Attached files
As
filed with the Securities and Exchange Commission on March 3, 2010 Registration
No. (___ _)
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
S-1
REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933
DYNAMIC HYDROCARBONS
LTD.
|
(Exact
name of registrant as specified in its
charter)
|
Nevada
|
1311
|
27-1838379
|
(State
or other Jurisdiction of Incorporation or Organization)
|
(Primary
Standard Industrial Classification Code Number)
|
(I.R.S. Employer
Identification No.)
|
7001
Winterberry Drive, Austin, Texas 78750
(512) 289-2489
|
(Address,
including zip code, and telephone number, including area code, of
Registrant’s principal executive
offices)
|
Paracorp
Incorporated
318
N. Carson St., #208, Carson City, NV 89701
(888) 972-7273
|
(Name,
Address, Including Zip Code, and Telephone Number, Including Area Code, of
Agent for Service)
|
Copies
of Communications to:
Peter
J. Gennuso, Esq.
Gersten
Savage LLP
600
Lexington Avenue, 9th Floor, New York, NY 10022
Facsimile:
(212) 980-5192
|
Approximate date of
commencement of proposed sale to the public - As soon as
practicable after the effective date of this Registration
Statement.
|
If any of
the securities being registered on this Form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, check
the following box. [X]
If this
Form is filed to register additional securities for an offering pursuant to Rule
462(b) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If this
Form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. [ ]
If this
Form is a post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. [ ]
Large
accelerated filer
|
[ ]
|
Accelerated
filer
|
[ ]
|
Non-accelerated
filer
|
[ ]
|
Smaller
reporting company
|
[X]
|
(Do
not check if a smaller reporting company)
|
CALCULATION
OF REGISTRATION FEE
Title
of Each Class of Securities To Be Registered
|
Amount
To Be Registered
|
Proposed
Maximum Offering Price Per Share
|
Proposed
Maximum Aggregate Offering Price (1)
|
Amount
of Registration Fee
|
Common
Stock, par value $0.001
|
10,000,000
|
$0.01
|
$100,000
|
$7.13
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(1)
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There
is no current market for the securities and the price at which the Shares
are being offered has been arbitrarily determined by the Company and used
for the purpose of computing the amount of the registration fee in
accordance with Rule 457 under the Securities Act of 1933, as
amended.
|
This
Registration Statement shall also cover any additional shares of our common
stock which may become issuable by reason of any stock dividend, stock split,
recapitalization or other similar adjustments.
The
Registrant hereby amends this Registration Statement on such date or dates as
may be necessary to delay its effective date until the registrant shall file a
further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933, as amended, or until the Registration Statement shall
become effective on such date as the U.S. Securities and Exchange Commission,
acting pursuant to said Section 8(a), may determine.
The
information contained in this prospectus is not complete and may be
changed. A registration statement relating to these securities has
been filed with the Securities and Exchange Commission and these securities may
not be sold until that registration statement becomes
effective. This prospectus is not an offer to sell these
securities and it is not soliciting an offer to buy these securities in any
state where the offer or sale is not permitted.
PRELIMINARY
PROSPECTUS
|
Subject
to Completion, Dated: March
3, 2010
|
Dynamic
Hydrocarbons Ltd.
Up
to 10,000,000 Shares of Common Stock
This
Prospectus relates to the offer and sale of up to 10,000,000 shares of common
stock, $0.001 par value (“Common Shares”) by Dynamic Hydrocarbons Ltd., a Nevada
company (“we”, “us”, “our”, “Company” or similar terms). This Offering
will be conducted on a best efforts basis for up to ninety (90) days following
the date of this Prospectus at a fixed price of $0.01 per Common Share.
There is no requirement to sell any specific number or dollar amount of
securities, but we will use our best efforts to sell the securities
offered. We will not return any funds raised from investors in the
event that we do not sell all of the securities being offered or if the funds
raised are insufficient for the purposes set forth herein. Dynamic
Hydrocarbons Ltd. will issue a news release upon the closing of this
Offering.
There is
no arrangement to place the proceeds from this Offering in an escrow, trust or
similar account. Nevada law does not require that funds raised
pursuant to the sale of securities be placed into an escrow
account. Any funds raised from this Offering will be immediately
available to us for our use. We are not using an underwriter for this Offering,
we intend to offer the Common Shares through our officer and director. Our
common stock is presently not listed on any national securities exchange or the
Nasdaq Stock Market.
There are
no cash or property interests that will be paid as compensation in connection
with the Offering, including, but not limited to, underwriting discounts and/or
commissions.
Should
the Company be successful in selling the 10,000,000 shares, it will have
received $100,000 in gross proceeds, of which $21,750 is required for payment
towards the costs of the Offering. The minimum amount of net proceeds available
to finance the Company’s first oil and gas program is $20,000, of which 100% is
to be allocated towards the initial geological evaluation and analysis report
required to be completed to earn our working interest. The amount of
$58,250 will remain available for general working capital for the fiscal year,
of which a portion could be used for additional exploration work on the property
if warranted. Should additional exploration or development work be undertaken,
the Company will be required to participate in costs on a percentage basis
commensurate with its then earned interest of 4.75%, and will earn a comparable
percentage of net revenues from production activities should commercial
operations be undertaken in the future. We are not currently
undertaking any exploration or drilling programs on our oil and gas leases,
therefore there will be no other parties participating in our first
program. We will pay 100% of the costs of the geological
evaluation and analysis. Should we determine upon finalization
of that report to undertake a drilling program on the leases then we would be
required to notice the other companies which hold an interest in the oil and gas
leases. It cannot be known at this time if the geological evaluation will
indicate any exploration targets or recommend that we undertake any drilling
activities on the leases.
The
Company is considered to be in unsound financial condition. Persons should not
invest unless they can afford to lose their entire
investment. Before purchasing any of the
Common Shares covered by this Prospectus, carefully read and consider the risk
factors included in the section entitled “Risk Factors” beginning on
page
7. These securities involve a high degree of risk, and prospective
purchasers should be prepared to sustain the loss of their entire investment.
There is currently no public trading market for the securities.
Neither
the United States Securities and Exchange Commission (“SEC”), nor any state
securities commission, has approved or disapproved of these securities or passed
upon the accuracy or adequacy of this Prospectus. Any representation to the
contrary is a criminal offense.
The date
of this prospectus
is ,
2010
TABLE
OF CONTENTS
Definitions
|
3
|
Forward
Looking Statements
|
5
|
Prospectus
Summary
|
5
|
Risk
Factors
|
7 |
Use
of Proceeds
|
14
|
Determination
of Offering Price
|
14
|
Dilution
|
15
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Selling
Security Holders
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16
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Plan
of Distribution
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16
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Description
of Securities to be Registered
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17
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Interests
of Named Experts and Counsel
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18
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Information
with Respect to the Registrant
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18
|
Material
Changes
|
33
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Incorporation
of Certain Information by Reference
|
33
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Disclosure
of Commission Position on Indemnification for Securities Act
Liabilities
|
33
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Other
Expenses of Issuance and Distribution
|
34
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Indemnification
of Directors and Officers
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34
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Recent
Sales of Unregistered Securities
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35
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Exhibits
and Financial Statement Schedules
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36
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Undertakings
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37
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Signatures
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39
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Dealer
Prospectus Delivery Obligation
Securities
offered through this prospectus will not be sold through dealers, but will be
sold on a direct participation basis only.
Definitions
The
definitions set forth below shall apply to the indicated terms as used in this
Prospectus.
Belly River
Formation: The
Belly River Formation is a stratigraphical unit of Late Cretaceous age in the
Western Canadian Sedimentary Basin. It takes the name from the Belly
River, a tributary of the Oldman River in southern Alberta, and was first
described in outcrop on the banks of the Oldman River(at the time considered
part of the Belly River) and Bow River by George Mercer Dawson in
1883. The Belly River Formation is composed of very fine grained
sandstone with coarse grained beds and minor bentonite, coal, green shale and
concretionary beds. The Belly River underlies most of the Alberta
plains. It can be traced eastward into central and southern Saskatchewan and
southward into northern Montana. Oil production in the Belly River sandstone is
generally restricted to west central Alberta, while gas can be found throughout
much of the areal occurrence of the formation.
CAPL: The
Canadian Association of Petroleum Landmen. CAPL is a professional
organization for people involved in all aspects of petroleum land
management. The CAPL membership includes individuals responsible for
the acquisition, administration and disposition of mineral and/or surface rights
for petroleum exploration and production companies, as well as related service
and financial companies in the energy industry.
Crown
Royalties: In Canada, by virtue of an Act or an agreement made
between the Lieutenant-Governor in Council and a person or corporation or a
Crown grant, lease, licence, concession or other arrangement there is or has
been reserved to the Crown a royalty or payment in the nature of a royalty or
percentage upon the value, whether gross or net, of the profits, derived from
minerals, timber, power or other produce or thing or commercial operation, all
of which are in this Act referred to as royalty, it shall be considered to be a
term of the Act, agreement, grant, lease, licence, concession or other
arrangement unless otherwise expressly stated that the mineral, timber, power or
other product or thing shall be disposed of at or about the current commercial
market value. The sales shall be made and the operations carried on
upon ordinary and reasonable commercial terms and conditions so as to give to
the Crown the royalty that is fair under the circumstances. Where the
royalty is upon net profits or returns or values, the charges deducted from the
gross in order to arrive at the net profits shall be fair and reasonable and
according to commercial practice. Where a royalty arises out of land, minerals,
timber or water power it shall be considered to attach to and run with the land,
minerals, timber or water power in the hands of every person or corporation to
whom it is conveyed or by other means comes. A person or corporation receiving
the profits is liable to pay and shall pay the royalty arising during his or her
ownership or operation but where an enterprise is divided into parts by way of
conveyance or otherwise, the arbitrators appointed as provided in this Act shall
apportion the royalty amongst the owners or operators.
Drill Stem Test:
A procedure for testing the surrounding geological formation through the
drill pipe.
Farmee:
The party that acquires the rights to drill and earn an assignment of the
leasehold interest, receiving a farm-in.
Farmor:
The party that assigns the rights to a Farmee.
Farm-in or
farm-out: An agreement whereunder the owner of a working interest in an
oil and natural gas lease assigns the working interest or a portion thereof to
another party who desires to drill on the leased acreage. Generally,
the Farmee is required to drill one or more wells in order to earn its interest
in the acreage, or to undertake certain expenditures related to the
acreage. The Farmor usually retains a royalty and/or reversionary
interest in the lease. The interest received by assignee Farmee is a
“farm-in” while the interest transferred by the Farmor is a
“farm-out.”
Operator:
The person or company, either proprietor or lessee, that actually
operates a well or lease. The Operator is generally the oil or gas
company that engages the drilling, service, and general working contractors, and
assumes on behalf of the joint parties, governmental obligations.
Pekisko
Formation: The Pekisko Formation consists of medium to
coarsely crystalline crinoidal limestone in beds as much as 15 meters thick
interbedded with finely crystalline, dark grey to brownish grey, argillaceous
dolomitic limestone with dark green chert nodules. It grades eastward to a light
yellowish brown, coarse grained, bioclastic, chalky limestone, with dark shale
and siltstone, and northward into dark grey shales.
3
Petroleum and
Natural Gas Lease Agreement (“PNG Lease”). The word terms in
Canada generally refer to Government or Crown controlled rights to the
minerals. The length of time granted to the party or parties of a PNG
Lease in Alberta, Canada, is five years, unless a party or the parties to the
lease, drill a well to “hold” the lease indefinitely. If no drilling
occurs within the five year period, the parties to the PNG Lease forfeit their
rights back to the Crown.
Porosity:
The percentage of pore volume or void space, or that volume within rock
that can contain fluids. Porosity can be a relic of deposition
(primary porosity, such as space between grains that were not compacted together
completely) or can develop through alteration of the rock (secondary porosity,
such as when feldspar grains or fossils are preferentially dissolved from
sandstones). Effective porosity is the interconnected pore volume in
a rock that contributes to fluid flow in a reservoir. It excludes
isolated pores. Total porosity is the total void space in the rock
whether or not it contributes to fluid flow. Thus, effective porosity
is typically less than total porosity.
Reservoir:
A subsurface body of rock having sufficient porosity and permeability to
store and transmit fluids. Sedimentary rocks are the most common
reservoir rocks because they have more porosity than most igneous and
metamorphic rocks and form under temperature conditions at which hydrocarbons
can be preserved. A reservoir is a critical component of a complete
petroleum system.
Sour Gas:
The general term for those gases that are acidic either alone or when
associated with water. Two sour gases associated with oil and gas
drilling and production are hydrogen sulfide, H2S, and
carbon dioxide, CO2. Sulfur
oxides and nitrogen oxides, generated by oxidation of certain sulfur- or
nitrogen-bearing materials, are also in this category but not found in the
anaerobic conditions of the subsurface. Sour gas releases may impact
on the environment and be the subject of the ability of a well to
produce.
Strata: In
geology and related fields, a stratum (plural: strata) is a layer of rock or
soil with internally consistent characteristics that distinguishes it from
contiguous layers. Each layer is generally one of a number of
parallel layers that lie one upon another, laid down by natural
forces. They may extend over hundreds of thousands of square
kilometers of the Earth’s surface. Strata are typically seen as bands
of different colored or differently structured material exposed in cliffs, road
cuts, quarries, and river banks. Individual bands may vary in
thickness from a few millimeters to a kilometer or more. Each band
represents a specific mode of deposition - river silt, beach sand, coal swamp,
sand dune, lava bed, etc. Geologists study rock strata and categorize them by
the material in the beds. Each distinct layer is usually assigned to a
“formation” name usually based on a town, river, mountain, or region where the
formation is exposed and available for study.
Undeveloped
acreage: A lease acreage on which wells have not been drilled or
completed to a point that would permit the production of commercial quantities
of oil and natural gas regardless of whether such acreage contains proved
reserves.
Working Interest
or WI: The operating interest that gives the owner the right to drill,
produce and conduct operating activities on the property and a share of
production.
4
FORWARD
LOOKING STATEMENTS
This
prospectus contains forward-looking statements that involve risks and
uncertainties. We use words such as: anticipate, believe, plan,
expect, future, intend and similar expressions, to identify such forward-looking
statements. You should not place too much reliance on these
forward-looking statements. Actual results are most likely to differ
materially from those anticipated in these forward-looking statements for many
reasons, including the risks faced as described in the Risk Factors section and
elsewhere in this prospectus. Factors which may cause the actual
results or the actual plan of operations to vary include, among other things,
decisions of the board of directors not to pursue a specific course of action
based on its re-assessment of the facts or new facts, or changes in general
economic conditions and those other factors set out in this
prospectus.
PROSPECTUS
SUMMARY
The
following summary is qualified in its entirety by the more detailed information
and the financial statements and notes thereto appearing elsewhere in this
Prospectus. Prospective investors should consider carefully the
information discussed under “Risk Factors.” An investment in our
securities presents substantial risks, and you could lose all or substantially
all of your investment.
Company
Summary
We are a
natural resource exploration stage company and anticipate acquiring, exploring,
and if warranted and feasible, developing natural resource assets. We have
elected to make this public offering of securities to raise the funds that are
necessary to commence the expansion of our present operations. Our
decision to finance our expanded operations through this Offering is based on a
presumption that we will be more successful by offering securities under an
effective registration statement than through a private offering of equity or
through debt financing. Following the effective date of this
registration statement on Form S-1, in which this Prospectus is included, we
intend to have an application filed on our behalf by a market maker for approval
of our common stock for quotation on the Over-the-Counter Bulletin Board
(“OTC-BB”) quotation system. No assurance can be made, however that
we will be able to locate a market maker to submit such application or that such
application will be approved.
The
Company’s initial natural resource asset is a farm-out agreement we entered into
with Stone Canyon Resources Inc., (“Stone Canyon”) on December 15, 2009
(“Farm-out Agreement”), whereby we have the right to earn 50% of Stone Canyon’s
9.5% working interest in an Alberta, Canada Crown PNG Lease ( the “Lease”),
resulting in our having a 4.75% interest in the Lease. The Lease
comprises approximately 320 acres of land with specified petroleum and natural
gas exploitation rights. Under the terms of the Farm-out Agreement,
we are required to pay a $5,000 initial fee and produce a geological evaluation
and analysis report. To date, we have paid the initial fee, and we
plan to undertake the geological evaluation and analysis report should we be
successful in completing this Offering.
