Company spent funds to evaluate and to
acquire properties with oil and gas potential in northern Saskatchewan and
northern Alberta. This work resulted in the Company entering into a joint
venture agreement on November 3, 2006 with the Buffalo River Dene Nation
(“BRDN”) to explore and develop its traditional lands in northern Saskatchewan
and Alberta, (see Note 9).
4. Long-term
liabilities
The
long-term liabilities consist of two loans made by two third parties to finance
the operations of the Company in the amounts of $300,000 and $400,000,
respectively. Both loans bear interest at 8% per annum, calculated monthly
on
the principal, from April 3, 2006 and May 17, 2006 respectively, the dates
the
funds were advanced. Interest is payable annually on the anniversaries of the
agreements. Each loan is for a period of twenty-four (24) months, and each
expires on the second anniversary of the date the funds were advanced.
Subsequent
to October 31, 2006, the Company defaulted on interest payments of $24,000
and
$32,000, which were due on April 3, 2007 and May 17, 2007, respectively, with
respect to the $300,000 and $400,000 loans. At this time, the Company does
not
have the capability to pay the loan interest.
F-23
Access
Energy Inc.
(An
Exploration Stage Company)
Notes
to Financial Statements
April
30, 2007 and 2006
(Expressed
in Canadian dollars)
5. Capital
stock
|
2006
|
2005
|
||||||||||||
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|||||||
|
$
|
$
|
||||||||||||
|
Balance,
beginning of year
|
200
|
200
|
-
|
-
|
|||||||||
|
Issued
during the year
|
-
|
-
|
200
|
200
|
|||||||||
|
Balance,
end of year
|
200
|
200
|
200
|
200
|
|||||||||
6. Related
party transactions
On
November 1, 2005, the
Company entered into an independent contractor agreement with Coniston
Investment Corp. (“Coniston”), to provide management, consulting and advisory
services to the Company (the “Services”). These services include assisting the
Company in negotiating joint venture agreements, assisting in the formation
of a
team of technical experts, and other consulting and advisory services as
required by the Company from time to time. The agreement automatically renews
for consecutive one-year terms unless terminated by either party in writing.
Coniston’s
sole shareholder, President and CEO is the President and CEO of the Company.
Pursuant to the agreement: (i) the
Company shall pay Coniston a fee of: (i) $260,000 per annum, payable monthly;
(ii) $1,000,000 (the “Dene Fee”) in the event the Company enters into an
agreement with the BRDN (See Note 3) and/or its associates or affiliates to
develop hydrocarbon opportunities in a defined area within Treaty 10 lands
which
includes the traditional and historically occupied and used lands of the BRDN;
and (iii) Coniston will also be entitled to receive a 1.25% non-convertible
overriding royalty based on 100% production (“GORR”) from any and all projects
that Coniston brings to the Company (the “Royalty Fee”).
During
the year ended October 31, 2006, the Company recorded management fees of
$260,000 plus Goods and Services Tax of $15,600 pursuant to this agreement
(2005
- $Nil) of which $275,600 (2005 - $Nil) is included in accounts payable and
accrued liabilities as at October 31, 2006.
The
above
transaction is in the normal course of operations and is measured at the
exchange amount, which is the amount of consideration established and agreed
to
by the related parties.
F-24
Access
Energy Inc.
(An
Exploration Stage Company)
Notes
to Financial Statements
April
30, 2007 and 2006
(Expressed
in Canadian dollars)
7. Income
taxes
The
Company’s income tax provision (recovery) has been calculated using the
statutory rate of 36% (2005 - 36%) as follows:
|
2006
|
|
2005
|
|||||
|
$
|
$
|
||||||
|
Loss
for the year
|
(345,776
|
)
|
-
|
||||
|
Income
tax recovery at Canadian federal and provincial statutory
rates
|
(124,500
|
)
|
-
|
||||
|
Change
in valuation allowance
|
124,500
|
-
|
|||||
|
Provision
for income taxes
|
-
|
-
|
|||||
The
Company’s future income tax assets as at October 31, 2006 are summarized as
follows:
|
2006
|
|
2005
|
|||||
|
$
|
$
|
||||||
|
Non-capital
losses carried forward
|
10,000
|
-
|
|||||
|
Resources
properties
|
114,500
|
-
|
|||||
|
Net
future income tax asset
|
124,500
|
-
|
|||||
|
Valuation
allowance
|
(124,500
|
)
|
-
|
||||
|
Net
future income tax asset recorded
|
-
|
-
|
|||||
The
Company has recorded a valuation allowance in respect of its Canadian losses
and
resource expenditures as at October 31, 2006 because of the uncertainty of
their
future utilization in the carry-forward period. As at October 31, 2006, the
Company has available non-capital loss carryforwards of approximately $28,000
for Canadian federal and Ontario income tax purposes that will expire in 2026.
The Company also has approximately $828,000 of Canadian development and
exploration expenditures as at October 31, 2006, which under certain
circumstances may be utilized to reduce the taxable income of future
years.
F-25
Access
Energy Inc.