Our
principal executive offices are located at 7001 Winterberry Drive, Austin, Texas
78750. Our telephone number is (512) 289-2489.
5
THE
OFFERING
Following
is a brief summary of this Offering:
Securities
being offered:
|
10,000,000
shares of common stock, par value $0.001
|
Offering
price per share:
|
$0.01
|
Offering
period:
|
The
shares are being offered for a period not to exceed 90 days from the
effectiveness of this Prospectus, unless extended by our Board of
Directors for an additional 90 days.
|
Net
proceeds to us:
|
$100,000,
based on all 10,000,000 shares being sold
|
Use
of proceeds:
|
We
anticipate raising a total of $100,000 under this Offering. We expect to
expend $20,000 from the proceeds of this Offering on our proposed business
plan to fund a geological evaluation on the oil and gas assets as required
under our farm-in agreement. We will expend a total of $28,000
for the costs of preparation of this Registration Statement, including
legal and accounting, of which $6,250 has been paid from our initial
working capital raised leaving a total of $21,750 to be paid from the
proceeds of the Offering. The remaining funds raised from this Offering,
which will total $58,250 will be used for general working capital,
including office and administration expenses, transfer agent fees, blue
sky fees, and filing fees and further exploration fees on our oil and gas
assets as required.
|
Number
of shares outstanding before the Offering:
|
12,500,000
|
Number
of shares outstanding after the Offering if all the shares are
sold:
|
22,500,000
|
Reporting
Currency
Although
our financial statements are reported in U.S. Dollars and are prepared according
to U.S. GAAP, certain of our business operations may be conducted in Canadian
dollars. We provide the following summary regarding historical
exchange rates between these currencies. For such purposes, the exchange rate
means the noon buying rate for a United States dollar from the Bank of Canada
(the "Noon Buying Rate"). These translations should not be construed
as representations that the Canadian dollar amounts actually represent such U.S.
dollar amounts or that Canadian dollars could be converted into U.S. dollars at
the rate indicated or at any other rate. As we were recently
incorporated in the State of Nevada on December 9, 2009, the following is a
table of the monthly average Noon Buying Rates for the two months of December
2009 and January 2010.
December
2009
|
January
2010
|
|
Average
for period
|
0.9484
|
0.9588
|
On
February 16, 2010, the Noon Buying Rate in effect for a Canadian dollar
exchanged for a United States dollar was Cdn $0.9591.
6
An
investment in our securities should be considered highly speculative due to
various factors, including the nature of our business and the present stage of
our development. An investment in our securities should only be undertaken
by persons who have sufficient financial resources to afford the total loss of
their investment. In addition to the usual risks associated with
investment in a business, the following is a general description of significant
risk factors which should be considered. You should carefully consider the
following material risk factors and all other information contained in this
Prospectus before deciding to invest in our Common Shares. If any of the
following risks occur, our business, financial condition and results of
operations could be materially and adversely affected. Additional risks
and uncertainties we do not presently know or that we currently deem immaterial
may also impair our business, financial condition or operating
results.
Risks
Relating to Oil and Gas Operations
The
oil and gas industry is highly competitive and we may be unsuccessful in
acquiring further leases.
The oil
and gas industry is intensely competitive. We compete with numerous individuals
and companies, including many major oil and gas companies, many of which have
substantially greater technical, financial and operational resources, including
skilled and experienced staff capable of evaluating and analyzing suitable oil
and gas business opportunities for drilling, exploitation and other operations
to extract hydrocarbons. These entities also compete with us for the
financing of such oil and gas activities. We may be unable to raise
the necessary funds or complete any projected work.
As
our lease requires geological evaluation to determine exploration opportunities,
we may not be able to establish commercial reserves on it.
Exploration
for commercial reserves of oil and gas is subject to a number of risk factors.
Few of the prospects that are explored are ultimately developed into producing
oil and/or gas wells. Our lease currently requires a geological evaluation to
determine if it merits exploration, therefore our oil and gas assets are
unproved and without proved reserves of oil and gas. We may not be able to
establish commercial reserves on our lease.
The
potential profitability of oil and gas ventures depends upon factors beyond the
control of our Company, any of which may have a material adverse effect on our
Company.
The
potential profitability of oil and gas projects is dependent upon many factors
beyond our control, including: world prices and markets for oil and gas are
unpredictable, highly volatile, potentially subject to governmental fixing,
pegging or controls; adverse weather conditions can hinder drilling and
production operations; production from any well may be unmarketable if it is
impregnated with water or other deleterious substances; and the marketability of
oil and gas which may be acquired or discovered will be affected by proximity
and capacity of oil and gas pipelines and processing equipment, market
fluctuations of prices, taxes, royalties, land tenure, allowable production and
environmental protection. The extent of these factors cannot be accurately
predicted but the combination of these factors may result in our company not
receiving an adequate return on invested capital.
Oil
and gas operations are subject to comprehensive regulation which may cause
substantial delays or require capital outlays in excess of those anticipated
causing an adverse effect on our Company. Further, exploration and production
activities are subject to certain environmental regulations which may prevent or
delay the commencement or continuance of our operations.
Oil and
gas operations in Canada are also subject to Federal and Provincial laws and
regulations which seek to maintain health and safety standards by regulating the
design and use of drilling methods and equipment. Various permits from
government bodies are required for drilling and production operations to be
conducted; we may not receive such permits. Furthermore, oil and gas operations
in Canada are also subject to Federal and Provincial laws and regulations
including, but not limited to: the construction and operation of facilities; the
use of water in industrial processes; the removal of natural resources from the
ground, and the discharge/release of materials into the
environment. Environmental standards imposed by Federal and
Provincial authorities may be changed or such changes may have material adverse
effects on our activities. Moreover, compliance with such laws may cause
substantial delays or require capital outlays in excess of
7
those
anticipated, thus causing an adverse effect on us. Additionally, we may be
subject to liability for pollution or other environmental damages which we may
elect not to insure against due to prohibitive premium costs and other reasons.
Our current and anticipated exploration and drilling activities are subject to
the aforementioned environmental regulations. When and if we establish reserves
or enter into production, we will become subject to additional regulations which
do not currently pertain to us or affect our current operations.
Exploratory
drilling involves many risks and we may become liable for pollution or other
liabilities which may have an adverse effect on our financial
position.
Drilling
operations generally involve a high degree of risk. Hazards such as unusual or
unexpected geological formations, blow-outs, sour gas leakage, fire, inability
to obtain suitable or adequate machinery, equipment or labor, and other risks
are involved. We may become subject to liability for pollution or hazards
against which we cannot adequately insure or which we may elect not to insure.
Incurring any such liability may have a material adverse effect on our financial
position and operations.
Risks
Relating to our Business
We
have not yet fulfilled our obligations relating to the acquisition of our
working interest in the Lease.
We are
obligated to expend such funds as may be needed to complete a geological
evaluation and analysis report to evaluate the hydrocarbon potential of the
lease prior to earning our 4.75% working interest. We have estimated
the costs of such evaluation to be approximately $20,000 for the purpose of this
Offering. If we fail to raise sufficient funds under this Offering we
could lose our potential working interest and you could lose a portion or all of
your invested funds.
We
have limited operating history and have earned no revenues to date.
We have
limited operating history or revenues. We expect to incur losses in the
foreseeable future due to significant costs associated with our business
development, including costs associated with our operations. There can be no
assurance that our operations will ever generate sufficient revenues to fund our
continuing operations or that we will ever generate positive cash flow from our
operations. Further, we can give no assurance that we will attain or
thereafter sustain profitability in any future period.
Hydrocarbon
exploration is highly speculative in nature and there can be no certainty of our
successful development of profitable commercial operations.
The
exploration and the development of oil and gas properties involve significant
risks which even a combination of careful evaluation, experience and knowledge
may not eliminate. While the discovery of a commercially viable reservoir
may result in substantial rewards, few properties which are explored are
ultimately developed into producing properties. Substantial expenses may
be incurred to locate and establish hydrocarbon reserves, to establish
processing facilities at a particular site and to establish delivery mechanisms
for any produced resource. Whether a hydrocarbon discovery will be commercially
viable depends on a number of factors, some of which are: the particular
attributes of the reservoir, such as size, porosity, permeability, water cut,
proximity to infrastructure; hydrocarbon prices which are highly cyclical;
drilling and other related costs which appear to be rising; and government
regulations, including regulations relating to prices, taxes, royalties, land
tenure, land use, importing and exporting of hydrocarbon and environmental
protection. The exact effect of these factors cannot be accurately
predicted, but the combination of these factors may result in us not receiving
an adequate return on invested capital and, in fact, may cause our business to
fail.
Although
we do not currently have production from the Lease, we intend to pursue the
development of the Lease in order to determine if production potential exists
and, if so, to produce the Lease. There is no certainty that the expenditures
made by us towards the exploration and evaluation of Lease will result in
discoveries of commercial quantities of hydrocarbon.
8
Oil
and gas exploration operations generally involve a high degree of
risk.
Oil and
gas exploration operations are subject to all the hazards and risks normally
encountered in the exploration, development and production of hydrocarbon,
including unusual and unexpected geological formations, seismic activity,
cave-ins, flooding and other conditions involved in the drilling and removal of
material, any of which could result in damage to, or destruction of, well bores,
damage to life or property, environmental damage and possible legal liability.
Oil and gas operations could also experience periodic interruptions due to bad
or hazardous weather conditions and other acts of God. Oil and gas operations
are subject to hazards such as equipment failure which may result in
environmental pollution and consequent liability.
If any of
these risks and hazards adversely affect our oil and gas operations or our
exploration activities, they may: (i) increase the cost of exploration to a
point where it is no longer economically feasible to continue operations; (ii)
require us to write down the carrying value of our working interest in the
Lease; (iii) cause delays or a stoppage in the exploration of hydrocarbon; (iv)
result in damage to or destruction of processing facilities; and (v) result in
personal injury or death or legal liability. Any or all of these adverse
consequences may have a material adverse effect on our financial condition,
results of operations, and future cash flows.
We
are an exploration-stage company with limited operating history and our
estimates of hydrocarbon potential are only preliminary and based primarily on
past, publicly available geological reports which may not reflect the actual
reserves or the economic viability of the Lease.
Categories
of inferred, probable and proved resources are recognized in order of increasing
geological confidence. However, resources are not equivalent to reserves and do
not have demonstrated economic viability. There can be no assurance that
resources in a lower category may be converted to a higher category, or that
resources can be converted to reserves. Inferred resources cannot be
converted into reserves as the ability to assess geological continuity is not
sufficient to demonstrate economic viability. Due to the uncertainty which may
attach to inferred resources, there is no assurance that inferred resources will
be upgraded to probable or proved resources with sufficient geological
continuity to constitute proven and probable reserves as a result of continued
exploration.
There is
a degree of uncertainty to the estimation of reserves. The estimating of
reserves is a subjective process and the accuracy of estimates is a function of
the quantity and quality of data, the accuracy of statistical computations, and
the assumptions used and judgments made in interpreting engineering and
geological information. There is significant uncertainty in any reserves
estimate, and the actual reserves encountered, if any, and the economic
viability of any reserves may differ significantly from our estimates. Until
reserves are actually produced, the quantity of reserves must be considered as
estimates only. In addition, the quantity of reserves and resources may
vary depending on, among other things, oil and gas prices. Any material
change in quantity of reserves may affect the economic viability of the Lease.
In addition, there can be no assurance that recoveries in past drill stem
tests will be duplicated in larger scale tests under on-site conditions or
during production. Fluctuation in hydrocarbon prices, results of drilling,
testing and production and the evaluation of the Lease subsequent to the date of
any estimate may require revision of such estimate. The volume of reserves
produced and recovery rates may not be the same as currently anticipated.
Estimates may have to be recalculated based on changes in prices of
further exploration activity. This could materially and adversely affect
estimates of the volume reserves, estimated production rates, or of our ability
to extract these reserves. These factors could have a material negative effect
on our financial condition, results of operations and future cash
flows.
We
may not be able to compete with current and potential exploration companies,
most of whom have greater resources and experience than we do in developing oil
and gas reserves.
The
natural resource market is intensely competitive, highly fragmented and subject
to rapid change. We may be unable to compete successfully with our
existing competitors or with any new competitors. We will be competing
with many exploration companies which have significantly greater personnel,
financial, managerial and technical resources than we do. This competition
from other companies with greater resources and reputations may result in our
failure to maintain or expand our business.
9
Because
our business involves numerous operating hazards, we may be subject to claims of
a significant size which would cost a significant amount of funds and resources
to rectify. This could force us to cease our operations.
Our
operations are subject to the usual hazards inherent in exploring for oil and
gas, such as general accidents, explosions, chemical exposure and poisonous
gases. The occurrence of these or similar events could result in the
suspension of operations, damage to or destruction of the equipment involved and
injury or death to personnel. Operations also may be suspended because of
machinery breakdowns, abnormal climatic conditions, failure of subcontractors to
perform or supply goods or services or personnel shortages. The occurrence
of any such contingency would require us to incur additional costs, which would
adversely affect our business.
Damage to the environment could also
result from our operations. If our business is involved in one or more of
these hazards, we may be subject to claims of a significant size which could
force us to cease our operations.
Hydrocarbon
resource exploration, production and related operations are subject to extensive
rules and regulations of federal, provincial, state and local agencies.
Failure to comply with these rules and regulations can result in
substantial penalties. Our cost of doing business may be affected by the
regulatory burden on the hydrocarbon industry. Although we intend to
substantially comply with all applicable laws and regulations, because these
rules and regulations frequently are amended or interpreted, we cannot predict
the future cost or impact of complying with these laws.
Environmental
enforcement efforts with respect to oil and gas operations have increased over
the years, and it is possible that regulations could expand and have a greater
impact on future exploration operations. Although our management intends to
comply with all legislation and/or actions of local, provincial, state and
federal governments, non-compliance with applicable regulatory requirements
could subject us to penalties, fines and regulatory actions, the costs of which
could harm our results of operations. We cannot be sure that our proposed
business operations will not violate environmental laws in the
future.
Our
operations and properties are subject to extensive federal, state, provincial
and local laws and regulations relating to environmental protection, including
the generation, storage, handling, emission, transportation and discharge of
materials into the environment, and relating to safety and health. These
laws and regulations may do any of the following: (i) require the acquisition of
a permit or other authorization before exploration commences, (ii) restrict the
types, quantities and concentration of various substances that can be released
in the environment in connection with exploration activities, (iii) limit or
prohibit exploration on certain lands lying within wilderness, wetlands and
other protected areas, (iv) require remedial measures to mitigate pollution from
former operations and (v) impose substantial liabilities for pollution resulting
from our proposed operations. The exploration of hydrocarbon reserves
are subject to all of the usual hazards and risks associated with such
exploration, which could result in damage to life or property, environmental
damage, and possible legal liability for any or all damages. The
exploration activities may be subject to prolonged disruptions due to the
weather conditions surrounding the location of the Lease. Difficulties,
such as unusual or unexpected natural obstructions encountered by workers but
not indicated on a map, or other conditions may be encountered in the gathering
of information, and could delay our exploration program. Even though we
are at liberty to obtain insurance against certain risks in such amounts we deem
adequate, the nature of those risks is such that liabilities could exceed policy
limits or be excluded from coverage. We do not currently carry insurance to
protect against these risks and there is no assurance that we will obtain such
insurance in the future. There are also risks against which we cannot, or
may not elect to insure. The costs, which could be associated with any
liabilities, not covered by insurance or in excess of insurance coverage or
compliance with applicable laws and regulations may cause substantial delays and
require significant capital outlays, adversely affecting our financial position,
future earnings, and/or competitive positions.
The
prices of oil and gas are highly volatile and a decrease in oil and gas prices
can have a material adverse effect on our business.
The
profitability of natural resource operations are directly related to the market
prices of the underlying commodities. The market prices of oil & gas
fluctuate significantly and are affected by a number of factors beyond our
control, including, but not limited to, the rate of inflation, the exchange rate
of the dollar to other currencies, interest rates, and global economic and
political conditions. Price fluctuations in the oil and gas market, from
the time exploration for reserves is undertaken and the time production can
commence, can significantly affect the profitability of a
project.
10
Accordingly,
we may begin to develop a property at a time when the price of the underlying
reserves make such exploration economically feasible and subsequently, incur
losses because oil and gas prices have decreased. Adverse fluctuations of
the oil and gas market price may force us to curtail or cease our business
operations.
If
we lose the services of any of our management team, we may not be able to
continue to operate our business and may be required to cease operations. Our
sole officer and director lacks technical training and/or experience in oil and
gas exploration.
Mr.
Ronald Petrucci, our sole Officer and Director, does not have operating
experience in the oil and gas industry. Although Mr. Petrucci has significant
management, financial and organizational skills, Mr. Petrucci lacks specific
experience in starting or operating an oil and gas company. Unless we can retain
qualified technical personnel to undertake our any future exploration plan we
may not be able to complete such exploration. Further, our operations, earnings,
and ultimate financial success could suffer irreparable harm due to management’s
lack of experience in this industry. We have identified and
intend to retain the services of two technical persons with oil and gas
experience as described elsewhere in this Prospectus. If we
cannot retain the technical team identified, we would be forced to find other
qualified management personnel to assist us in exploration of the Lease.
This could be costly to us in terms of both time and expenses. Therefore,
if we were unable to replace the services and experience of our technical team
we may be forced to discontinue our operations.
Our principal stockholders, including
our sole officer and director own a controlling interest in our voting stock and
investors will not have any voice in our management, which could result in
decisions adverse to our general stockholders.
Subsequent
to the fully-subscribed offering under this Prospectus, our principal
stockholder and our sole officer and director, in the aggregate, will
beneficially own approximately or have the right to vote approximately 55.5% of
our outstanding Common Shares. As a result, these stockholders, acting
together, will have the ability to control substantially all matters submitted
to our stockholders for approval including:
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election
of our board of directors;
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removal
of any of our directors;
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amendment
of our Articles of Incorporation or By-laws;
and
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adoption
of measures that could delay or prevent a change in control or impede a
merger, takeover or other business combination involving
us.
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As a
result of their ownership and positions, our director and executive officer and
our principal stockholder collectively are able to influence all matters
requiring stockholder approval, including the election of directors and approval
of significant corporate transactions. Should he choose to vote independently,
our principal stockholder will control any matters related to the Company as he
has the right to vote approximately 55% of our outstanding Common
Shares. In addition, sales of significant amounts of shares
held by our principal stockholder, or the prospect of these sales, could
adversely affect the market price of our Common Shares Stock ownership of our
principal stockholder may discourage a potential acquirer from making a tender
offer or otherwise attempting to obtain control of us, which in turn could
reduce our stock price or prevent our stockholders from realizing a premium over
our stock price.
We
may not have access to all of the supplies and materials we need to begin
exploration which could cause us to delay or suspend operations.
Competition
and unforeseen limited sources of supplies in the industry could result in
occasional spot shortages of supplies and certain equipment such as drilling
rigs, service rigs, and excavators that we might need to conduct exploration.
We have not attempted to locate or negotiate with any suppliers of
products, equipment or materials. We will attempt to locate products, equipment
and materials after this offering is complete. If we cannot find the
products, equipment and materials we need, we will have to suspend our
exploration plans until we do find the products, equipment and materials we
need.
11
Because
of the early stage of development and the nature of our business, our securities
are considered highly speculative.
Our
securities must be considered highly speculative, generally because of the
nature of our business and the early stage of its development. We are
engaged in the business of exploring and, if warranted and feasible, developing
natural resource properties. The Lease is in the exploration stage only
and is without known reserves of natural resources. Accordingly, we have
not generated any revenues nor have we realized a profit from our operations to
date, and there is little likelihood that we will generate any revenues or
realize any profits in the short term. Any profitability in the future
from our business will be dependent upon locating and developing economic
reserves of natural resources, which itself is subject to numerous risk factors
as set forth herein. Since we have not generated any revenues, we will
have to raise additional monies through the sale of our equity securities or
debt in order to continue our business operations.
We
are an exploration stage company, and there is no assurance that a commercially
viable “reserve” exists in the property on which we have the Lease.
We are an
exploration stage company and cannot make any assurance that a commercially
viable “reserve,” exists on our Lease. Therefore, determination of the
existence of a reserve will depend on appropriate and sufficient exploration
work and the evaluation of legal, economic and environmental factors. If
we fail to find a commercially viable reserve on the Lease, our financial
condition and results of operations will be materially adversely
affected.
We
expect losses to continue in the future because we have no reserves and,
consequently, no revenue to offset losses.
Based
upon current plans and the fact that we currently do not have any reserves, we
expect to incur operating losses in future periods. This will happen
because there are expenses associated with the acquisition of, and exploration
of natural resource properties which do not have any income-producing reserves.
We cannot guarantee that we will be successful in generating revenues in
the future. Failure to generate revenues may cause us to go out of
business. We will require additional funds to achieve our current business
strategy and our inability to obtain additional financing will interfere with
our ability to expand our current business operations.
It
is possible that there may be native or aboriginal claims to our property which
could result in us incurring additional expenses to explore the
Lease.
Although
we believe that we have the right to explore the Lease, we cannot substantiate
that there are not native or aboriginal claims to the Lease. If a native
or aboriginal claim is made to this Lease, it would negatively affect our
ability to explore this Lease as we would have to incur significant legal fees
protecting our right to explore the Lease. We may also have to pay third
parties to settle such claims. If it is determined that there is a
legitimate claim to this Lease then we may be forced to return this Lease
without adequate consideration. Even if there is no legal basis for such
claim, the costs involved in resolving such matter may force us to delay or
curtail our exploration completely.
Risks
Relating to our Common Shares and the Trading Market
We
may, in the future, issue additional Common Shares which would reduce investors’
percent of ownership and may dilute our share value.
Our
Articles of Incorporation authorize the issuance of 75,000,000 Common Shares
with par value of $0.001. The future issuance of our authorized Common Shares
may result in substantial dilution in the percentage of our Common Shares held
by our then existing stockholders. We may value any Common Shares issued
in the future on an arbitrary basis. The issuance of Common Shares for future
services or acquisitions or other corporate actions may have the effect of
diluting the value of the Common Shares held by our investors, and might have an
adverse effect on any trading market for our Common Shares.
12
Our
Common Shares are subject to the “Penny Stock” Rules of the SEC and the trading
market in our securities is limited, which makes transactions in our stock
cumbersome and may reduce the value of an investment in our stock.
The SEC
has adopted regulations that generally define a "penny stock" to be any equity
security other than a security excluded from such definition by Rule 3a51-1
under the Securities Exchange Act of 1934, as amended. For the purposes
relevant to our Company, it is any equity security that has a market price of
less than $5.00 per share, subject to certain exceptions.
It is
anticipated that our Common Shares will be regarded as a “penny stock”, since
our shares are not listed on a national stock exchange or quoted on the NASDAQ
Market within the United States, to the extent the market price for our shares
is less than $5.00 per share. The penny stock rules require a
broker-dealer to deliver a standardized risk disclosure document prepared by the
SEC, to provide the customer with additional information including current bid
and offer quotations for the penny stock, the compensation of the broker-dealer
and its salesperson in the transaction, monthly account statements showing the
market value of each penny stock held in the customer's account, and to 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.
To the extent these requirements may be applicable they will reduce the
level of trading activity in the secondary market for the Common Shares and may
severely and adversely affect the ability of broker-dealers to sell the Common
Shares.
There is no current trading market
for our securities and if a trading market does not develop, purchasers of our
securities may have difficulty selling their shares.
There is
currently no established public trading market for our securities and an active
trading market in our securities may not develop or, if developed, may not be
sustained. We intend to apply for admission to quotation of our securities
on the OTC Bulletin Board. If for any reason our Common Shares are not
quoted on the OTC Bulletin Board or a public trading market does not otherwise
develop, purchasers of the Common Shares may have difficulty selling their
shares should they desire to do so. No market makers have committed to
becoming market makers for our Common Shares and it may be that none will do
so.
United
States securities laws may limit secondary trading, which may restrict the
states in which and conditions under which you can sell the shares offered by
this Prospectus.
Secondary
trading in Common Shares sold in this offering will not be possible in any state
in the U.S. unless and until the Common Shares are qualified for sale under the
applicable securities laws of the state or there is confirmation that an
exemption, such as listing in certain recognized securities manuals, is
available for secondary trading in such state. There can be no assurance that we
will be successful in registering or qualifying the Common Shares for secondary
trading, or identifying an available exemption for secondary trading in our
Common Shares in every state. If we fail to register or qualify, or to
obtain or verify an exemption for the secondary trading of, the Common Shares in
any particular state, the Common Shares could not be offered or sold to, or
purchased by, a resident of that state. In the event that a significant
number of states refuse to permit secondary trading in our Common Shares, the
market for the Common Shares could be adversely affected.
We
have not and do not intend to pay any cash dividends on our Common Shares, and
consequently our stockholders will not be able to receive a return on their
shares unless they sell them.
We intend
to retain any future earnings to finance the development and expansion of our
business. We have not, and do not, anticipate paying any cash dividends on
our Common Shares in the foreseeable future. Unless we pay dividends, our
stockholders will not be able to receive a return on their shares unless they
sell them.
We
may, in the future, issue additional Common Shares or other securities,
including Preferred Shares, which would reduce investors’ percentage ownership
and may dilute the value of our shares.
Our
Articles of Incorporation authorize the issuance of 75,000,000 Common Shares
with $0.001 par value. There are no other classes of securities authorized.
We may value any securities issued in the future on an arbitrary basis.
The issuance of additional securities for future services or acquisitions or
other corporate actions may also have the effect of diluting the value of the
shares held by our investors and might have an adverse effect on the trading
market for our Common Shares.
13
USE
OF PROCEEDS
We intend
to raise $100,000 dollars from the sale of 10,000,000 shares of common stock at
$0.01 per share. This Offering has a maximum amount of $100,000
dollars and no minimum. We have no intention to return any stock
sales proceeds to investors if the maximum amount is not raised.
We have
raised a total of $12,500 dollars from the sale of common stock, as at December
31, 2009. The total amount of $12,500 dollars has been
raised from the sale of 200,000 shares of common stock to an officer and
director of the Company, and the balance of 12,300,000 common shares of stock to
an outside investor. These shares sold are restricted and are not being
registered in this Offering. From these
proceeds, we made an initial payment of $5,000 as required under our Farm-out
Agreement, and $6,250 towards the costs of the Offering as at the date of filing
of this Prospectus, inclusive of incorporation costs of $1,250 and other costs
totaling $5,000.
Upon
completion of the Offering, based upon all 10,000,000 shares having been sold,
the gross proceeds will be $100,000. No commissions are to be paid in
association with the selling of our stock under this Offering, resulting in net
proceeds of $100,000. We will expend a total of $28,000 for the costs
of preparation of this Offering, including legal and accounting, of which $6,250
has been paid from our initial working capital raised leaving a total of $21,750
to be paid from the proceeds of the Offering. We will
spend a further $20,000 from the funds raised under the Offering for our
technical evaluation of our oil and gas assets. The remaining funds
raised from this Offering, which will total $58,250 will be used for general
working capital, including the payment of $1,500 per month salary to our sole
officer and director, office and administration expenses, transfer agent fees,
blue sky fees, and filing fees and further exploration fees on our
oil and gas assets as required.
Should we
raise the entire $100,000 we are seeking from this Offering and pay out the
costs of the Offering, we will have sufficient funds for our operations for the
twelve (12) month period following the completion of this
Offering. If we fail to raise $100,000 we are seeking from this
Offering, we will have to find other methods to raise additional funds to pay
for the expenses of this Offering and for our ongoing operations. If
we are unable to raise additional funding through this Offering or from other
sources, we will not be able to survive more than several months. In that event,
it will be critical that we begin to realize revenues as quickly as possible. We
will require additional funding from either outside sources or from reserves to
survive past our first year of operations. At this time, we have no anticipated
sources of additional funds.
DETERMINATION
OF OFFERING PRICE
There is
no established market for our stock. The offering price for shares sold pursuant
to this Offering is set at $0.01 per common share. To date, we have sold a total
of 12,500,000 common shares for $0.001 per share, for total proceeds of
$12,500. Of these 12,500,000 shares, 200,000 shares were sold to an
officer and director of the Company, and 12,300,000 shares were sold to an
unrelated third party. All of the shares of outstanding common stock
are restricted.
The price
of the shares we are offering was arbitrarily determined in order for us to
raise up to a total of $100,000 in this Offering. The offering price
bears no relationship whatsoever to our assets, earnings, book value or other
criteria of value. Among the factors considered were:
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our
cash requirements;- the proceeds to be raised by the
offering;
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our
lack of operating history; and
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the
amount of capital to be contributed by purchasers in this Offering in
proportion to the amount of stock to be retained by our existing
shareholders.
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There are
no warrants, rights or convertible securities associated with this
Offering.
14
DILUTION
“Net
tangible book value” is the amount that results from subtracting the total
liabilities and intangible assets from the total assets of an
entity. Dilution occurs because we determined the offering price
based on factors other than those used in computing book value of our
stock. Dilution exists because the book value of shares held by
existing stockholders is lower than the offering price offered to new
investors.
We are
offering shares of our common stock for $0.01 per share through this
Offering. Since our inception on December 9, 2009 through to December
31, 2009, an officer and director of the Company, and an unrelated third party,
have purchased a total of 12,500,000 shares of our common stock, representing
100% of our issued and outstanding stock. There have been no additional sales of
our stock subsequent to December 31, 2009.
As at
December 31, 2009, our net tangible book value was $0.0007 per common
share. If we are successful in selling all of the offered shares at
the public offering price, our pro forma net tangible book value will be $85,250
or approximately $0.0038 per share, which would represent an immediate increase
of $0.0031 in net tangible book value per share. Based upon the
offering price of $0.01 per share, and assuming all the 10,000,000 shares are
sold, new investors would incur immediate dilution of $0.0062 per share,
representing 62% per share dilution.
Following
is a table detailing dilution to investors if 25%, 50%, 75%, or 100% per cent of
the offering is sold.
25 | % | 50 | % | 75 | % | 100 | % | |||||||||
Net
Tangible Book Value Per Share Prior to Stock Sale
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0.0007 | 0.0007 | 0.0007 | 0.0007 | ||||||||||||
Net
Tangible Book Value Per Share After Stock Sale
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0.0009 | 0.0019 | 0.0029 | 0.0038 | ||||||||||||
Increase
(Decrease) in Net Book Value Per Share Due to Stock Sale
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0.0007 | 0.0016 | 0.0024 | 0.0031 | ||||||||||||
Immediate
Dilution (subscription price of $0.01 less net tangible book value per
share)
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0.0091 | 0.0081 | 0.0071 | 0.0062 |
Assuming
all the shares are sold, the following table illustrates the pro forma per share
dilution:
Price
to the Public (1)
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$ | 0.01 | ||
Net
tangible book value per Share before Offering (2)
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$ | 0.0007 | ||
Increase
Attributable to purchase of Stock by New Investors (5)
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$ | 0.0031 | ||
Net
tangible book value per Share after Offering (3),
(4)
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$ | 0.0038 | ||
Immediate
Dilution to New Investors (6)
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$ | 0.0062 | ||
Percent
Immediate Dilution to New Investors (7)
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62 | % |
(1) Offering
price per equivalent common share.
(2) The net
tangible book value per share before the offering is determined by dividing the
number of shares of common stock outstanding into our net tangible book
value.
(3) The net
tangible book value after the offering is determined by adding the net tangible
book value before the offering to the estimated proceeds to us from the current
offering less the offering costs of $28,000. Of the estimated
offering costs of $28,000, $5,000 is already included as a deferred financing
cost at December 31, 2009.
(4) The net
tangible book value per share after the offering is determined by dividing the
number of shares that will be outstanding after the offering into the net
tangible book value after the offering as determined in Note 3.
(5) The
increase attributable to purchase of stock by new investors is derived by taking
the net tangible book value per share after the offering and subtracting from it
the net tangible book value per share before the offering.
(6) The
dilution to new investors is determined by subtracting the net tangible book
value per share after the offering from the public offering price, giving a
dilution value.
(7) The
percent of immediate dilution to new investors is determined by dividing the
dilution to new investors by the price to the public.
Following
is a comparison of the differences of your investment in our shares with the
share investment of our existing stockholders, officers and
directors.
15
The
existing stockholders have purchased a total of 12,500,000 shares for an
aggregate amount of $12,500, or an average cost of $0.001 per
share. Your investment in our shares will cost you $0.01 per
share. In the event that this Offering is fully subscribed, the net
tangible book value of the stock held by the existing stockholders will increase
by $0.0031 per share, while your investment will decrease by $0.0062 per share.
If this Offering is fully subscribed, the total capital contributed by new
investors will be $100,000. The percentage of capital contribution
will then be 11.1% for the existing stockholders and 88.9% for the new
investors. The existing stockholders will then hold, as a percentage,
55.6% of our issued and outstanding shares, while the new investors will hold,
as a percentage, 44.4%.
SELLING
SECURITY HOLDERS
Our
current stockholders are not selling any of the shares being offered in this
Prospectus.
PLAN
OF DISTRIBUTION
Underwriters
and Underwriting Obligation, New Underwriters
Upon
effectiveness of the registration statement, of which this Prospectus is a part,
we will conduct the sale of shares we are offering on a self-underwritten,
best-efforts basis. There will be no underwriters used, no dealer's
commissions, no finder's fees, and no passive market making.
Other
Distributions
Our
officer and director, Mr. Ronald Petrucci will sell securities on our behalf in
this Offering. Our officer and director intends to personally contact
his friends, family members and business acquaintances in attempting to sell the
shares offered hereunder. We will not be conducting a mass-mailing in
connection with this Offering, nor will we use the Internet to conduct this
Offering. We will not employ the services of an agent or intermediary
to introduce us to prospective subscribers to the Offering.