(An
Exploration Stage Company)
Notes
to Financial Statements
April
30, 2007 and 2006
(Expressed
in Canadian dollars)
8. Difference
between Canadian and United States generally accepted accounting principles
(“GAAP”)
The
Company prepares its financial statements in accordance with accounting
principles generally accepted
in Canada (Canadian GAAP), which differ in certain respects from those
principles that the Company would have followed had its financial statements
been prepared in accordance with accounting principles
generally accepted in the United States (U.S. GAAP). The significant measurement
differences between Canadian and U.S. GAAP and their effect on the financial
statements are described below.
Balance
sheet
There
are
no balance sheet measurement differences between Canadian and U.S.
GAAP.
Statement
of operations
There
are
no statement of operations differences between Canadian and U.S.
GAAP.
Statements
of cash flows
There
were no significant differences between the statements of cash flows under
Canadian GAAP as compared to U.S. GAAP, except for the subtotal before change
in
non-cash operating items, whose presentation is not permitted under U.S.
GAAP.
Statement
of comprehensive income
U.S.
GAAP
requires that a comprehensive income statement be prepared. Comprehensive income
is defined
as “the change in equity of a business enterprise during a period from
transactions and other events
and circumstances from non-owner sources. It includes all changes in equity
during a period except
those resulting from investments by owners and distributions to owners”. The
comprehensive income
statement reconciles the reported net income to the comprehensive income
amount.
For
U.S.
GAAP purposes, there is no difference between the Company’s net income and
comprehensive
income.
Recent
Canadian accounting pronouncements
Non-monetary
transactions
CICA
Handbook Section 3831 “Non-Monetary Transactions” will be applicable to the
Company commencing with the 2007 financial year. Reporting of the Company’s
results is not expected to be materially
affected by this standard.
Financial
instruments
In
January 2005, the CICA issued three new standards relating to financial
instruments. These standards are
applicable for fiscal years beginning on or after October 1, 2006. The
Company
is currently reviewing the
impact of these new standards. These standards are as follows:
|
(i)
|
Financial
instruments - Recognition and Measurement, Section 3855
This
standard prescribes when a financial asset, financial liability,
or
non-financial derivative is to be recognized
on the balance sheet and whether fair value or cost-based measures
are
used. It also specifies how financial instruments gains or losses
are to
be presented.
|
F-26
Access
Energy Inc.
(An
Exploration Stage Company)
Notes
to Financial Statements
April
30, 2007 and 2006
(Expressed
in Canadian dollars)
8. Difference
between Canadian and United States generally accepted accounting principles
(“GAAP”) (continued)
|
(ii)
|
Hedges,
Section 3865
This
standard is applicable when a company chooses to designate a hedging
relationship for accounting
purposes. It builds on the existing Accounting Guideline AcG-13 “Hedging
Relationships”,
and Section 1650 “Foreign Currency Translation”, by specifying how hedge
accounting
is applied and what disclosures are necessary when it is
applied.
|
|
(iii)
|
Comprehensive
income, Section 1530
|
This
standard introduces new rules for the reporting and display of comprehensive
income. Comprehensive
income, which is currently reported under U.S. GAAP, is the change in
shareholders’ equity (net assets) of an enterprise during a reporting period
from transactions and other events and circumstances from non-owner sources.
It
includes all changes in equity during a period except those resulting
from investments by owners and distributions to owners. These items include
minimum pension liability adjustments, holding gains and losses on certain
investments, gains and losses on certain
derivative instruments and foreign currency gains and losses related to
self-sustaining foreign operations
(cumulative translation adjustment).
Recent
U.S. accounting pronouncements
|
(iv)
|
Accounting
for Changes and Error Corrections
|
During
June 2005, the FASB issued SFAS No. 154, Accounting for Changes and Error
Corrections. The
new
standard requires that entities which make a voluntary change in accounting
principle apply that
change retroactively to prior period financial statements, unless this would
be
impracticable. For changes
in methods of depreciation, amortization or depletion for long-lived assets,
the
change must be
accounted for prospectively, as a change in estimate. SFAS No. 154 is effective
for the Company’s 2007
financial statements and is not expected to impact earnings.
F-27
Access
Energy Inc.
(An
Exploration Stage Company)
Notes
to Financial Statements
April
30, 2007 and 2006
(Expressed
in Canadian dollars)
8. Difference
between Canadian and United States generally accepted accounting principles
(GAAP)
(Continued)
| (iv) |
Income
Taxes
|
In
June
2006, the FASB Interpretation No. 48, “Accounting for Uncertainty in Income
Taxes - an interpretation of FASB Statement No. 109”. Interpretation No. 48
clarifies the accounting for uncertainty in income taxes recognized in an
enterprise’s financial statements in accordance with FASB Statement No. 109,
“Accounting for Income Taxes”. This Interpretation is effective for fiscal years
beginning after December 15, 2006. The Company will assess the effect, if any,
the adoption of this interpretation will have on its financial statements and
related disclosures.
|
(vi)
|
Share-Based
Payment
|
FAS
123R
requires companies to recognize compensation costs for all types of stock
options in the financial statements. Pro forma disclosure will no longer be
an
allowable alternative to financial statement recognition. The standard also
revises certain requirements for accounting for other types of share-based
payments. This standard is effective for interim and annual periods beginning
after June 15, 2005 for public entities that do not file as small business
issuers.