Mr.
Ronald Petrucci is not subject to a statutory disqualification as such term is
defined in Section 3(a)(39) of the Securities Exchange Act of
1934. He will rely on Rule 3a4-1 to sell our securities without
registering as a broker-dealer. He is serving as an officer and
director and primarily performs substantial duties for or on our behalf
otherwise than in connection with transactions in securities and will continue
to do so at the end of the Offering, and have not been a broker or dealer, or an
associated person of a broker or dealer, within the preceding 12 months, and
have not nor will not participate in the sale of securities for any issuer more
than once every 12 months. Mr. Petrucci will not receive commissions
or other remuneration in connection with his participation in this Offering
based either directly or indirectly on transactions in securities.
We plan
to offer our shares to the public at a price of $0.01 per share, with no minimum
amount to be sold. Our officer, director and existing stockholders
and affiliates will not purchase any shares under this Offering. We
will keep the Offering open until we sell all of the shares registered, or for
90 days from the date of this prospectus, whichever occurs
first. There can be no assurance that we will sell all or any of the
shares offered. We have no arrangement or guarantee that we will sell
any shares. All subscription checks will be made payable to us or as
we may otherwise direct. Upon our acceptance of an investor’s signed
subscription agreement and bank clearance of the funds from each investor’s
subscription check, each investor will become a stockholder of the Company and
receive a share certificate for the number of shares subscribed
for.
Offerings
On Exchange
Our
securities are not going to be offered on an exchange or in connection with the
writing of exchange-traded call options.
Underwriter’s
Compensation
We are
not using underwriters in connection with this Offering, and thus, there is no
compensation, discounts or commissions to be paid to
underwriters.
16
Underwriter's
Representative on Board of Directors
We are
not using underwriters in connection with this Offering, and thus, no
underwriter has the right to designate or nominate a member or members of our
Board of Directors.
Indemnification
of Underwriters
Not
Applicable.
Dealers’
Compensation
There are
no discounts or commissions to be allowed or paid to any dealers, including
cash, securities, contracts or other considerations to be received by any dealer
in connection with the sale of the securities.
Finders
None.
Discretionary
Accounts
None.
Passive
Market Making
No
underwriters or any selling group members intend to engage in passive market
making transactions as permitted by Rule 103 of Regulation M.
Stabilization
and Other Transactions
Not
applicable.
DESCRIPTION
OF SECURITIES TO BE REGISTERED
Capital
Stock
Our
Articles of Incorporation authorize the issuance of 75,000,000 shares of common
stock with $0.001 par value. We are not authorized to issue any
series or shares of preferred stock. Each record holder of common
stock is entitled to one (1) vote for each share held in all matters properly
submitted to the stockholders for their vote. Cumulative voting for
the election of directors is not permitted by our By-Laws.
Holders
of outstanding shares of common stock are entitled to such dividends as may be
declared from time to time by the Board of Directors out of legally available
funds; and, in the event of liquidation, dissolution or winding up of our
affairs, holders are entitled to receive, ratably, our net assets available to
stockholders after distribution is made to the preferred stockholders, if any,
who are given preferred rights upon liquidation. Holders of
outstanding shares of common stock have no preemptive, conversion or redemptive
rights. To the extent that additional shares of our common stock are
issued, the relative interest of then existing stockholders may be
diluted.
Debt
Securities
None.
Warrants
and Rights
None.
17
Other
Securities
None.
Market
Information for Securities Other Than Common Equity
Not
applicable.
American
Depositary Receipts
Not
applicable.
INTERESTS
OF NAMED EXPERTS AND COUNSEL
We have
not hired or retained any experts or counsel on a contingent basis, who would
receive a direct or indirect interest in the Company, or who is, or was, a
promoter, underwriter, voting trustee, director, officer or employee of the
Company.
De Joya
Griffith & Company, LLC, of Henderson, NV, have audited our financial
statements for the period ended December 31, 2009, and presented its audit
report dated February 18, 2010, regarding such audit which is included with this
prospectus with De Joya Griffith & Company, LLC’s consent as experts in
accounting and auditing.
Gersten
Savage LLP has issued an opinion on the validity of the shares offered by this
prospectus, which has been filed as an Exhibit to this prospectus with Gersten
Savage LLP’s consent.
INFORMATION
WITH RESPECT TO THE REGISTRANT
Description
of Business
We were
incorporated on December 9, 2009, in the State of Nevada. We have
never declared bankruptcy, have never been in receivership, and have never been
involved in any legal action or proceedings. Since incorporation, we have not
made any significant purchase or sale of assets, save for the right to earn a
4.75% working interest in an oil and gas prospect, as identified below. Neither
we, nor our officer, director, promoters or affiliates, has had preliminary
contact or discussions with, nor do we have any present plans, proposals,
arrangements or understandings with any representatives of the owners of any
business or company regarding the possibility of an acquisition or merger. We
are not a blank check registrant as that term is defined in Rule 419(a)(2) of
Regulation C of the Securities Act of 1933, since we have a specific business
plan or purpose.
We are a
natural resource exploration company and anticipate acquiring, exploring, and if
warranted and feasible, developing natural resource assets. The
Company’s first natural resource asset is a Farmout Agreement we entered into
with Stone Canyon Resources Inc., on December 15, 2009, whereby we have the
right to earn 50% of Stone Canyon’s 9.5% working interest in an Alberta, Canada
Crown Petroleum and Natural Gas Lease Agreement (“PNG Lease”), resulting in our
having a 4.75% interest of the PNG Lease. The PNG Lease comprises
approximately 320 acres of land with specified petroleum and natural gas
exploitation rights. Under the terms of the Farmout Agreement, we are
required to pay a $5,000 initial fee and to produce a geological evaluation and
analysis report (“Geological Evaluation”). To date, we have paid the
initial fee, and we plan to undertake the Geological Evaluation should we be
successful in this Offering. We have allocated up to $20,000 from our funds to
be raised under this Offering to complete the Geological
Evaluation. We currently have no revenue and no
significant assets except those relating to the Farm-out Agreement.
During
our current fiscal year, ending December 31, 2010, (the “Initial Period”), we
plan to conduct the Geological Evaluation. Under the terms of the
Farm-out Agreement, we are required to provide this report prior to December 31,
2010, in order to earn our 4.75% interest. Upon receiving the results
of the Geological Evaluation, we will be in a better position to identify the
potential hydrocarbon formations so that we can make an informative
determination of the exploration process going forward to ascertain whether the
PNG Lease possesses hydrocarbon reserves in commercial
quantities.
18
There can
be no assurance that the PNG Lease contains a commercially viable hydrocarbon
reserve until appropriate exploratory work is completed and an evaluation based
on that work concludes further work programs are justified.
During
our Initial Period, we will also seek out other oil and gas properties
throughout the Province of Alberta, Canada, focusing on acquisitions of
properties where management believes further exploitation and development
opportunities exist. If we are able to identify and acquire such properties, we
will seek to assemble a portfolio of crude oil and natural gas prospects that
management believes offer an appropriate combination of risk and economic
reward, most particularly, those that:
-
|
Exhibit
the potential for delivering superior rates of return on capital
employed;
|
-
|
Accretive
to cash flow per share;
|
-
|
Accretive
to net asset value;
|
-
|
Accretive
to reserves per share;
|
-
|
Potential
for value enhancement through further exploitation, including improved
production practices, additional development drilling, infill drilling or
re-drilling/re-completion and improved marketing
arrangements;
|
-
|
Assets
that include associated undeveloped lands for development and exploration
opportunities;
|
-
|
Geological
opportunities identified as multi-zone potential;
and
|
-
|
Near-term
market access and sufficient infrastructure for increased
activity.
|
Within
the above context, management recognizes that all drilling involves substantial
risk and that a high degree of competition exists for prospects. We do not
intend to purchase other oil and gas companies, but rather identify oil and gas
projects that other companies have made available on the open market. More
particularly, we will seek out oil and gas prospects that could constitute
longer life reservoirs, thereby withstanding several pricing cycles and having
the ability to create value through exploitation, development and exploration
activities, with a view to increasing stockholder value and returns. We will use
the following operation and financial management approach to increase
stockholder value and returns, taking into account our financial position,
taxability and access to debt and equity financing:
-
|
Focus
growth capital to higher quality
reservoirs;
|
-
|
Utilize
production enhancement techniques to increase productivity and add value
within the parameters of good oilfield production practices;
and
|
-
|
Create
value from our asset base through exploitation, development and
exploration activities.
|
It is
anticipated that the number and diversity of these focus areas will expand with
the growth of our business, however no assurance can be given that drilling will
prove successful in establishing commercially recoverable
reserves. See “Risk Factors.”
While our
primary plan is to acquire exploitation and exploration drilling prospects, we
would consider acquiring properties that have existing production in order to
generate cash flow for operations during the Initial Period or
thereafter. There can be no assurance that we will be successful in
acquiring any properties that will allow us to generate revenues.
Currently,
we will not undertake any prospects that require operatorship as we do not have
sufficient staff or expertise to do so, and, such an undertaking requires
additional licences and financial commitments to Province of Alberta government.
We will initially concentrate on acquiring small working interests in
exploration properties where the costs fit in with our proposed budget and for
only those properties that have qualified operators. Acquisitions will be
targeted in areas that will complement our previously identified focus
area.
Should we
be successful in reaching a stage where one of the properties in which we have a
working interest, or should we acquire an interest in a producing property, our
principal products are intended to be oil and gas and any related saleable
by-products. Our market will be traditional buyers of such products
in the Province of Alberta. As our products are of a commodity
nature, we would not be dependent on a small number of customers. With respect
to distribution of our products, we will rely on the operator of our oil and gas
wells to distribute any oil and gas and saleable by-products. We
currently do not have any oil and gas production or products.
19
Our
competition comes from other oil and gas companies that are acquiring oil and
gas assets that we would contemplate acquiring due to its investment and capital
costs compared to our financial capabilities. Since our financial
resources are severely limited at this time, we are at a distinct disadvantage
when competing against companies with significant assets.
There are
no inherent factors or circumstances associated with this industry that would
give cause for any patent, trademark or license infringements or
violations. We have not entered into any franchise agreements or
other contracts that have given, or could give rise to obligations or
concessions. At present, we do not hold any intellectual property nor do we
anticipate that we will have any need for any intellectual
property.
Need
For Government Approval of Principal Products or Services
In
Canada, producers of oil negotiate sales contracts directly with oil purchasers,
with the result that the market determines the price of oil. The
price depends in part on oil quality, prices of competing fuels, distance to
market, the value of refined products and the supply/demand
balance. Oil exports may be made pursuant to export contracts with
terms not exceeding 1 year in the case of light crude, and not exceeding 2 years
in the case of heavy crude, provided that an order approving any such export has
been obtained from the National Energy Board of Canada (“NEB”). Any
oil export to be made pursuant to a contract of longer duration (to a maximum of
twenty-five (25) years) requires an exporter to obtain an export license from
the NEB and the issuance of such a license requires the approval of the Governor
in Council.
In
Canada, the price of natural gas sold in interprovincial and international trade
is determined by negotiation between buyers and sellers. Natural gas
exported from Canada is subject to regulation by the NEB and the Government of
Canada. Exporters are free to negotiate prices and other terms with
purchasers, provided that the export contracts continue to meet certain criteria
prescribed by the NEB and the Government of Canada. Natural gas
exports for a term of less than two years or for a term of 2 to 20 years (in
quantities no greater than 30,000 m3/day) must be made pursuant to an NEB
order. Any natural gas export to be made pursuant to a contract of
longer duration (to a maximum of 25 years) or a larger quantity requires an
exporter to obtain an export license from the NEB and the issuance of such a
license requires the approval of the Governor in Council.
The
government of Alberta also regulates the volume of natural gas which may be
removed from the province for consumption elsewhere based on such factors as
reserve availability, transportation arrangements and market
considerations.
Costs
and Effects of Compliance with Environmental Laws
Our oil
and gas acquisitions will be subject to numerous federal, state and local laws
and regulations relating to environmental protection from the time oil and gas
projects commence until abandonment. These laws and regulations
govern, among other things, the amounts and types of substances and materials
that may be released into the environment, the issuance of permits in connection
with exploration, drilling and production activities, the release of emissions
into the atmosphere, the discharge and disposition of generated waste materials,
offshore oil and gas operations, the reclamation and abandonment of wells and
facility sites and the remediation of contaminated sites. In
addition, these laws and regulations may impose substantial liabilities for the
failure to comply with them or for any contamination resulting from the
operations associated with our assets. Laws and regulations
protecting the environment have become more stringent in recent years, and may
in certain circumstances impose “strict liability,” rendering a person liable
for environmental damage without regard to negligence or fault on the part of
such person. Such laws and regulations may expose us to liability for
the conduct of or conditions caused by others, or for our acts which were in
compliance with all applicable laws at the time such acts were
performed. The application of these requirements or the adoption of
new requirements could have a material adverse effect on our financial position
and results of operations.
We take
the issue of environmental stewardship very seriously and will work diligently
with our operators to insure compliance with applicable environmental and safety
rules and regulations. However, because environmental laws and
regulations are becoming increasingly more stringent, there can be no assurances
that such laws and regulations or any environmental law or regulation enacted in
the future will not have a material effect on our operations or financial
condition.
20
Employees
We
presently have no employees. We intend to hire consultants as
required and rely on present management, being the director and officer, to
direct our business. We will need to hire employees with experience
in the oil and gas industry as we implement our business plan to grow the
Company by the acquisition of exploration and development properties where the
Company may participate in drilling or in the acquisition of any business in the
oil and gas industry. As we grow through acquisitions we will require
employees with oil and gas expertise to review potential acquisitions and
accounting and administrative staff to manage revenues and
expenditures. We intend to hire these employees as we raise capital
and complete acquisitions requiring these employees. Should we find a
property or properties of merit which would require an operator, we would need
to hire additional staff for operations.
Reports
to Security Holders
We will
voluntarily make available to securities holders an annual report, including
audited financials, on Form 10-K. We are not currently a fully
reporting company, but upon effectiveness of this registration statement, we
will be required to file reports with the SEC pursuant to the Securities
Exchange Act of 1934; such as quarterly reports on Form 10-Q, and current
reports on Form 8-K.
The
public may read and copy any materials filed with the SEC at the SEC's Public
Reference Room at 100 F St. NE, Washington, D.C. 20549. The public
may obtain information about the operation of the Public Reference Room by
calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site
that contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC at
http://www.sec.gov.
Description
of Property
Principal
Exploration Project – The Lease of the Minhik prospect
Land in
Alberta, Canada, is comprised of both public or government held mineral land
title rights (called Crown lands) and privately held mineral land title rights
(called freehold lands or fee-simple lands). Approximately 80% of all
land in Alberta is held by the government (Crown). The surface right
ownership of land is primarily held by private individuals. Freehold
or fee-simple held mineral rights may include one owner for both surface rights
and mineral oil and gas rights, or may be severed so that the mineral rights
title to the surface rights is held by one owner and the title to the oil and
gas mineral rights is held by a separate owner. The process to
acquire either the freehold or fee-simple mineral rights or the surface rights
is a process of directly negotiating with the private land title
owner. Crown mineral rights are all held and administered by the
Government of Alberta. The right to acquire and exploit Crown mineral
rights, the annual rental payments for the mineral rights and the royalty
collection and administration for the lands, is under the jurisdiction of
Alberta Energy, a government energy department. The operation
management and exploitation management for the mineral rights and reservoirs, is
under the jurisdiction of the Energy Resources Conservation Board, another
government energy department. The Crown oil and gas mineral rights
are typically acquired by the process of public auction, most often held every
two weeks, which grants the right to explore and exploit oil and gas to the
individual or corporate bidder. Surface rights that are negotiated contain
provisions relating to such terms as access and damage compensation, and are
typically secured prior to commencement of exploration activities.
We
currently have the right to acquire a 4.75% working interest, as our sole asset,
in an Alberta, Canada Crown Petroleum and Natural Gas Lease Agreement (“PNG
Lease”), Number 0494090860 which Lease comprises approximately 320 acres of land
with specified petroleum and natural gas exploitation rights. Our working
interest partner, Stone Canyon Resources, Inc., (“Farmor”), presently owns a
9.5% working interest in this PNG Lease. The Lease is located in the
Minhik Area of Central Alberta We have agreed to pay Farmor, an amount of $5,000
as a consideration fee for the right to enter into the Farmout
Agreement. To date, we have paid the $5,000 and have executed the
Farm-out Agreement with Farmor. A condition of the Farm-out Agreement between
Farmor and the Company is that we are obligated to produce a geological
evaluation and analysis report prior to December 31, 2010, at which time we will
earn our 4.75% working interest in the PNG Lease for the mineral rights from the
Top of the Colorado Group to the Base of the Pekisko formation.