9. Subsequent
Events
On
November 3, 2006, the Company entered into a joint venture agreement (“JV
Agreement”) with BRDN to explore and develop its traditional lands in northern
Saskatchewan and Alberta. Pursuant to the terms of the joint venture agreement
the Company is responsible for 100% of the costs to explore and develop any
project within the traditional lands. After all costs relating to a specific
project have been recouped the BRDN is entitled to a 10% net profits interest.
Furthermore, the BRDN is entitled to earn up to an additional 20% interest
in
any project(s) by contributing its pro rata share of the costs to explore and
develop any project(s).
On
November 10, 2006, the Company entered into an Exclusivity Agreement
(“Exclusivity Agreement”) with Black Sands Petroleum, Inc. (“Blacksands”),
relating to discussions regarding Blacksands’ possible purchase of a significant
interest in the Company, for which the Company received compensation of
$100,000. The compensation is non-refundable unless there is a breach of the
Exclusivity Agreement. In the event the Company and Blacksands finalize a
purchase agreement, the monies paid under the Exclusivity Agreement are to
be
applied in their entirety to monies otherwise payable by Blacksands to the
Company.
F-28
Access
Energy Inc.
(An
Exploration Stage Company)
Notes
to Financial Statements
April
30, 2007 and 2006
(Expressed
in Canadian dollars)
9. Subsequent
Events (continued)
Subsequent
to October 31, 2006, the Company entered into a loan agreement with Blacksands.
The Company received a loan of $250,000 bearing interest at a rate of 9% per
annum. The principal and unpaid interest is payable on August 7, 2007. Interest
is payable at the start of each calendar month preceding the due date. In the
event that the Company defaults on its monthly interest payments, the interest
rate will increase to 15% per annum.
See
also
Note 4.
F-29
|
Blacksands
Petroleum, Inc.
|
||||||||||
|
(Formerly
known as Lam Liang Corp.)
|
||||||||||
|
(A
Development Stage Enterprise)
|
||||||||||
|
Proforma
Consolidated Balance Sheet
|
||||||||||
|
As
At April 30, 2007
|
||||||||||
|
(Unaudited)
|
|
Access
Energy Inc.
Cdn$
|
Proforma
Adjustment
Cdn$
|
Access
Energy Inc.
Adjusted
Cdn$
|
|
Access
Energy Inc.
Adjusted
US$
|
|
Blacksands
Petroleum, Inc.
US$
|
|
Combined
US$
|
Proforma
Adjustment
US$
|
Proforma
Consolidated
US$
|
|||||||||||||||||||||
|
ASSETS
|
|||||||||||||||||||||||||||||||
|
Current
Assets
|
|||||||||||||||||||||||||||||||
|
Cash
held at bank
|
81,677
|
81,677
|
73,576
|
384,074
|
457,650
|
457,650
|
|||||||||||||||||||||||||
|
Cash
held in attorney’s trust account
|
-
|
-
|
-
|
136,808
|
136,808
|
136,808
|
|||||||||||||||||||||||||
|
Restricted
Cash - held in Escrow
|
-
|
-
|
-
|
10,854,407
|
10,854,407
|
10,854,407
|
|||||||||||||||||||||||||
|
Accounts
receivable
|
21,268
|
21,288
|
19,159
|
-
|
19,159
|
19,159
|
|||||||||||||||||||||||||
|
Prepaid
expenses
|
-
|
-
|
-
|
28,019
|
28,019
|
28,019
|
|||||||||||||||||||||||||
|
Total
Current Assets
|
102,945
|
102,945
|
92,735
|
11,403,308
|
11,496,043
|
11,496,043
|
|||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||||||
|
Property,
plant and equipment - net
|
-
|
-
|
-
|
29,424
|
29,424
|
29,424
|
|||||||||||||||||||||||||
|
Oil
and gas property costs
|
1,524,698
|
(838,567
|
)
|
(a) |
|
686,131
|
618,080
|
-
|
618,080
|
1,715,971
|
(b) |
|
2,344,051
|
||||||||||||||||||
|
Total
Capital Assets
|
1,524,698
|
(838,567