21
We have
limited finances and require additional funding in order to accomplish our
exploration objectives. There is no assurance that we will have revenues in the
future or that we will be able to secure other funding necessary for our future
growth and expansion. There is also no assurance that our oil and gas
exploration activities will produce commercially viable reserves. Our
efforts to extract oil and gas may be unprofitable. We may seek relationships
with other oil and gas exploration and development companies that will allow us
to exploit idle and/or undeveloped resources.
Additional
Disclosure Related to Oil and Gas Producing Activities
Disclosure
of Reserves
We have
only recently been incorporated and begun operations, and have not yet
undertaken our initial Geological Evaluation of the PNG
Lease. Therefore, we do not yet have Proved Developer or Undeveloped
Reserves, Probable Developed or Undeveloped Reserves, or Possible Developed or
Undeveloped Reserves.
Proved
Undeveloped Reserves
The
Company currently has no Proved Undeveloped Reserves
Oil
and Gas Production, Production Prices and Production Costs
The
Company does not have any producing oil and gas properties at the present
time.
Drilling
and Other Exploratory and Development Activities
We have
not undertaken any drilling activity on our existing lease and we do not intend
to do so until such time as we have completed an evaluation as required under
our agreement with the vendor of the leases to determine if drilling is
merited.
Present
Activities
We have
recently entered into a Farm-out agreement whereby we will acquire a 4.75%
interest in a certain oil and gas lease in the Province of
Alberta. There has not been any drilling activity, or other
exploratory or development activities, on the PNG Lease in the past three
years. We intend to undertake a geological evaluation of the leases
upon completion of the funding under this Offering.
Delivery
Commitments
We have
no current production and thus we have no delivery commitments at this
time.
Oil
and Gas Properties, Wells, Operations, and Acreage
As of the
present date, we have no productive wells, and no developed
acreage. Based however, on our Farm-out Agreement, and subject to our
completion of the geological evaluation required under that Agreement, we will
have a 4.75% interest in certain undeveloped acreage.
Our
Farm-out Agreement relates to the Minhik PNG Lease East Half Section 19,
Township 44, Range 4, W5. The Minhik Area is located approximately 60 miles
southwest of Edmonton, Alberta, Canada. The Alberta
Crown Petroleum and Natural Gas Lease Agreement, Number 0494090860,
comprises approximately 320 acres of land with petroleum and natural gas
exploitation rights from the surface to the base of the Pekisko formation. As a
result of an earlier well drilled and producing from the Belly River, a
formation above the Top of the Colorado, the entire PNG Lease has been continued
(meaning no expiry) until the well drilled into the Belly River is abandoned, or
until another deeper well is drilled and then abandoned.
22
Should
our geological evaluation be positive, a subsequent next step may be for seismic
work to be initiated. Seismic is a scientifically driven electronic
process, whereby electrical pulses are shot into the earth at one point within a
measure grid, and whereby these electronic signals are “bounced” back to the
surface and recorded by special instruments. The electrical signal
that is recorded through specific wave lengths as a result of the strata,
provides the geophysicist (a specialized oil and gas mathematician and
physicist) with an understanding of the strata below. Seismic is a
capital intensive proposition that is utilized to not only assist with the
defining of the strata, but is also utilized to mitigate risk.
The Lease
is accessible by all weather roads and pipelines exist within 1 mile of the
Lease. The Farmor’s Operator purchased the Lease at an Alberta Government
auction in September 24, 1994. The Lease will not expire, conditional
on a Crown review of “Shallow Rights Revision”, enacted into legislation and
taking effect April 1, 2011. Shallow Rights Revision is the
forfeiting to the Crown of all formations of a PNG lease, below that of an
existing well, for which no drilling has occurred into such lower
formations. Should the Crown determine the lease as shallow rights
reversion, the Company will have three years to drill to hold the “revisionary”
right to the PNG Lease, post the date such notice is provided to the Operator by
the Crown.
No
commercially viable reserves may exist on our Lease. Our plan of operations is
to undertake our required Geological Evalation on this Lease in order to
ascertain whether it possesses hydrocarbon reserves in commercial quantities.
We can provide no assurance to investors that our Lease contains a
commercially viable hydrocarbon reserve until appropriate exploratory work is
done and an evaluation based on that work concludes further work programs are
justified. As of the date of this Prospectus, we are not in possession of
any more recent data on the Lease. Further, we are not in possession of
sufficient data to provide reliable estimates on the quantity, if any, of the
potential hydrocarbon reserves which may exist on the Lease. At the time
of this Prospectus, we have no known reserves on our Lease.
Summary
of Program
We intend
to undertake an initial geological evaluation of our Lease upon completion of
this Offering. Should additional exploration or development work be
undertaken, the Company will be required to participate in costs on a percentage
basis commensurate with its then earned interest of 4.75%, and will earn a
comparable percentage of net revenues from production activities should
commercial operations be undertaken in the future. We are not
currently undertaking any exploration or drilling programs on our oil and gas
leases, therefore there will be no other parties participating in our first
program. We will pay 100% of the costs of the geological
evaluation and analysis, estimated to be $20,000. Should we
determine upon finalization of that report to undertake a drilling program on
the leases then we would be required to notice the other companies which hold an
interest in the oil and gas leases. It cannot be known at this time if the
geological evaluation will indicate any exploration targets or recommend that we
undertake any drilling activities on the leases.
The
Risk Factors
See “RISK
FACTORS” starting on page 7 of this Prospectus, where information regarding the
risks associated specifically with our oil and gas program are identified,
together with other industry and business risks.
Definitions
A
glossary of terms used in this Prospectus as customarily used in the oil and gas
industry is provided on page 3 of the Prospectus, under
“Definitions”.
Terms
of the Offering
We intend
to raise $100,000 dollars from the sale of 10,000,000 shares of common stock at
$0.01 per share. This Offering has a maximum amount of $100,000
dollars and no minimum. We have no intention to return any stock
sales proceeds to investors if the maximum amount is not raised.
Upon
completion of the Offering, based upon all 10,000,000 shares having been sold,
the gross proceeds will be $100,000. No commissions are to be paid in
association with the selling of our stock under this Offering, resulting in net
proceeds of $100,000.
23
Additional
Assessments
There are
no additional assessments which are currently known to us which may be later
required from investors either for completion of wells or for drilling of
additional wells.
Plan
of Distribution
See “PLAN
OF DISTRIBUTION” on page 16.
Proposed
Activities
Upon the
completion of this Offering and sufficient funds having been raised, we intend
to retain the required geological consultant to undertake a geological
evaluation and analysis report, estimated to cost up to $20,000. The
results of this report, in addition to securing our 4.75% interest in the Lease,
will assist us in determining whether or not to proceed with further exploration
on the Lease. Should we determine to do so, a geological consultant
will again be retained to recommend and undertake a work program on our Lease.
Until such time as we have retained the required consultant we cannot
accurately predict what work program they will recommend or what the annual
costs for the exploration will be. Our management believes that we would
most probably be required to raise additional funds in order to undertake any
such further work program.
During
the first year of operations, we will concentrate our efforts primarily on
retaining a geological consultant to recommend and undertake a geological
evaluation and analysis report, which must be presented to our working interest
partner before December 31, 2010, in order to secure our 4.75%
interest.
Dependent
on the success of the evaluation of the lease and any proposed work program, we
will determine whether to expend further funds on drilling on our existing
property. Should we determine not to proceed with this lease, then we
will attempt to identify other exploration prospects. We will be required to
drill a successful well or wells in order to commence revenues. We
cannot state with certainty at this time how long it will take to find a
suitable acquisition for which we will have sufficient funds, or if we do find
an acquisition which is an exploration or development property, how long it will
take to drill a well. Further, there can be no guarantees that if we
drill a well we will be successful in being able to produce oil or gas in
sufficient quantities to sustain our operations.
We
estimate that by the end of summer 2010, we will have determined whether we will
be undertaking any further work programs on our existing property, or if we will
need to find an alternative suitable oil and gas property.
By the
end of this fiscal year, we plan to have identified at least one property with
the potential to be turned into a property with a producing well and which
therefore warrants additional exploration activity. We expect that we will
either be able to fund this growth from existing funds raised under the
offering, or by loans or equity financings.
At the
current time, we have not commenced any operations other than the first part of
the acquisition of the working interest in our lease. It is possible
that during the review of this prospectus we could find an acquisition that
would fit within our business plan or that we would determine we should
participate in drilling on our existing prospect, in which case, we will look to
raise funds for this acquisition by way of loans or convertible debentures, or
the sale of additional shares.
Application
of Proceeds
Refer to
“USE OF PROCEEDS” section herein on page 14.
Participation
in Costs and Revenues
We have
paid a total of $5,000 pursuant to the Farmout Agreement between the Company and
Stone Canyon Resources Inc. We are required to fund an additional
cost for the geological report and evaluation which we have estimated to be
$20,000 for the purposes of this Offering. Additional costs and
expenditures could be required and we cannot at this time determine what those
might be. Should we determine to undertake the drilling of the prospect then any
oil and gas production from the Lease will be subject to an Alberta Government
crown royalty of upwards of 50% depending on the quantity of the hydrocarbon
produced and the price received for the hydrocarbon.
24
Compensation
None.
Management
During
the first stages of our growth, our officer and director will direct and provide
all the management to further the sourcing of oil and gas
properties. Currently he is providing his services free of charge,
however at such time as we have completed the funding under this Offering we
intend to enter into an employment agreement with Mr. Petrucci whereby he will
receive $1,500 per month for his services. Since we intend to operate
with very limited administrative support, which we expect to undertake with
part-time or outsourced clerical assistance, our officer and director will
continue to be responsible for all other duties for at least the first year of
operations, save for those consultants identified below who will be retained to
undertake the evaluation of our property and, if warranted to direct the oil and
gas exploration programs recommended. We also intend to use these oil
and gas consultants to identify and review other potential acquisition
properties in the oil and gas sector that may be sourced by our
management. We have provided for the funds to hire these experts in
our working capital budget from the funds to be raised under this
Prospectus. See also sections titled “Directors, Executive Officers,
Promoters and Control Persons,” “Executive Compensation,” “Security Ownership of
Certain Beneficial Owners and Management,” and “Transactions with Related
Persons, Promoters and Certain Control Persons.”
Conflicts
of Interest
We do not
have any conflicts of interest that we are aware of at this
time. Conflicts of interest could occur with our technical
consultants.
Prior
Activities
We have
entered into a Farm-out Agreement whereby we have the right to acquire a 4.75%
interest in certain oil and gas leases more particularly described under “Oil
and Gas Properties” on page 22.
Tax
Aspects
Material
U.S. Federal Income and Estate Tax Consequences to Non-U.S. Holders
The
following is a summary of certain United States federal income and estate tax
consequences of the purchase, ownership and disposition of our common stock as
of the date of this prospectus. Except where noted, this summary
deals only with common stock that is held as a capital asset by a
non-U.S. holder. A “non-U.S. holder” means a person (other
than a partnership) that is not for United States federal income tax purposes
any of the following:
-
|
an
individual citizen or resident of the United States including an alien
individual who is a lawful permanent resident of the United States or
meets the “substantial presence” test under Section 7701(b) of the
Code;
|
-
|
a
corporation (or any other entity treated as a corporation for United
States federal income tax purposes) created or organized in or under the
laws of the United States, any state thereof or the District of
Columbia;
|
-
|
an
estate the income of which is subject to United States federal income
taxation regardless of its source;
or
|
-
|
a
trust if it (1) is subject to the primary supervision of a court within
the United States and one or more United States persons have the authority
to control all substantial decisions of the trust or (2) has a valid
election in effect under applicable United States Treasury regulations to
be treated as a United States
person.
|
This
summary is based upon provisions of the Internal Revenue Code of 1986, as
amended (the “Code”), and regulations, rulings and judicial decisions as of the
date hereof. Those authorities may be changed, perhaps retroactively,
so as to result in United States federal income and estate tax consequences
different from those summarized below. This summary does not address
all aspects of United States federal income and estate taxes and does not deal
with foreign, state, local or other tax considerations that may be relevant to
non-U.S. holders in light of their personal circumstances. In
addition, it does not represent a detailed description of the United States
federal income and estate tax consequences applicable to you if you are subject
to special treatment under the United States federal income tax laws (including
if you are a United States expatriate, “controlled foreign corporation,”
“passive foreign investment company,” or corporation that accumulates earnings
to avoid United States federal income tax). A change in law may alter
significantly the tax considerations that we describe in this
summary.
25
If a
partnership holds our common stock, the tax treatment of a partner will
generally depend upon the status of the partner and the activities of the
partnership. If you are a partner of a partnership holding our common
stock, you should consult your tax advisors.
If you
are considering the purchase of our common stock, we recommend that you consult
your own tax advisors concerning the particular United States federal income and
estate tax consequences to you of the ownership of the common stock, as well as
the consequences to you arising under the laws of any other taxing
jurisdiction.
Dividends
In the
event that we pay dividends, dividends paid to a non-U.S. holder of our
common stock generally will be subject to withholding of United States federal
income tax at a 30% rate or such lower rate as may be specified by an applicable
income tax treaty. However, dividends that are effectively connected
with the conduct of a trade or business by the non-U.S. holder within the
United States (and, where a tax treaty applies, are attributable to a United
States permanent establishment of the non-U.S. holder) are not subject to the
withholding tax, provided certain certification and disclosure requirements are
satisfied. Instead, such dividends are subject to United States
federal income tax on a net income basis in the same manner as if the
non-U.S. holder were a United States person as defined under the
Code. Any such effectively connected dividends received by a foreign
corporation may be subject to an additional “branch profits tax” at a 30% rate
or such lower rate as may be specified by an applicable income tax
treaty.
A
non-U.S. holder of our common stock who wishes to claim the benefit of an
applicable treaty rate and avoid backup withholding, as discussed below, for
dividends will be required to (a) complete Internal Revenue Service Form W-8BEN
(or other applicable form) and certify under penalty of perjury that such holder
is not a United States person as defined under the Code or (b) if our common
stock is held through certain foreign intermediaries, satisfy the relevant
certification requirements of applicable United States Treasury regulations.
Special certification and other requirements apply to certain non-U.S. holders
that are entities rather than individuals.
A
non-U.S. holder of our common stock eligible for a reduced rate of United States
withholding tax pursuant to an income tax treaty may obtain a refund of any
excess amounts withheld by filing an appropriate claim for refund with the
Internal Revenue Service.
Other
Information – Farmout Agreement
The
Farmout Agreement includes the following terms and conditions:
a)
|
The
Farm-Out Agreement will include the formations from Top of the Colorado
Group to the Base of the Pekisko
formation.
|
b)
|
The
Company will farm-in on the PNG Lease on the basis of expending up to an
estimated $20,000 to provide a geological review and analysis report, to
earn a 475% working interest;
|
c)
|
There
is no payout account;
|
d)
|
The
Company will pay the Farmor $5,000 as a Consideration Fee to the privilege
of execution the Farmout Agreement between the Company and
Farmor;
|
e)
|
Upon
the Consideration Fee being paid to Farmor, Farmor shall be obligated to
proceed with the execution of the Farmout Agreement. Failing to
do so, will result in the forfeiture of the $5,000 payment fee to
Farmor;
|
f)
|
The
Company, post the execution of the Farmout Agreement shall have up to
December 31, 2010 to initiate the geological evaluation and analysis study
report;
|
g)
|
Upon
The Company presenting the geological evaluation and analysis study report
to the Farmor, the Farmor shall expedite the transfer of interest for the
legal land title documents with the Crown, and thereby granting the
Company legal ownership of 4.75% in the PNG Lease for the mineral rights
from the Top of the Colorado Group to the Base of the Pekisko
formation.;
|
h)
|
The
Parties agree that this Farmout Agreement will contain the 1990 Operating
Procedure of the CAPL and the 1988 Accounting Procedures of the
CAPL.
|
26
Involvement
in Certain Legal Proceedings
We know
of no pending proceedings to which any director, member of senior management, or
affiliate is either a party adverse to us, or our subsidiaries, or has a
material interest adverse to us or our subsidiaries.
Market
Price of and dividends on the Registrants Common equity and Related Stockholder
Matters
Market
Information
Following
the effective date of the registration statement on Form S-1 in which this
prospectus is included becoming effective, we intend to have an application
filed on our behalf by a market maker for approval of our common stock for
quotation on the Over-the-Counter Bulletin Board (“OTC-BB”) quotation
system. No assurance can be made however that we will be able to
locate a market maker to submit such application or that such application will
be approved.
There are
no outstanding options or warrants to purchase, or securities convertible into,
common equity.