|
)
|
686,131
|
618,080
|
29,424
|
647,504
|
1,725,971
|
2,373,475
|
||||||||||||||||||||||
|
Other
assets
|
|||||||||||||||||||||||||||||||
|
Deferred
transaction costs
|
42,200
|
42,200
|
38,015
|
-
|
38,015
|
38,015
|
|||||||||||||||||||||||||
|
Exclusivity
agreement deposit
|
-
|
-
|
-
|
90,080
|
90,080
|
(90,080
|
)
|
(e) |
|
-
|
|||||||||||||||||||||
|
Rent
deposit
|
-
|
-
|
-
|
10,017
|
10,017
|
10,017
|
|||||||||||||||||||||||||
|
Total
Other Assets
|
42,200
|
42,200
|
38,015
|
100,097
|
138,112
|
(90,080
|
)
|
48,032
|
|||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||||||
|
Total
Assets
|
1,669,843
|
(838,567
|
)
|
831,276
|
748,830
|
11,532,829
|
12,281,659
|
1,635,891
|
13,917,550
|
||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||||||
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|||||||||||||||||||||||||||||||
|
Current
Liabilities
|
|||||||||||||||||||||||||||||||
|
Accounts
payable and accrued liabilities
|
455,532
|
455,532
|
410,352
|
1,166,393
|
1,576,745
|
1,576,745
|
|||||||||||||||||||||||||
|
Accounts
payable to related parties
|
732,727
|
732,727
|
660,055
|
2,252
|
662,307
|
662.307
|
|||||||||||||||||||||||||
|
Current
portion of long term debt
|
358,663
|
358,663
|
323,091
|
-
|
323,091
|
323,091
|
|||||||||||||||||||||||||
|
Total
Current Liabilities
|
1,546,922
|
1,546,922
|
1,393,498
|
1,168,645
|
2,562,143
|
2,562,143
|
|||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||||||
|
Long
Term Debt
|
550,000
|
550,000
|
495,451
|
-
|
495,451
|
495,451
|
|||||||||||||||||||||||||
|
Minority
Interest
|
-
|
495,772
|
(d) |
|
495,772
|
||||||||||||||||||||||||||
|
Total
liabilities
|
2,096,922
|
2,096,922
|
1,888,949
|
1,168,645
|
3,057,594
|
495,772
|
3,553,366
|
||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||||||
|
Stockholders’
Equity
|
|||||||||||||||||||||||||||||||
|
Common
Stock
|
200
|
200
|
167
|
74,855
|
75,022
|
(167
|
)
|
(d) |
|
74,855
|
|||||||||||||||||||||
|
Additional
Paid-in-Capital
|
-
|
-
|
-
|
11,872,951
|
11,872,951
|
11,872,951
|
|||||||||||||||||||||||||
|
Treasury
stock at cost
|
-
|
-
|
-
|
(50,000
|
)
|
(50,000
|
)
|
(50,000
|
)
|
||||||||||||||||||||||
|
Exclusivity
Agreement Deposit
|
100,000
|
100,000
|
90,080
|
-
|
90,080
|
(90,080
|
)
|
(e) |
|
-
|
|||||||||||||||||||||
|
Accumulated
Comprehensive Loss
|
-
|
-
|
(39,456
|
)
|
(4,816
|
)
|
(44,272
|
)
|
39,456
|
(c) |
|
(4,816
|
)
|
||||||||||||||||||
|
Deficit
accumulated during the development stage
|
(527,279
|
)
|
(838,567
|
)
|
(a) |
|
(1,365,846
|
)
|
(1,190,910
|
)
|
(1,528,806
|
)
|
(2,719,716
|
)
|
1,190,910
|
(c) |
|
(1,528,806
|
)
|
||||||||||||
|
Total
Stockholders' Equity
|
(427,079
|
)
|
(838,567
|
)
|
(1,265,646
|
)
|
(1,140,119
|
)
|
10,364,184
|
9,224,065
|
1,140,119
|
10,364,184
|
|||||||||||||||||||
|
Total
Liabilities and Stockholders' Equity
|
1,669,843
|
(838,567
|
)
|
831,276
|
748,830
|
11,532,829
|
12,281,659
|
1,635,891
|
13,917,550
|
||||||||||||||||||||||
See
Notes
to Unaudited Proforma Consolidated Financial Statements
F-30
|
Blacksands
Petroleum, Inc.
|
||||||||||
|
(Formerly
known as Lam Liang Corp.)
|
||||||||||
|
(A
Development Stage Enterprise)
|
||||||||||
|
Proforma
Consolidated Statement of Operations
|
||||||||||
|
For
the six months ended April 30, 2007
|
||||||||||
|
(Unaudited)
|
|
Access
Energy Inc.
Cdn$
|
|
Proforma
Adjustment
Cdn$
|
|
|
|
Access
Energy Inc.
Adjusted
Cdn$
|
|
Access
Energy Inc.
Adjusted
US$
|
|
Blacksands
Petroleum, Inc.
US$
|
|
Combined
US$
|
|
Proforma
Adjustment
US$
|
|
|
|
Proforma
Consolidated
US$
|
|||||||||||||
|
REVENUES:
|
|||||||||||||||||||||||||||||||
|
Revenue
|
|||||||||||||||||||||||||||||||
|
Total
Revenues
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||||||||
|
EXPENSES:
|
|||||||||||||||||||||||||||||||
|
Professional
Fees
|
11,394
|
11,394
|
10,264
|
209,792
|
220,056
|
(10,264
|
)
|
(f) |
|
209,792
|
|||||||||||||||||||||
|
Loss
on abandoned fixed assets
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||||||||||
|
Employee
remuneration
|
137,800
|
137,800
|
119,122
|
25,993
|
145,115
|
(119,122
|
)
|
(f) |
|
25993
|
|||||||||||||||||||||
|
Website
& contract services
|
-
|
-
|
-
|
1,060
|
1,060
|
1,060
|
|||||||||||||||||||||||||
|
Depreciation
|
-
|
-
|
-
|
4,006
|
4,006
|
4,006
|
|||||||||||||||||||||||||
|
Exploration
expenses
|
-
|
601,554
|
(a) |
601,554
|
535,528
|
1,124,029
|
1,659,557
|
(535,528
|
)
|
(f) |
|
1,124,029
|
|||||||||||||||||||
|
Office
and Administration
|
2,073
|
2,073
|
1,792
|
55,846
|
57,638
|
(1,792
|
)
|
(f) |
|
55,846
|
|||||||||||||||||||||
|
Total
Expenses
|
151,267
|
601,554
|
752,821
|
666,706
|
1,420,726
|
2,087,432
|
(666,706
|
)
|
1,420,726
|
||||||||||||||||||||||
|
Net
loss from Operations
|
(151,267
|
)
|
(601,554
|
)
|
(752,821
|
)
|
(666,706
|
)
|
(1,420,726
|
)
|
(2,087,432
|
)
|
666,706
|
(1,420,726
|
)
|
||||||||||||||||
|
|
|||||||||||||||||||||||||||||||
|
Other
Income and Expenses:
|
|||||||||||||||||||||||||||||||
|
Interest
Income
|
-
|
-
|
-
|
238,260
|
238,260
|
238,260
|
|||||||||||||||||||||||||
|
Gain
(loss) from Currency Transaction
|
-
|
-
|
-
|
1,238
|
1,238
|
1,238
|
|||||||||||||||||||||||||
|
Interest
expense
|
(30,236
|
)
|
(30,236
|
)
|
(26,155
|
)
|
-
|
(26,155
|
)
|
26,155
|
(f) |
|
-
|
||||||||||||||||||
|
Net
Loss before Taxes
|
(181,503
|
)
|
(601,554
|
)
|
(783,057
|
)
|
(692,861
|
)
|
(1,181,228
|
)
|
(1,874,089
|
)
|
692,861
|
(1,181,228
|
)
|
||||||||||||||||
|
|
|||||||||||||||||||||||||||||||
|
Provision
for Income Taxes:
|
|||||||||||||||||||||||||||||||
|
Income
Tax Benefit
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||||||||||||
|
Net
Loss
|
(181,503
|
)
|
(601,554
|
)
|
(783,057
|
)
|
(692,861
|
)
|
(1,181,228
|
)
|
(1,874,089
|
)
|
692,861
|
(1,181,228
|
)
|
||||||||||||||||
|
|
|||||||||||||||||||||||||||||||
|
Other
Comprehensive Income (Loss)
|
|||||||||||||||||||||||||||||||
|
Foreign
currency translation adjustment
|
-
|
-
|
-
|
(18,605
|
)
|
(2,520
|
)
|
(21,125
|
)
|
18,605
|
(f) |
(2,520
|
)
|
||||||||||||||||||
|
Total
Comprehensive Loss
|
(181,503
|
)
|
(601,554
|
)
|
(783,057
|
)
|
(711,466
|
)
|
(1,183,748
|
)
|
(1,895,215
|
)
|
711,466
|
(1,183,748
|
)
|
||||||||||||||||
See
Notes
to Unaudited Proforma Consolidated Financial Statements
F-31
|
Blacksands
Petroleum, Inc.
|
||||||||||
|
(Formerly
known as Lam Liang Corp.)
|
||||||||||
|
(A
Development Stage Enterprise)
|
||||||||||
|
Proforma
Consolidated Statement of Operations
|
||||||||||
|
For
the year ended October 31, 2006
|
||||||||||
|
(Unaudited)
|
|
Access
Energy Inc.
Cdn$
|
|
Proforma
Adjustment
Cdn$
|
|
|
|
Access
Energy Inc.
Adjusted
Cdn$
|
|
Access
Energy Inc.
Adjusted
US$
|
|
Blacksands
Petroleum, Inc.
US$
|
|
Combined
US$
|
|
Proforma
Adjustment
US$
|
|
|
|
Proforma
Consolidated
US$
|
|
||||||||||||
|
REVENUES:
|
|||||||||||||||||||||||||||||||
|
Revenue
|
|||||||||||||||||||||||||||||||
|
Total
Revenues
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||||||||
|
EXPENSES:
|
|||||||||||||||||||||||||||||||
|
Professional
Fees
|
22,792
|
22,792
|
20,294
|
310,243
|
330,537
|
(20,294
|
)
|
(f) |
|
310,243
|
|||||||||||||||||||||
|
Loss
on abandoned fixed assets
|
-
|
-
|
-
|
1,496
|
1,496
|
1,496
|
|||||||||||||||||||||||||
|
Employee
remuneration
|
275,000
|
275,000
|
242,052
|
29,461
|
271,513
|
(242,052
|
)
|
(f) |
|
29,461
|
|||||||||||||||||||||
|
Website
& contract services
|
-
|
-
|
-
|
10,698
|
10,698
|
10,698
|
|||||||||||||||||||||||||
|
Depreciation
|
-
|
-
|
-
|
2,124
|
2,124
|
2,124
|
|||||||||||||||||||||||||
|
Exploration
expenses
|
-
|
237,013
|
(a) |
|
237,013
|
193,638
|
-
|
193,638
|
(193,638
|
)
|
(f) |
-
|
|||||||||||||||||||
|
Office
and Administration
|
18,957
|
18,957
|
16,713
|
90,894
|
107,607
|
(16,713
|
)
|
(f) |