Immediately
after this offering, if fully subscribed, we will have 22,500,000 shares of
common stock outstanding. Of these shares, the 10,000,000 shares sold
in this offering will be freely tradable without restriction or further
registration under the Securities Act, except for any shares of common stock
purchased by one of our affiliates within the meaning of Rule 144 under the
Securities Act. All of the remaining 12,500,000 shares of common stock are
restricted securities as such term is defined under Rule 144 promulgated by the
SEC, in that they were issued in private transactions not involving a public
offering.
Rule
144
The SEC
has adopted amendments to Rule 144 which became effective on February 15, 2008,
and will apply to securities acquired both before and after that
date. Under these amendments, a person who has beneficially owned
restricted shares of our common stock for at least six months would be entitled
to sell their securities provided that (i) such person is not deemed to have
been one of our affiliates at the time of, or at any time during the three
months preceding, a sale and (ii) we are subject to the Exchange Act periodic
reporting requirements for at least three months before the sale.
Sales
under Rule 144 by Affiliates
Persons
who have beneficially owned restricted shares of our common stock for at least
six months but who are our affiliates at the time of, or at any time during the
three months preceding, a sale, would be subject to additional restrictions, by
which such person would be entitled to sell within any three-month period only a
number of securities that does not exceed the greater of either of the
following:
-
|
1%
of the number of shares of common stock then outstanding, which will equal
225,000 shares of common stock immediately after this offering;
and
|
-
|
If
the common stock is listed on a national securities exchange or on The
NASDAQ Stock Market, the average weekly trading volume of the common stock
during the four calendar weeks preceding the filing of a notice on Form
144 with respect to the sale.
|
Sales
under Rule 144 by our affiliates are also limited by manner of sale provisions
and notice requirements and to the availability of current public information
about us.
Sales
under Rule 144 by Non-Affiliates
Under
Rule 144, a person who is not deemed to have been one of our affiliates at the
time of or at any time during the three months preceding a sale, and who has
beneficially owned the restricted ordinary shares proposed to be sold for at
least six (6) months, including the holding period of any prior owner other than
an affiliate, is entitled to sell their ordinary shares without complying with
the manner of sale and volume limitation or notice provisions of Rule
144. We must be current in our public reporting if the non-affiliate
is seeking to sell under Rule 144 after holding his ordinary shares between 6
months and one year. After one year, non-affiliates do not have to
comply with any other Rule 144 requirements.
27
Restrictions
on the Use of Rule 144 by Shell Companies or Former Shell Companies
Historically,
the SEC staff has taken the position that Rule 144 is not available for the
resale of securities initially issued by companies that are, or previously were,
blank check companies, to their promoters or affiliates despite technical
compliance with the requirements of Rule 144. The SEC has codified
and expanded this position in the amendments discussed above by prohibiting the
use of Rule 144 for resale of securities issued by any shell companies (other
than business combination related shell companies) or any issuer that has been
at any time previously a shell company. The SEC has provided an
important exception to this prohibition, however, if the following conditions
are met:
-
|
The
issuer of the securities that was formerly a shell company has ceased to
be a shell company;
|
-
|
The
issuer of the securities is subject to the reporting requirements of
Section 13 or 15(d) of the Exchange
Act;
|
-
|
The
issuer of the securities has filed all Exchange Act reports and material
required to be filed, as applicable, during the preceding 12 months (or
such shorter period that the issuer was required to file such reports and
materials), other than Form 8-K reports;
and
|
-
|
At
least one year has elapsed from the time that the issuer filed current
Form 10 type information with the SEC reflecting its status as an entity
that is not a shell company.
|
As we are
not a shell company, our restricted shares will be able to be resold pursuant to
Rule 144 as described above after we become subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act.
Holders
As of
December 31, 2009, and to date, there are two holders of our common stock, the
only class of stock. There are a total of 12,500,000 shares issued
and outstanding, of which 200,000 are held by an officer and director of the
Company, and 12,300,000 are held by an unrelated third party.
Holder
|
Common
Stock Held before Offering
|
%
Held before Offering
|
%
Held after Offering (1)
|
|||||||||
Ron
Petrucci, Director / Officer
|
200,000 | 1.6 | % | 0.9 | % | |||||||
Bradley
Ronald Caister, >5% holder
|
12,300,000 | 98.4 | % | 54.7 | % | |||||||
Total,
as a group
|
100 | % | 55.6 | % |
(1)
Based on the two current shareholders not acquiring any stock from the
10,000,000 offering, and all 10,000,000 shares being sold.
The
Company has never paid a cash dividend on its common stock and does not intend
to pay cash dividends on its common stock in the foreseeable
future. The Company does not have any securities authorized for
issuance under equity compensation plans.
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
Forward
Looking Statements
This
registration statement contains forward-looking statements relating to future
events or our future financial performance. In some cases, you can
identify forward-looking statements by terminology such as "may", "should",
"intends", "expects", "plans", "anticipates", "believes", "estimates",
"predicts", "potential", or "continue" or the negative of these terms or other
comparable terminology. These statements are only predictions and
involve known and unknown risks, uncertainties and other factors which may cause
our or our industry's actual results, levels of activity or performance to be
materially different from any future results, levels of activity or performance
expressed or implied by these forward-looking statements.
Although
we believe that the expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee future results, levels of activity or
performance. You should not place undue reliance on these statements,
which speak only as of the date that they were made. These cautionary
statements should be considered with any written or oral forward-looking
statements that we may issue in the future. Except as required by
applicable law, including the securities laws of the United States, we do not
intend to update any of the forward-looking statements to conform these
statements to actual results, later events or circumstances or to reflect the
occurrence of unanticipated events.
28
In this
registration statement, unless otherwise specified, all dollar amounts are
expressed in United States dollars and all references to “common shares” refer
to the common shares of our capital stock.
The
management’s discussion and analysis of our financial condition and results of
operations are based upon our financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States of
America ("GAAP").
As used
in this registration statement and unless otherwise indicated, the terms “we”,
“us”, the “Company” and “Dynamic Hydrocarbons” refer to Dynamic Hydrocarbons
Ltd.
Liquidity
As the
Company was incorporated on December 9, 2009, and therefore only recently
commenced operations, there is limited historical basis for liquidity comparison
and analysis. However, the initial capital provided by the two
shareholders, in the form of two private placements totaling $12,500, was
sufficient to commence the operations of the Company, including the entering
into of the Farm-out Agreement at a cost of $5,000, which is the foundation of
the Company’s business and operational development plan. Of the
remaining $7,500, $1,250 was used to pay incorporation costs and $5,000 was used
towards the costs of preparation of this Registration Statement, leaving $1,250
of cash on hand as of January 7, 2010. If the Offering is
successful, and we are able to raise the entire $100,000, we will have
sufficient funds to meet operational costs for the current fiscal year,
including payment of up to $20,000 to produce a Geological Analysis as required
under the Farm-out Agreement and the payment of costs related to this Offering
estimated to be a further $21,750.
Should
the Geological Analysis prove to be favorable, or if the Company undertakes
other aspects of its business plan that involve further exploration or
acquisitions, then the Company will require additional funds. The
amount and timing of additional funds required cannot be definitively stated as
at the date of this report and will be dependent on a variety of
factors. The Company does not anticipate that it will have any
revenues generated from its operations for the next twelve months, and therefore
would be required to raise additional capital either by way of loans or equity,
which, in the case of equity, would be potentially dilutive to existing
shareholders. The Company cannot be certain that we will be
able to raise any additional capital to fund our operations past the current
fiscal year, or expanded operations.
Capital
Resources
Pursuant
to our Farm-out Agreement with Stone Canyon, we are required to expend an amount
which we estimate to not be in excess of $20,000 to produce a Geological
Analysis of the PNG Lease, on or before December 31, 2010. These
funds are expected to be drawn from the proceeds of this Offering, should we be
successful in the Offering. Additional capital resources would
be required should we pursue additional components of our business plan, which
amounts and source or sources of funds we have not yet
determined.
29
Results
of Operations
Our
operations to date have been focused on establishing the Company, entering into
our first Agreement that initiates our business plan, and preparing the
Offering. As of December 31, 2009, we had expended $5,000 of
our available cash, incurred $4,250 in expenses relating to our incorporation
and audit engagement, and created a $5,000 deferred financing cost asset
pertaining to costs associated with this Offering. As of the date of
this filing we have expended $11,250 of the initial working capital
raised.
Off-balance
Sheet Arrangements
We have
no off-balance sheet arrangements.
Changes
in and disagreements with accountants on accounting and financial
disclosure
There are
not currently and have not been any disagreements between us and our accountants
on any matter of accounting principles, practices or financial statement
disclosure.
Directors,
Executive Officers, Promoters and Control Persons
Name
|
Age
|
Position
|
Date
Directorship Commenced
|
Ronald
Petrucci
|
58
|
Chief
Executive Officer, President, Secretary-Treasurer, Chief Financial
Officer
|
December
9, 2009
|
Ronald Petrucci – Director, Chief Executive Officer,
President, Secretary-Treasurer, Chief Financial Officer
Mr.
Petrucci is in the MBA program at the Arizona State University Graduate
School. He holds a BA in Psychology with a Business Minor from St.
Cloud University, Minnesota. For the past 2 years he has been the
President of Tower Solutions Corporation, a printer, fax, copier cartridge
manufacturing and distribution start-up company with $2,000,000 in revenues and
profitability in its first year of operation. Prior to Tower
Solutions Corporation, Mr. Petrucci was the Executive Vice President for Kyocera
Mita, where he stabilized declining revenues and produced 10% yearly
growth. Mr. Petrucci’s management experience also includes being the
Vice President/General Manager for Panasonic, the President of Danka Omnifax
(Xerox) in Austin, Texas and various other successful management positions in
the retail marketing industry. Mr. Petrucci is not presently a
director of any other reporting issuer.
Identification
of Certain Significant Employees
We do not
presently have any employees, however the Company has identified certain
consultants with whom it anticipates engaging once the Company has completed
this Offering and has sufficient funds to enter into engagement
agreements. These consultants will be retained to undertake certain
geological and other oil and gas exploration related activities, as
follows:
Mr. Raymond Schwartzenberger,
Geologist. Mr. Schwartzenberger received his B. Sc. Degree in
Geology from the University of Alberta, Canada, in 1955. Over the
prior 10 years, Mr. Schwartzenberger has been President of Luray Consulting
Ltd., providing geological oil and gas consulting to the junior oil and gas
sector. Prior to the said term, Mr. Schwartzenberger was the
Exploration Manager for Ulster Petroleum Ltd. From 1981 to 1986, Mr.
Schwartzenberger was the Exploration Manager for Ladd Exploration
Company. From 1974 to 1980, Mr. Schwartzenberger’s work career also
included geological positions with Canadian Occidental, Hudson Bay Oil and Gas
Company and Amoco Canada. His significant discoveries include the
Marten Hills and Pembina gas fields in Alberta, Canada, along with major
geological studies throughout the Western Canadian Sedimentary
Basin. Mr. Schwartzenberger is a member of APEGGA (The Association of
Professional Engineers, Geologists and Geophysicists of
Alberta).
30
Mr. Walter Romanchuk,
Landman. Mr. Romanchuk received his B. Comm. from the
University of Alberta in 1975 and his Diploma in Computer Technology from the
Northern Alberta Institute of Technology in 1971. Over the prior 8
years Mr. Romanchuk has been an independent Landman working with junior oil and
gas start-up organizations, and has jointly acted as a management representative
for such companies as Texas T Resources Ltd., Reef Resources Ltd. and Albion
Petroleum Ltd. Mr. Romanchuk from 1980 to 1994 was the Canadian
Division Administration Manager for Anadarko Petroleum of Canada Ltd., and prior
was with Home Oil company Limited in Gas Operations and Gas
Marketing. Mr. Romanchuk is a member of the CAPL (Canadian
Association of Petroleum Landmen).
Other
Matters
There are
no family relationships among our officers, directors, or persons nominated for
such positions.
None of
our executive officers, directors, significant employees, promotes or control
persons have been involved in any bankruptcy proceedings within the last five
years, been convicted in or has pending any criminal proceeding, been subject to
any order, judgment or decree enjoining, barring, suspending or otherwise
limiting involvement in any type of business, securities or banking activity or
been found to have violated any federal, state or provincial securities or
commodities laws.
Executive
Compensation
From the
date of our inception through the date of this prospectus, our executive officer
and director has not received and has not accrued any compensation of any
form.
The
Company has made no arrangements for the remuneration or compensation of its
officers or directors, except that they will be entitled to receive
reimbursement for actual, demonstrable out-of-pocket expenses, including travel
expenses, if any, made on the Company’s behalf. Our executive officer
anticipates that he will not receive, accrue, earn, be paid or awarded any
compensation during our first year of operations.
We do not
currently have a compensation committee. In the future, the Company's
executive compensation will be approved by the Board of Directors in the case of
the Company's Principal Executive Officer. For all other executive compensation
contracts, the Principal Executive Officer is expected to negotiate and approve
contracts and compensation.
Security
Ownership of Certain Beneficial Owners and Management
Security
Ownership of Certain Beneficial Owners
The
following table sets forth all of the beneficial owners known to us to own more
than five (5) percent of any class of our voting securities as of February 15,
2010:
Title
of Class
|
Name
and Address of Beneficial Owner
|
Amount
and Nature of Beneficial Ownership
|
Percent
of Class (1)
|
||||||
Common
|
Bradley
Ronald Caister
2023,
Hindhead Road
Mississauga,
Ontario, L5J 1N8
|
12,300,000 | 98.4 |
(1) The
percent of class is based on the total number of shares outstanding of
12,500,000 as of February 15, 2010.
Security
Ownership of Management
The
following table sets forth all of the ownership of all directors and nominees,
and named executive officers, individually and as a group, as of February 15,
2010:
31
Title
of Class
|
Name
and Address of Beneficial Owner
|
Amount
and Nature of Beneficial Ownership
|
Percent
of Class (1)
|
||||||
Common
|
Ron
Petrucci
7001
Winterberry Dr.
Austin,
Texas 78750
|
200,000 | 1.6 | % | |||||
Common
|
Directors
and officers as a group
|
200,000 | 1.6 | % |
(1) The
percent of class is based on the total number of shares outstanding of
12,500,000 as of February 15, 2010.
Changes
in Control
On
December 18, 2009, we sold a total of 12,300,000 shares to Bradley Caister, thus
effecting a change of control with Mr. Caister being the controlling shareholder
of the Company.
Transactions
with Related Persons, promoters and Certain Control Persons
Transactions
with Related Persons
Other
than the stock transactions discussed below, we have not entered into any
transaction nor are there any proposed transactions in which any of our
directors or nominees, executive officers, or any member of the immediate family
of any of the foregoing had or is to have a direct or indirect material
interest.
Our
director and president, Ron Petrucci, on December 9, 2009, purchased 200,000
shares of common stock in a private offering at $0.001 per share.
On
December 18, 2009, we sold a total of 12,300,000 shares to Bradley Caister, thus
effecting a change of control with Mr. Caister being the controlling shareholder
of the Company.
Promoters
and Certain Control Persons
There are
no promoters being used in relation to this Offering, except for our officers
and directors who will be selling the securities offered by us and who may be
deemed to be promoters under Rule 405 of Regulation C promulgated by the
Securities and Exchange Commission under the Securities Act of
1933. No person who may, in the future, be considered a promoter of
this Offering, will receive, or, expect to receive assets, services or other
considerations from us. No assets will be, nor are expected to be,
acquired from any promoter on our behalf. We have not entered into
any agreements that require disclosure to our stockholders.
Mr.
Caister, a shareholder of the Company holds a total of 12,300,000 shares of the
Company and thus is the controlling shareholder of the Company
Parents
None.
Director
Independence
As of the
date of this Registration Statement filed on Form S-1, we have no independent
directors.
The
Company has developed the following categorical standards for determining the
materiality of relationships that the Directors may have with the Company. A
Director shall not be deemed to have a material relationship with the Company
that impairs the Director's independence as a result of any of the following
relationships:
32
|
1.
|
the
Director is an officer or other person holding a salaried position of an
entity (other than a principal, equity partner or member of such entity)
that provides professional services to the Company and the amount of all
payments from the Company to such entity during the most recently
completed fiscal year was less than two percent of such entity’s
consolidated gross revenues;
|
|
2.
|
the
Director is the beneficial owner of less than five percent of the
outstanding equity interests of an entity that does business with the
Company;
|
|
3.
|
the
Director is an executive officer of a civic, charitable or cultural
institution that received less than the greater of $1 million or two
percent of its consolidated gross revenues, as such term is construed by
the New York Stock Exchange for purposes of Section 303A.02(b)(v) of the
Corporate Governance Standards, from the Company or any of its
subsidiaries for each of the last three fiscal
years;
|
|
4.
|
the
Director is an officer of an entity that is indebted to the Company, or to
which the Company is indebted, and the total amount of either the
Company's or the business entity's indebtedness is less than three percent
of the total consolidated assets of such entity as of the end of the
previous fiscal year; and
|
|
5.
|
the
Director obtained products or services from the Company on terms generally
available to customers of the Company for such products or services. The
Board retains the sole right to interpret and apply the foregoing
standards in determining the materiality of any
relationship.
|
The Board
shall undertake an annual review of the independence of all non-management
Directors. To enable the Board to evaluate each non-management Director, in
advance of the meeting at which the review occurs, each non-management Director
shall provide the Board with full information regarding the Director’s business
and other relationships with the Company, its affiliates and senior
management.