|
90,894
|
|||||||||||||||||||||
|
Total
Expenses
|
317,349
|
237,013
|
554,362
|
472,697
|
444,916
|
917,613
|
472,697
|
444.916
|
|||||||||||||||||||||||
|
Net
loss from Operations
|
(317,349
|
)
|
(237,013
|
)
|
(554,362
|
)
|
(472,697
|
)
|
(444,916
|
)
|
(917,613
|
)
|
(472,697
|
)
|
(444,916
|
)
|
|||||||||||||||
|
|
|||||||||||||||||||||||||||||||
|
Other
Income and Expenses:
|
|||||||||||||||||||||||||||||||
|
Interest
Income
|
-
|
-
|
-
|
135,804
|
135,804
|
135,804
|
|||||||||||||||||||||||||
|
Gain
(loss) from Currency Transaction
|
-
|
-
|
-
|
314
|
314
|
314
|
|||||||||||||||||||||||||
|
Interest
expense
|
(28,427
|
)
|
(28,427
|
)
|
(25,352
|
)
|
-
|
(25,352
|
)
|
(25,352
|
)
|
(f) |
-
|
||||||||||||||||||
|
Net
Loss before Taxes
|
(345,776
|
)
|
(237,013
|
)
|
(582,789
|
)
|
(498,049
|
)
|
(308,798
|
)
|
(806,847
|
)
|
(498,049
|
)
|
(308,798
|
)
|
|||||||||||||||
|
|
|||||||||||||||||||||||||||||||
|
Provision
for Income Taxes:
|
|||||||||||||||||||||||||||||||
|
Income
Tax Benefit
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||||||||||||
|
Net
Loss
|
(345,776
|
)
|
(237,013
|
)
|
(582,789
|
)
|
(498,049
|
)
|
(308,798
|
)
|
(806,847
|
)
|
(498,049
|
)
|
(308,798
|
)
|
|||||||||||||||
|
|
|||||||||||||||||||||||||||||||
|
Other
Comprehensive Income (Loss)
|
|||||||||||||||||||||||||||||||
|
Foreign
currency translation adjustment
|
-
|
-
|
-
|
(20,851
|
)
|
496
|
(20,355
|
)
|
(20,851
|
)
|
496
|
||||||||||||||||||||
|
Total
Comprehensive Loss
|
(345,776
|
)
|
(237,013
|
)
|
(582,789
|
)
|
(518,900
|
)
|
(308,302
|
)
|
(827,202
|
)
|
(518,900
|
)
|
(308,302
|
)
|
|||||||||||||||
See
Notes
to Unaudited Proforma Consolidated Financial Statements
F-32
|
Blacksands
Petroleum, Inc.
|
|
(Formerly
known as Lam Liang Corp.)
|
|
(A
Development Stage Enterprise)
|
|
Notes
to Proforma Consolidated Financial Statements
|
|
April
30, 2007 and October 31, 2006
|
|
(Unaudited)
|
NOTE
1.
DESCRIPTION OF TRANSACTION AND BASIS OF PRESENTATION
Effective
July 31, 2007 Blacksands Petroleum, Inc. (“Blacksands”) purchased 600 newly
issued shares of common stock of Access Energy Inc. (“Access”), representing
75.0% of the common stock of Access for an aggregate of Cdn$3,427,935,
approximately US$3,213,288. As a result of the Acquisition, Access is a
75%-owned subsidiary of Blacksands. Blacksands intends to operate Access in
the
same manner and to continue in the business that Access engaged in prior to
the
acquisition. Prior to the acquisition, no material relationship existed between
Blacksands and Access. The acquisition will be accounted for using the purchase
method of accounting. Under the purchase method of accounting, the assets and
liabilities of Access will be recorded as of the acquisition date, at their
fair
market values, and added to those of Blacksands. The 25% share of the minority
shareholders’ interest in the net assets of Access will be recorded as a
liability. Pre-acquisition losses of Access will be eliminated on
consolidation.
NOTE
2.
UNAUDITED PROFORMA ADJUSTMENTS
Adjustments
included in the columns under the heading "Pro Forma Adjustments" include the
following:
(a). Access’s
financial statements in Canadian Dollars are adjusted to reflect consistent
application of accounting policies used by Blacksands. Blacksands uses the
successful efforts basis of accounting to report its oil and gas properties
costs. Access’s financial statements use the full cost method of accounting for
oil and gas properties costs. The pro forma adjustment results in Blacksands’
successful efforts method being applied to Access financial statements;
and
(b). To
reflect the purchase by Blacksands of 75% of Access for $3,213,288 and to
reflect the fair value of oil and gas properties and other assets and
liabilities. The excess of purchase price over net assets of Access as at April
30, 2007 has been attributed and assigned to the oil and gas properties in
its
entirety; and
(c). To
eliminate the accumulated deficit of Access under the purchase method of
accounting; and
(d). To
record
the 25% minority’s interest in the net assets of Access; and
(e). To
eliminate the inter-company balances relating to the Exclusivity Agreement
Deposit.
(f). To
eliminate pre-acquisition expenses and losses of Access in the statement of
operations.