Directors
must inform the Board whenever there are any material changes in their
circumstances or relationships that could affect their independence, including
all business relationships between a Director and the Company, its affiliates,
or members of senior management, whether or not such business relationships
would be deemed not to be material under any of the categorical standards set
forth above. Following the receipt of such information, the Board shall
re-evaluate the Director's independence.
MATERIAL
CHANGES
Not
applicable.
INCORPORATION
OF CERTAIN INFORMATION BY REFERENCE
Not
applicable.
DISCLOSURE
OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES
LIABILITIES
The
Nevada General Corporation Law requires us to indemnify officers and directors
for any expenses incurred by any officer or director in connection with any
actions or proceedings, whether civil, criminal, administrative, or
investigative, brought against such officer or director because of his or her
status as an officer or director, to the extent that the director or officer has
been successful on the merits or otherwise in defense of the action or
proceeding. The Nevada General Corporation Law permits a corporation
to indemnify an officer or director, even in the absence of an agreement to do
so, for expenses incurred in connection with any action or proceeding if such
officer or director acted in good faith and in a manner in which he or she
reasonably believed to be in or not opposed to the best interests of the
corporation and such indemnification is authorized by the stockholders, by a
quorum of disinterested directors, by independent legal counsel in a written
opinion authorized by a majority vote of a quorum of directors consisting of
disinterested directors, or by independent legal counsel in a written opinion if
a quorum of disinterested directors cannot be obtained.
The
Nevada General Corporation Law prohibits indemnification of a director or
officer if a final adjudication establishes that the officer's or director's
acts or omissions involved intentional misconduct, fraud, or a knowing violation
of the law and were material to the cause of action. Despite the
foregoing limitations on indemnification, the Nevada General Corporation Law may
permit an officer or director to apply to the court for approval of
indemnification even if the officer or director is adjudged to have committed
intentional misconduct, fraud, or a knowing violation of the
law.
33
The
Nevada General Corporation Law also provides that indemnification of directors
is not permitted for the unlawful payment of distributions, except for those
directors registering their dissent to the payment of the
distribution.
According
to Article 11 of our Bylaws, we are authorized to indemnify our directors to the
fullest extent authorized under Nevada law subject to certain specified
limitations.
Insofar
as indemnification for liabilities arising under the Securities Act may be
provided to directors, officers or persons controlling us pursuant to the
foregoing provisions, we have been informed that, in the opinion of the SEC,
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.
INFORMATION
NOT REQUIRED IN PROSPECTUS
OTHER
EXPENSES OF ISSUANCE AND DISTRIBUTION
Costs of
the issuance and distribution of the securities to be registered are as
follows:
Expenditure
Item
|
Amount
|
|||
Costs
of drafting Prospectus
|
$ | 20,500 | ||
Legal
Review and Opinion
|
2,500 | |||
Audit
Fees
|
3,000 | |||
SEC
Registration and Blue Sky Registration
|
50 | |||
Printing
Costs and Miscellaneous Expenses
|
1,950 | |||
Total
|
$ | 28,000 |
INDEMNIFICATION
OF DIRECTORS AND OFFICERS
Our
officers and directors are indemnified as provided by the Nevada Revised
Statutes and the Bylaws.
Under the
Nevada Revised Statutes, director immunity from liability to a company or its
stockholders for monetary liabilities applies automatically unless it is
specifically limited by a company's Articles of Incorporation. Our
Articles of Incorporation do not specifically limit the directors’
immunity. Excepted from that immunity are: (a) a willful failure to
deal fairly with us or our stockholders in connection with a matter in which the
director has a material conflict of interest; (b) a violation of criminal law,
unless the director had reasonable cause to believe that his or her conduct was
lawful or no reasonable cause to believe that his or her conduct was unlawful;
(c) a transaction from which the director derived an improper personal profit;
and (d) willful misconduct.
Our
Bylaws provide that we will indemnify our directors to the fullest extent not
prohibited by Nevada law; provided, however, that we may modify the extent of
such indemnification by individual contracts with our directors and officers;
and, provided, further, that we shall not be required to indemnify any director
or officer in connection with any proceeding, or part thereof, initiated by such
person unless such indemnification: (a) is expressly required to be made by law,
(b) the proceeding was authorized by the board of directors, (c) is provided by
us, in our sole discretion, pursuant to the powers vested us under Nevada law,
or (d) is required to be made pursuant to our Bylaws.
Our
Bylaws provide that we will advance to any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that he or she is or was our director or officer, or is or
was serving at the request of us as a director or executive officer of another
company, partnership, joint venture, trust or other enterprise, prior to the
final disposition of the proceeding, promptly following request therefore, all
expenses incurred by any director or officer in connection with such proceeding
upon receipt of an undertaking by or on behalf of such person to repay said
amounts if it should be determined ultimately that such person is not entitled
to be indemnified under our Bylaws or otherwise.
34
Our
Bylaws provide that no advance shall be made by us to our officers except by
reason of the fact that such officer is or was our director in which event this
paragraph shall not apply, in any action, suit or proceeding, whether civil,
criminal, administrative or investigative, if a determination is reasonably and
promptly made: (a) by the Board by a majority vote of a quorum consisting of
directors who were not parties to the proceeding, or (b) if such quorum is not
obtainable, or, even if obtainable, a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, that the facts known
to the decision-making party at the time such determination is made demonstrate
clearly and convincingly that such person acted in bad faith or in a manner that
such person did not believe to be in or not opposed to our best
interests.
RECENT
SALES OF UNREGISTERED SECURITIES
We have
sold securities within the past three (3) years without registering the
securities under the Securities Act of 1933 on two (2) occasions.
On
December 9, 2009, we sold a total of 200,000 shares of our common stock in a
private offering to one (1) stockholder, a director and officer of the Company,
at a price of $0.001 per common share for $200. On December 18, 2009,
a private offering was completed, under which 12,300,000 shares of our common
stock were sold by subscription at a price of $0.001 per share to one (1)
stockholder for $12,300. Neither we nor any person acting on our
behalf offered or sold these securities by any form of general solicitation or
general advertising. No underwriters were used, and no commissions or
other remuneration was paid except to us. The shares sold are restricted
securities and the certificates representing these shares have been affixed with
a standard restrictive legend, which states that the securities cannot be sold
without registration under the Securities Act of 1933 or an exemption
therefrom. Each purchaser represented to us that he or she was
purchasing the securities for his or her own account and not for the account of
any other persons. Each purchaser was provided with written
disclosure that the securities have not been registered under the Securities Act
of 1933 and therefore cannot be sold without registration under the Securities
Act of 1933 or an exemption therefrom.
Exemption
from Registration Claimed
The
200,000 shares listed in the table below were sold under the Regulation D
exemption and were exempt from registration pursuant to Rule 506 of Regulation
D, promulgated by the SEC under the Securities Act of 1933. Neither
we nor any person acting on our behalf offered or sold these securities by any
form of general solicitation or general advertising. The shares sold
are restricted securities and the certificates representing these shares have
been affixed with a standard restrictive legend, which states that the
securities cannot be sold without registration under the Securities Act of 1933
or an exemption therefrom. Each purchaser represented to us that he
was purchasing the securities for his own account and not for the account of any
other persons. Each purchaser was provided with written disclosure
that the securities have not been registered under the Securities Act of 1933
and therefore cannot be sold without registration under the Securities Act of
1933 or an exemption therefrom.
The
12,300,000 shares listed in the table below were issued under the Regulation S
exemption in compliance with the exemption from the registration requirements
found in Regulation S promulgated by the Securities and Exchange Commission (the
“SEC”) under the Securities Act of 1933. The offer and sale to the
purchaser was made in an offshore transaction as defined by Rule
902(h). No directed selling efforts were made in the U.S. as defined
in Rule 902(c). The offer and sale to the purchaser was not made to a
U.S. person or for the account or benefit of a U.S. person. The
following conditions were present in the offer and sale: a) The
purchaser of the securities certified that it is not a U.S. person and did not
acquire the shares for the account or benefit of any U.S. person; b) The
purchaser has agreed to resell the securities only in compliance with Regulation
S pursuant to a registration under the Securities Act, or pursuant to an
applicable exemption from registration; and has agreed not to engage in hedging
transactions with regard to the securities unless in compliance with the
Securities Act; c) The purchaser has acknowledged and agreed with the Company
that the Company shall refuse registration of any transfer of the securities
unless made in accordance with Regulation S, pursuant to a registration
statement under the Securities Act, or pursuant to an applicable exemption from
registration and; d) The purchaser has represented that it is acquiring the
shares for its own account, for investment purposes only and not with a view to
any resale, distribution or other disposition of the shares in violation of the
United States federal securities laws. Neither the Company nor any person acting
on its behalf offered or sold these securities by any form of general
solicitation or general advertising. The shares sold are restricted securities
and the certificates representing these shares have been affixed with a standard
restrictive legend, which states that the securities cannot be sold without
registration under the Securities Act of 1933 or an exemption
therefrom. No commissions or finders fees were paid by the Company in
connection with the issuance of these shares.
35
The
following table provides details of all stock sales transactions that have taken
place during the period from our formation, on December 9, 2009, to the date of
this Registration Statement.
Stock
Purchaser’s Name
|
Date
of Purchase
|
Total
Number of Shares Purchased
|
|||
Ron
Petrucci
|
December
9, 2009
|
200,000 | |||
Bradley
Ronald Caister
|
December
18, 2009
|
12,300,000 | |||
Total
|
12,500,000 |
EXHIBITS
AND FINANCIAL STATEMENT SCHEDULES
|
Number
|
Description
|
|
3.1
|
Articles
of Incorporation.
|
Filed
herewith
|
3.2
|
Bylaws.
|
Filed
herewith
|
5.1
|
Legal
Opinion & Consent of Attorney
|
Filed
herewith
|
10.1
|
Farmout
Agreement dated December 15, 2009 between Stone Canyon Resources Inc. and
Dynamic Hydrocarbons Ltd.
|
Filed
herewith
|
23.1
|
Consent
of Independent Auditor
|
Filed
herewith
|
Our audited financial statements for
the period ended December 31, 2009 appear
on pages F-1
through F-11.
36
DYNAMIC
HYDROCARBONS LTD.
FINANCIAL
STATEMENTS
FOR
THE PERIOD FROM INCEPTION (DECEMBER 9, 2009) TO
FISCAL
YEAR ENDED DECEMBER 31, 2009
REPORTED
IN UNITED STATES DOLLARS
Page
|
|
Audited
Financial Statements
|
F-1
|
Report
of Independent Registered Public Accounting Firm
|
F-2
|
Balance
Sheet
|
F-3
|
Statement
of Operations
|
F-4
|
Statement
of Stockholders’ Equity
|
F-5
|
Statement
of Cash Flows
|
F-6
|
Notes
to Financial Statements
|
F-7
to F-11
|
F-1
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Stockholders
Dynamic
Hydrocarbon Ltd.
Austin,
Texas 78750
We have
audited the accompanying balance sheet of Dynamic Hydrocarbon Ltd. (An
Exploration Stage Company) as of December 31, 2009, and the statements of
operations, stockholders’ equity and cash flows from Inception (December 9,
2009) through December 31, 2009. 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 the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Dynamic Hydrocarbon Ltd. (An
Exploration Stage Company) as of December 31, 2009, and the results of its
operations and cash flows from Inception (December 9, 2009) through December 31,
2009 in conformity with generally accepted accounting principles in the United
States.
The
accompanying financial statements have been prepared assuming the Company will
continue as a going concern. As discussed in Note 2 to the financial statements,
the Company has suffered losses from operations and the Company has not
generated any revenue since inception, which all raise substantial doubt about
its ability to continue as a going concern. Management’s plans in regard to
these matters are also described in Note 2. The financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
/s/DeJoya Griffith & Company, LLC
De Joya
Griffith & Company, LLC
Henderson,
Nevada
February
18, 2010
F-2
(An
exploration stage enterprise)
|
||||
Balance
Sheets
|
||||
December
31, 2009
|
||||
(Audited)
|
||||
ASSETS
|
||||
Current
assets:
|
||||
Cash
|
$ | 7,500 | ||
Deferred
financing costs
|
5,000 | |||
Total
current assets
|
12,500 | |||
Oil
and gas properties:
|
||||
Undeveloped,
unproven properties
|
5,000 | |||
Total
other assets
|
5,000 | |||
Total
assets
|
$ | 17,500 | ||
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
||||
Current
liabilities:
|
||||
Accounts
payable, trade
|
$ | 6,250 | ||
Accrued
liability
|
3,000 | |||
Total
current liabilities
|
9,250 | |||
Total
liabilities
|
9,250 | |||
STOCKHOLDERS'
EQUITY
|
||||
Common
stock, $0.001 par value, 75,000,000 authorized,
|
||||
12,500,000
shares issued and outstanding
|
12,500 | |||
Additional
paid in capital
|
- | |||
Deficit
accumulated during the exploration stage
|
(4,250 | ) | ||
Total
stockholders' equity
|
8,250 | |||
Total
liabilities and stockholders' equity
|
$ | 17,500 |
See
Accompanying Notes
F-3
DYNAMIC
HYDROCARBONS LTD.
|
||||
(An
exploration stage enterprise)
|
||||
Statements
of Operations
|
||||
From Inception
|
||||
(December
9, 2009)
|
||||
Through
|
||||
December
31, 2009
|
||||
(Audited)
|
||||
$ | - | |||
General
and administrative expenses:
|
||||
Professional
fees
|
3,000 | |||
Organizational
expenses
|
1,250 | |||
Total
operating expenses
|
4,250 | |||
Loss
from operations
|
(4,250 | ) | ||
Net
loss
|
$ | (4,250 | ) | |
|
||||
Basic
loss per common share
|
$ | (0.0006 | ) | |
Weighted
average number of shares outstanding
|
7,468,182 |
See
Accompanying Notes
F-4
DYNAMIC
HYDROCARBONS LTD.
|
||||||||||||||||||||
(An
exploration stage enterprise)
|
||||||||||||||||||||
Statement
of Stockholders' Equity
|
||||||||||||||||||||
For
the period from inception (December 9, 2009) to December 31,
2009
|
||||||||||||||||||||
(Audited)
|
||||||||||||||||||||
Deficit
|
||||||||||||||||||||
Accumulated
|
||||||||||||||||||||
Common
Stock,
|
Additional
|
During
|
||||||||||||||||||
$0.001
Par Value
|
Paid
In
|
Exploration
|
||||||||||||||||||
Shares
|
Amount
|
Capital
|
Stage
|
Total
|
||||||||||||||||
Inception,
December 9, 2009
|
- | $ | - | $ | - | $ | - | $ | - | |||||||||||
Shares
issued for cash
|
12,500,000 | 12,500 | - | 12,500 | ||||||||||||||||
Net
loss
|
(4,250 | ) | (4,250 | ) | ||||||||||||||||
Balances,
December 31, 2009
|
12,500,000 | 12,500 | - | (4,250 | ) | 8,250 |
See
Accompanying Notes
F-5
DYNAMIC
HYDROCARBONS LTD.
|
||||
(An
exploration stage enterprise)
|
||||
Statements
of Cash Flows
|
||||
From Inception
|
||||
(December
9, 2009)
|
||||
Through
|
||||
December
31, 2009
|
||||
(Audited)
|
||||
Cash
flows from operating activities:
|
||||
Net
loss
|
$ | (4,250 | ) | |
Adjustments
to reconcile net loss to cash
|
||||
provided
(used) by operating activities:
|
||||
Changes
in current assets and liabilities:
|
||||
Deferred
financing cost
|
(5,000 | ) | ||
Accounts
payable, trade
|
6,250 | |||
Accrued
liability
|
3,000 | |||
Net
cash flows from operating activities
|
- | |||
Cash
flows from investing activities:
|
||||
Acquisition
of undeveloped, unproven properties
|
(5,000 | ) | ||
Net
cash flows used by investing activities
|
(5,000 | ) | ||
Cash
flows from financing activities:
|
||||
Proceeds
from sale of common stock
|
12,500 | |||
Net
cash flows from financing activities
|
12,500 | |||
Increase
in cash
|
7,500 | |||
Cash
and equivalents, beginning of period
|
- | |||
Cash
and equivalents, end of period
|
$ | 7,500 | ||
Supplemental
cash flow disclosures:
|
||||
Cash
paid for interest
|
$ | - | ||
Cash
paid for income taxes
|
- |
See
Accompanying Notes
F-6
DYNAMIC
HYDROCARBONS LTD.
(An
exploration stage enterprise)
Notes
to Financial Statements
For
the period from Inception (December 9, 2009) to December 31, 2009
(Audited)
Note
1 - Organization and summary of significant accounting policies:
Following
is a summary of our organization and significant accounting
policies:
Organization and nature of business –
DYNAMIC HYDROCARBONS LTD. (identified in these footnotes as “we” or the
Company) is a Nevada corporation incorporated on December 9, 2009. We are
currently based in Austin, Texas but have acquired the rights to participate in
the development of an oil and gas lease in Alberta, Canada, therefore, we intend
to operate in the U.S. and Canada. We have selected December 31 as a fiscal
yearend for financial reporting purposes.
Ronald J.
Petrucci, our President, owns 200,000 of our 12,500,000 outstanding shares, at
December 31, 2009. See Note 7.
We are a
natural resource exploration stage company and anticipate acquiring, exploring,
and if warranted and feasible, developing natural resource assets. We
currently hold the right to acquire a 4.75% working interest in an oil and gas
lease in Alberta, Canada, described in more detail below.
To date,
our activities have been limited to formation, the raising of equity capital,
and the development of a business plan. We have engaged a consulting firm to
assist us in registering securities for trading by filing Form S-1 with the U.S.
Securities and Exchange Commission and by applying for a quotation on the OTC
Bulletin Board. We are now exploring sources of
capital. In the current exploration stage, we anticipate incurring
operating losses as we implement our business plan.
Basis of presentation - The
accounting and reporting policies of the Company conform to U.S. generally
accepted accounting principles applicable to exploration stage enterprises. The
Company is a exploration stage company as defined in the ASC Topic 915 for
development stage companies. The Company is devoting substantially
all of its present efforts to establish a new business and none of its planned
principal operations have commenced. In the opinion of management,
all adjustments considered necessary for fair presentation have been included in
the financial statements. All losses accumulated since inception has been
considered as part of the Company’s exploration stage activities.
Use of estimates - The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amount of revenues and expenses during the reporting
period. Actual results could differ from those
estimates.
Cash and cash equivalents -
For purposes of the statement of cash flows, we consider all cash in
banks, money market funds, and certificates of deposit with a maturity of less
than three months to be cash equivalents.
Fair value of financial instruments
and derivative financial instruments - The carrying amounts of cash,
receivables, and current liabilities approximate fair value because of the short
maturity of these items. These fair value estimates are subjective in nature and
involve uncertainties and matters of significant judgment, and, therefore,
cannot be determined with precision. Changes in assumptions could
significantly affect these estimates. We do not hold or issue
financial instruments for trading purposes, nor do we utilize derivative
instruments in the management of our foreign exchange, commodity price or
interest rate market risks.
Deferred Offering Costs -
Deferred offering costs, consisting of legal, accounting and filing fees
relating to an offering will be capitalized. The deferred offering costs will be
offset against offering proceeds in the event the offering is successful. In the
event the offering is unsuccessful or is abandoned, the deferred offering costs
will be expensed.
Oil and gas properties – We
use the successful efforts for method of accounting for oil and gas
properties. Under that method:
F-7
DYNAMIC
HYDROCARBONS LTD.
(An
exploration stage enterprise)
Notes
to Financial Statements
December
31, 2009
Note
1 - Organization and summary of significant accounting policies
(continued):
Oil and gas properties – Continued:
a.
|
Geological
and geophysical costs and the costs of carrying and retaining undeveloped
properties are charged to expense when incurred since they do not result
in the acquisition of assets.
|
b.
|
Costs
incurred to drill exploratory wells and exploratory-type stratigraphic
test wells that do not find proved reserves are charged to expense when it
is determined that the wells have not found proved
reserves.
|
c.
|
Costs
incurred to acquire properties and drill development-type stratigraphic
test wells, successful exploratory well, and successful exploratory-type
stratigraphic wells are
capitalized.
|
d.
|
Capitalized
costs of wells and related equipment are amortized, depleted, or
depreciated using the unit-of-production
method.
|
e.
|
Costs
of unproved properties are assessed periodically to determine if an
impairment loss should be
recognized.
|
Other long-lived assets –
Property and equipment are stated at cost less accumulated depreciation
computed principally using accelerated methods over the estimated useful lives
of the assets. Repairs are charged to expense as
incurred. Impairment of long-lived assets is recognized when the fair
value of a long-lived asset is less than its carrying value. At the
end of the current year, no impairment of long-lived assets had occurred, in
management’s opinion.
Federal income taxes -
Deferred income taxes are reported for timing differences between items of
income or expense reported in the financial statements and those reported for
income tax purposes in accordance with applicable ASC regarding Accounting for Income Taxes,
which require the use of the asset/liability method of accounting for income
taxes. Deferred income taxes and tax benefits are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases, and for tax loss and credit
carryforwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or
settled. The Company provides deferred taxes for the estimated future
tax effects attributable to temporary differences and carryforwards when
realization is more likely than not.
Net income per share of common
stock – We have adopted applicable ASC regarding Earnings per Share, which
require presentation of basic and diluted EPS on the face of the income
statement for all entities with complex capital structures and requires a
reconciliation of the numerator and denominator of the basic EPS computation to
the numerator and denominator of the diluted EPS computation. In the
accompanying financial statements, basic earnings per share of common stock is
computed by dividing net income by the weighted average number of shares of
common stock outstanding during the period.
Note
2 – Going concern:
At
December 31, 2009, we were not currently engaged in an operating business and
expect to incur exploration stage operating losses until operations commence,
and for a period of time thereafter. We intend to rely on our
officers and directors to perform essential functions without compensation until
a business operation can be commenced. We do not currently have
sufficient capital to implement our business plan. Although we are exploring
other sources of capital, and although we intend to file a registration
statement with the Securities and Exchange Commission in an attempt to raise
capital, and although our principal stockholder has verbally agreed to provide a
limited amount of additional funds in the near term, there is no assurance that
such efforts will succeed. These factors raise substantial doubt about our
ability to continue as a going concern. The financial statements do not include
any adjustments that might result from the outcome of this
uncertainty.
F-8
DYNAMIC
HYDROCARBONS LTD.
(An
exploration stage enterprise)
Notes
to Financial Statements
December
31, 2009
Note
3 –Registration costs and related commitments:
We have
engaged a consulting firm to assist us in filing a registration statement on
Form S-1 with the U.S. Securities and Exchange Commission to allow us to offer
stock for sale to the public. We believe that doing this will enable
us to raise the capital necessary to implement our business plan. According to
the written agreement with International Securities Group Inc., we have agreed
to pay a flat fee of $25,000 for services necessary to file a Form S-1
Registration Statement. Of this amount, $5,000 has been paid upon execution of
the agreement, and $20,000 will be payable in varying installments as specified
events occur during the filing process.
These
costs will be deferred until the stock offering is completed, at which time they
will be charged against the proceeds of the stock offering.
Note
4 – Oil and gas properties - The lease of the Minhik prospect
On
December 15, 2009, we entered a Farmout Agreement with Stone Canyon Resources,
Inc., a corporate body registered in the State of Colorado, USA, and having an
office at the city of Calgary, Alberta, Canada. We currently have the right to
acquire a 4.75% working interest, as our sole asset, in an Alberta, Canada Crown
Petroleum and Natural Gas Lease Agreement (“PNG Lease”), Number 0494090860 which
Lease comprises approximately 320 acres of land with specified petroleum and
natural gas exploitation rights. Our working interest partner, Stone Canyon
Resources, Inc., (“Farmor”) owns a 9.5% working interest in this PNG
Lease. The Lease is located in the Minhik Area of Central Alberta. We have
agreed to pay the Farmor, an amount of $5,000 as a Consideration Fee, for the
right to enter into the Farmout Agreement to then earn the 4.75% working
interest in the Lease. To date, we have paid the $5,000 and have executed the
Farmout Agreement with the Farmor.
Under the
terms of the Farmout Agreement between the Farmor and the Company, we are
obligated to produce a geological evaluation and analysis report to enable the
Company to earn the 4.75% working interest in the PNG Lease for the mineral
rights from the Top of the Colorado Group to the Base of the Pekisko
formation.
F-9
DYNAMIC
HYDROCARBONS LTD.
(An
exploration stage enterprise)
Notes
to Financial Statements
December
31, 2009
Note
5 - Federal income tax:
We follow
applicable ASC 740 regarding Accounting for Income Taxes.
Deferred income taxes reflect the net effect of (a) temporary differences
between carrying amounts of assets and liabilities for financial purposes and
the amounts used for income tax reporting purposes, and (b) net operating loss
carryforwards. No net provision for refundable Federal income tax has been made
in the accompanying statement of operations because no recoverable taxes were
paid previously. Similarly, no deferred tax asset attributable to the net
operating loss carryforward has been recognized, as it is not deemed likely to
be realized.
The
provision for refundable Federal income tax consists of the
following:
From
inception,
(December
9, 2009)
Through
December
31, 2009
|
||||
Refundable
Federal income tax attributable to:
|
||||
Current
operations
|
$ | (1,445 | ) | |
Nondeductible
expenses
|
1,445 | |||
Change
in deferred tax valuation allowance
|
- | |||
Net
refundable amount
|
$ | - |
The
cumulative tax effect at the expected rate of 34% of significant items
comprising our net deferred tax amount is as follows:
Inception,
(December
9, 2009)
Through
December
31, 2009
|
||||
Deferred
tax asset attributable to:
|
||||
Net
operating loss carryover
|
$ | 1,445 | ||
Less,
Valuation allowance
|
(1,445 | ) | ||
Net
deferred tax asset
|
$ | - |
At
December 31, 2009, we had an unused net operating loss carryover approximating
$4,250 that is available to offset future taxable income which expires beginning
2030.
Note
6 – Issuance of shares:
As of
December 31, 2009, the Company had issued shares of its $.001 par value common
stock as follows:
Price
Per
|
|||||||||||||
Date
|
Description
|
Shares
|
Share
|
Amount
|
|||||||||
12/09/09
|
Shares
sold for cash
|
200,000 | $ | 0.001 | $ | 200 | |||||||
12/18/09
|
Shares
sold for cash
|
12,300,000 | $ | 0.001 | $ | 12,300 | |||||||
12/31/09
|
Cumulative
Totals
|
12,500,000 | $ | 12,500 |
We sold
200,000 of the 12,500,000 shares for $200 in cash to Ronald J. Petrucci, our
President.
F-10
DYNAMIC
HYDROCARBONS LTD.
(An
exploration stage enterprise)
Notes
to Financial Statements
December
31, 2009
Note
7 – Related party transaction:
On
December 9, 2009, the Company sold 200,000 shares for $200 in cash to Ronald J.
Petrucci, our President.
Note
8 - New accounting pronouncements:
In June
2009 the FASB established the Accounting Standards Codification ("Codification"
or "ASC") as the source of authoritative accounting principles recognized by the
FASB to be applied by nongovernmental entities in the preparation of financial
statements in accordance with generally accepted accounting principles in the
United States ("GAAP"). Rules and interpretive releases of the Securities and
Exchange Commission ("SEC") issued under authority of federal securities laws
are also sources of GAAP for SEC registrants. Existing GAAP was not intended to
be changed as a result of the Codification, and accordingly the change did not
impact our financial statements. The ASC does change the way the guidance is
organized and presented.
ASC Topic
855, "Subsequent Events", ASC Topic 810, "Accounting for Transfers of Financial
Assets", ASC Topic 105 "The FASB Accounting Standards Codification and the
Hierarchy of Generally Accepted Accounting Principles- were recently issued.
Above codifications have no current applicability to the Company or their effect
on the financial statements would not have been significant.
Accounting
Standards Update ("ASU") ASU No. 2009-05 (ASC Topic 820), which amends Fair
Value Measurements and Disclosures - Overall, ASU No. 2009-13 (ASC Topic 605),
Multiple-Deliverable Revenue Arrangements, ASU No. 2009-14 (ASC Topic 985),
Certain Revenue Arrangements that include Software Elements, and various other
ASU's No. 2009-2 through ASU No. 2010-03 which contain technical corrections to
existing guidance or affect guidance to specialized industries or entities were
recently issued. These updates have no current applicability to the Company or
their effect on the financial statements would not have been
significant.
Note
9 - Subsequent events:
In
accordance with FASB pronouncements regarding subsequent events, we have
evaluated subsequent events through February 19, 2010, the date these financial
statements are available to be issued. We believe there are no
subsequent events required to be disclosed pursuant to this
pronouncement.
F-11
UNDERTAKINGS
The
undersigned registrant hereby undertakes:
(1) To file,
during any period in which offers or sales are being made, a post-effective
amendment to this registration statement:
(a) To
include any prospectus required by Section 10(a)(3) of the Securities Act of
1933;
(b) To
reflect in the prospectus any facts or events arising after the effective date
of the registration statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental change
in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of securities offered
would not exceed that which was registered) and any deviation from the low or
high end of the estimated maximum offering range may be reflected in the form of
prospectus filed with the SEC pursuant to Rule 424(b) if, in aggregate, the
changes in volume and price represent no more than a 20 percent change in the
maximum aggregate offering price set forth in the “Calculation of Registration
Fee” table in the effective registration statement; and
(c) To
include any material information with respect to the plan of distribution not
previously disclosed in the registration statement or any material change to
such information in the registration statement.
(2) That,
for the purpose of determining any liability under the Securities Act of 1933,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To
remove from registration by means of a post-effective amendment any of the
securities being registered which remain unsold at the termination of the
offering.
(4) That,
for the purpose of determining liability under the Securities Act of 1933 to any
purchaser:
(a) If
the Company is relying on Rule 430B:
(i) Each
prospectus filed by the Company pursuant to Rule 424(b)(3) shall be deemed to be
part of the registration statement as of the date the filed prospectus was
deemed part of and included in the registration statement; and
(ii) Each
prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) as
part of a registration statement in reliance on Rule 430B relating to an
offering made pursuant to Rule 415(a)(1)(i), (vii), or (x) for the purpose of
providing the information required by section 10(a) of the Securities Act shall
be deemed to be part of and included in the registration statement as of the
earlier of the date such form of prospectus is first used after effectiveness or
the date of the first contract of sale of securities in the offering described
in the prospectus. As provided in Rule 430B, for liability purposes of the
issuer and any person that is at that date an underwriter, such date shall be
deemed to be a new effective date of the registration statement relating to the
securities in the registration statement to which that prospectus relates, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof; provided, however, that no statement made in a
registration statement or prospectus that is part of the registration statement
or made in a document incorporated or deemed incorporated by reference into the
registration statement or prospectus that is part of the registration statement
will, as to a purchaser with a time of contract of sale prior to such effective
date, supersede or modify any statement that was made in the registration
statement or prospectus that was part of the registration statement or made in
any such document immediately prior to such effective date; or
(b) If
the Company is subject to Rule 430C: Each prospectus filed pursuant to Rule
424(b) as part of a registration statement relating to an offering, other than
registration statements relying on Rule 430B or other than prospectuses filed in
reliance on Rule 430A, shall be deemed to be part of and included in the
registration statement as of the date it is first used after effectiveness;
provided, however, that no statement made in a registration statement or
prospectus that is part of the registration statement or made in a document
incorporated or deemed incorporated by reference into the registration statement
or prospectus that is part of the registration statement will, as to a purchaser
with a time of contract of sale prior to such first use, supersede or modify any
statement that was made in the registration statement or prospectus that was
part of the registration statement or made in any such document immediately
prior to such date of first use.
37
(5) Insofar
as Indemnification for liabilities arising under the Securities Act of 1933 may
be permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provision, or otherwise, the registrant has been
advised that in the opinion of the SEC such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
38
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Austin, State of Texas, on
March 3,
2010.
DYNAMIC
HYDROCARBONS LTD.
|
|||
By:
|
/s/ Ron Petrucci
|
||
Name:
|
Ron
Petrucci
|
||
Title:
|
Principal
Executive Officer
|
Pursuant
to the requirements of the Securities Act of 1933, this registration statement
has been signed by the following persons in the capacities and on the dates
indicated:
Date:
|
March
3, 2010
|
By:
|
/s/ Ron Petrucci
|
Name:
|
Ron
Petrucci
|
||
Title:
|
Director,
Principal Executive Officer, Principal Financial Officer,
Secretary
|
39