F-33
(d)
Exhibits
|
Exhibit
No.
|
Description
|
||
|
3.1
|
Articles
of Incorporation as filed with the Nevada Secretary of State on October
12, 2004(1)
|
||
|
3.2
|
|
Certificate
of Amendment of Articles of Incorporation filed with the Nevada Secretary
of State on June 9, 2006(2)
|
|
|
3.3
|
By-Laws(1)
|
||
|
4.1
|
Registrant’s
2006 Stock Option Plan(3)
|
||
|
10.1
|
Independent
Contractor Agreement, dated November 1, 2005, between Access Energy
Inc.
and Coniston Investment Corp.*
|
||
|
10.2
|
Employment
Agreement, dated as of April 22, 2006, between the Registrant and
Darren
R. Stevenson(4)
|
||
|
10.3
|
Stock
Option Agreement, dated as of April 22, 2006, between the Registrant
and
Darren R. Stevenson(4)
|
||
|
10.4
|
Securities
Purchase Agreement dated as of May 5, 2006 between the Registrant
and Greg
Layton and Maria Pedrosa(5)
|
||
|
10.5
|
$500,000
Convertible Debenture issued May 5, 2006 to Maria
Pedrosa(5)
|
||
|
10.6
|
$500,000
Convertible Debenture issued May 5, 2006 to Greg
Layton(5)
|
||
|
10.7
|
Consulting
Agreement, dated August 1, 2006, between the Registrant and Gregg
Layton(6)
|
||
|
10.8
|
Joint
Venture Agreement, dated November 3, 2006, between Buffalo River
Dene
Development Corporation and Access Energy, Inc.**
|
||
|
10.9
|
Exclusivity
Agreement, dated November 10, 2006, between the Registrant and Access
Energy, Inc.(7)
|
||
|
10.10
|
Amendment
of Exclusivity Agreement, dated March 9, 2007, between the Registrant
and
Access Energy, Inc.(8)
|
||
|
10.11
|
Amendment
of Exclusivity Agreement, dated May 4, 2006, between the Registrant
and
Access Energy, Inc.(9)
|
||
|
10.12
|
Amendment
Agreement No. 1 to Joint Venture Agreement, dated May 9, 2007, between
Buffalo River Dene Development Corporation and Access Energy,
Inc.*
|
||
|
10.13
|
Loan
Agreement, dated May 17, 2007, between the Registrant and Access
Energy,
Inc.(10)
|
||
|
10.14
|
Promissory
Note, dated May 17, 2007, by Access Energy, Inc.(10)
|
||
|
10.15
|
Escrow
Agreement, dated May 17, 2007, among the Registrant, Access Energy,
Inc.
and Fraser Milner Casgrain LLP, as escrow agent(10)
|
||
|
10.16
|
Common
Stock Purchase Agreement, dated August 3, 2007, between the Registrant
and
Access Energy Inc.*
|
||
|
10.17
|
Unanimous
Shareholders Agreement, dated August 3, 2007, between the Registrant
and
Access Energy Inc.*
|
||
|
10.18
|
Common
Stock Purchase Warrant, dated August 3, 2007*
|
||
|
10.19
|
Registration
Rights Agreement, dated August 3, 2007, between the Registrant and
H. Reg.
F. Burden*
|
||
|
Exhibit
No.
|
Description
|
||
|
14.1
|
Code
of Ethics*
|
||
|
16.1
|
Letter
on change in certifying accountant from De Joya Griffith & Company,
LLC, dated (11)
|
||
*
Filed
herewith.
**
Filed
herewith. Certain portions of this exhibit have been omitted pursuant
to Rule
24b-2 and are subject to a confidential treatment
request.
|
(1)
|
Incorporated
by reference to the Registrant’s Registration Statement on Form SB-2,
filed on December 10, 2004.
|
|
(2)
|
Incorporated
by reference to the Registrant’s Current Report on Form 8-K, dated
June 9, 2006.
|
|
(3)
|
Incorporated
by reference to the Registrant’s Definitive Information Statement, dated
July 7, 2006.
|
|
(4)
|
Incorporated
by reference to the Registrant’s Current Report on Form 8-K, dated
April 24, 2006.
|
|
(5)
|
Incorporated
by reference to the Registrant’s Current Report on Form 8-K, dated May 6,
2006.
|
|
(6)
|
Incorporated
by reference to the Registrant’s Current Report on Form 8-K, dated August
1, 2006.
|
|
(7)
|
Incorporated
by reference to the Registrant’s Current Report on Form 8-K, dated
November 9, 2006.
|
|
(8)
|
Incorporated
by reference to the Registrant’s Current Report on Form 8-K/A, dated March
9, 2007.
|
|
(9)
|
Incorporated
by reference to the Registrant’s Current Report on Form 8-K, dated
May 4, 2007.
|
|
(10)
|
Incorporated
by reference to the Registrant’s Current Report on Form 8-K, dated
May 17, 2007.
|
|
(11)
|
Incorporated
by reference to the Registrant’s Current Report on Form 8-K/A, dated
November 9, 2006.
|
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
|
BLACKSANDS
PETROLEUM, INC.
|
||
| |
|
|
| Dated: August 8, 2007 | By: | /s/ Darren R. Stevenson |
|
Name: Darren
R. Stevenson
|
||
| Title: President and Chief Executive Officer | ||
EXHIBIT
INDEX
|
Exhibit
No.
|
Description
|
||
|
3.1
|
Articles
of Incorporation as filed with the Nevada Secretary of State on October
12, 2004(1)
|
||
|
3.2
|
|
Certificate
of Amendment of Articles of Incorporation filed with the Nevada Secretary
of State on June 9, 2006(2)
|
|
|
3.3
|
By-Laws(1)
|
||
|
4.1
|
Registrant’s
2006 Stock Option Plan(3)
|
||
|
10.1
|
|
Independent
Contractor Agreement, dated November 1, 2005, between Access Energy
Inc.
and Coniston Investment Corp.*
|
|
|
10.2
|
Employment
Agreement, dated as of April 22, 2006, between the Registrant and
Darren
R. Stevenson(4)
|
||
|
10.3
|
Stock
Option Agreement, dated as of April 22, 2006, between the Registrant
and
Darren R. Stevenson(4)
|
||
|
10.4
|
Securities
Purchase Agreement dated as of May 5, 2006 between the Registrant
and Greg
Layton and Maria Pedrosa(5)
|
||
|
10.5
|
$500,000
Convertible Debenture issued May 5, 2006 to Maria
Pedrosa(5)
|
||
|
10.6
|
$500,000
Convertible Debenture issued May 5, 2006 to Greg
Layton(5)
|
||
|
10.7
|
Consulting
Agreement, dated August 1, 2006, between the Registrant and Gregg
Layton(6)
|
||
|
10.8
|
Joint
Venture Agreement, dated November 3, 2006, between Buffalo River
Dene
Development Corporation and Access Energy, Inc.**
|
||
|
10.9
|
Exclusivity
Agreement, dated November 10, 2006, between the Registrant and Access
Energy, Inc.(7)
|
||
|
10.10
|
Amendment
of Exclusivity Agreement, dated March 9, 2007, between the Registrant
and
Access Energy, Inc.(8)
|
||
|
10.11
|
Amendment
of Exclusivity Agreement, dated May 4, 2006, between the Registrant
and
Access Energy, Inc.(9)
|
||
|
10.12
|
Amendment
Agreement No. 1 to Joint Venture Agreement, dated May 9, 2007, between
Buffalo River Dene Development Corporation and Access Energy,
Inc.*
|
||
|
10.13
|
Loan
Agreement, dated May 17, 2007, between the Registrant and Access
Energy,
Inc.(10)
|
||
|
10.14
|
Promissory
Note, dated May 17, 2007, by Access Energy, Inc.(10)
|
||
|
10.15
|
Escrow
Agreement, dated May 17, 2007, among the Registrant, Access Energy,
Inc.
and Fraser Milner Casgrain LLP, as escrow agent(10)
|
||
|
10.16
|
Common
Stock Purchase Agreement, dated August 3, 2007, between the Registrant
and
Access Energy Inc.*
|
||
|
10.17
|
Unanimous
Shareholders Agreement, dated August 3, 2007, between the Registrant
and
Access Energy Inc.*
|
||
|
10.18
|
Common
Stock Purchase Warrant, dated August 3, 2007*
|
||
|
10.19
|
Registration
Rights Agreement, dated August 3, 2007, between the Registrant
and H. Reg.
F. Burden*
|
||
|
Exhibit
No.
|
Description
|
||
|
14.1
|
Code
of Ethics*
|
||
|
16.1
|
Letter
on change in certifying accountant from De Joya Griffith & Company,
LLC, dated (11)
|
||
*
Filed
herewith.
**
Filed herewith. Certain portions of this exhibit have been omitted pursuant
to
Rule 24b-2 and are subject to a confidential treatment request.
|
(1)
|
Incorporated
by reference to the Registrant’s Registration Statement on Form SB-2,
filed on December 10, 2004.
|
|
(2)
|
Incorporated
by reference to the Registrant’s Current Report on Form 8-K, dated
June 9, 2006.
|
|
(3)
|
Incorporated
by reference to the Registrant’s Definitive Information Statement, dated
July 7, 2006.
|
|
(4)
|
Incorporated
by reference to the Registrant’s Current Report on Form 8-K, dated
April 24, 2006.
|
|
(5)
|
Incorporated
by reference to the Registrant’s Current Report on Form 8-K, dated May 6,
2006.
|
|
(6)
|
Incorporated
by reference to the Registrant’s Current Report on Form 8-K, dated August
1, 2006.
|
|
(7)
|
Incorporated
by reference to the Registrant’s Current Report on Form 8-K, dated
November 9, 2006.
|
|
(8)
|
Incorporated
by reference to the Registrant’s Current Report on Form 8-K/A, dated March
9, 2007.
|
|
(9)
|
Incorporated
by reference to the Registrant’s Current Report on Form 8-K, dated
May 4, 2007.
|
|
(10)
|
Incorporated
by reference to the Registrant’s Current Report on Form 8-K, dated
May 17, 2007.
|
|
(11)
|
Incorporated
by reference to the Registrant’s Current Report on Form 8-K/A, dated
November 9, 2006.
|