U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report: April 17, 2006
TIDELANDS OIL & GAS CORPORATION
-------------------------------
(Exact Name of registrant as specified in its Charter)
Nevada 0-29613 66-0549380
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State of Incorporation Commission File No. I.R.S. Employer
Identification No.
1862 West Bitters Rd. San Antonio, TX 78248
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, ( 210 ) 764 - 8642
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(Registrant's former name and address)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions below:
[_] Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
[_] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
[_] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17CFR 240-14d-2(b))
[_] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240-13e-4(c))
Item 4.02 Non-Reliance on Previously Issued Financial Statements or a Related
Audit Report or Completed Interim Review
On April 12, 2006, the Board of Directors of the Company concluded that its
audited financial statements for the fiscal year ended December 31, 2004 and the
unaudited financial statements for the interim periods ended March 31, 2005,
June 30, 2005, and September 30, 2005 (the "Relevent Periods") are required to
be restated and should no longer be relied on because they did not reflect
proper accounting treatment of the following matters: (1) Goodwill associated
with the acquisition of partnership interests of Reef Ventures, L.P (May 2004)
and the related derivative liability for warrants issued as part of the purchase
price, (2) issuance of convertible debentures with freestanding warrants and
embedded beneficial conversion features, and (3) valuation of stock issued for
services and financing costs.
Management, after their review of Emerging Issues Task Force 00-19 "Accounting
For Derivative Financial Instruments Indexed To, and Potentially Settled In, A
Company's Own Stock", has concluded that it is necessary to account for goodwill
and the related derivative liability associated with the May 2004 acquisition of
partnership interests in Reef Ventures, L.P. At December 31, 2004 the net effect
of this adjustment results in an increase in goodwill of $5,200,000, an increase
in the derivative liability of $5,168,000, a gain on reduction of the derivative
liability of $15,390,000 and a goodwill impairment loss of $15, 358,000.
Management, after reviewing Statement of Financial Accounting Standards 133
"Accounting for Derivative Instruments and Hedging Activities" and Emerging
Issues Task Force 00-19, has determined that the convertible debentures issued
in November 2004 contain an embedded beneficial conversion feature. Accordingly,
at December 31, 2004, this charge to the statement of operations amounted to
$3,092,105.
Management also reviewed all stock issued for services and financing costs in
2004, and in accordance with the provisions outlined in Emerging Issues Task
Force 96-18 "Accounting for Equity Instruments That Are Issued to Other Than
Employees for Acquiring, or in Conjunction with Selling, Goods or Services" and
Statement of Financial Accounting Standards 123 "Accounting for Stock-Based
Compensation", increased the charges associated with these stock issuances by
$4,724,750 at December 31, 2004.
All of the transactions referred to above relate to non-cash charges and do not
affect the Company's revenues, cash flows from operations or liquidity.
After reviewing the circumstances leading up to the restatements for the
Relevent Periods above, the Company believes that the errors were unintentional
and related to misinterpretation of the accounting rules mentioned above.
However, Item 308(a)(3) of Regulation S-B states that "Management is not
permitted to conclude that the small business issuer's internal control over
financial reporting is effective if there are one or more material weaknesses in
the small business issuer's internal control over financial reporting." As a
result of the restatements to our December 31, 2004 financial statements and our
quarterly reports for the periods ending March 30, June 30 and September 30,
2005, as disclosed in this Current Report on Form 8-K, our Chief Executive
Officer and Principal Accounting Officer, can no longer conclude that after
evaluating the effectiveness of our "disclosure controls and procedures" (as
defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e))
for the Relevant Periods, that our disclosure controls and procedures were
effective to provide reasonable assurance that information we are required to
disclose in reports that we file or submit under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission rules and forms, and that such information is
accumulated and communicated to our management, including our Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure.
However, the Company believes that its restatement to its December 31, 2004
financial statements and restatements to quarterly reports for March 31, June 30
and September 30, 2005 financial statements, will be a one time occurrence and
that moving forward our Controls and Procedures will once again be effective as
the embedded derivative accounting matters contained in the December 31, 2004,
March 30, June 30 and September 30, 2005 financial statements involved a highly
complex transaction involving an "unconventional" warrants and convertible debt
instruments, and the Company does not anticipate entering into any additional
complex financing transactions involving derivates in the future. The Company is
utilizing the guidelines communicated to it by the SEC after various
communications regarding accounting for derivatives. Similar SEC guidance is
also being utilized with respect to the issuance of common stock for services
and financing costs and the Company anticipates a dramatic reduction in the use
of common stock for these purposes in the future.
SUMMARY OF RESTATED FINANCIAL STATEMENTS
DECEMBER 31, 2004
-----------------
Previously Restatement Restated
Reported Adjustment Total
------------ ------------ ------------
Consolidated Balance Sheets:
Total Assets $ 17,222,666 (1) $ 5,200,000 $ 22,422,666
Total Liabilities 12,306,107 (2) 5,168,000 17,474,107
------------ ------------ ------------
Stockholders' Equity $ 4,916,559 $ 32,000 $ 4,948,559
============ ============ ============
Consolidated Results of Operations:
Revenues 1,883,838 0 1,883,838
Expenses 8,451,280 (3,4) 23,174,855 31,626,135
------------ ------------ ------------
Net (Loss) from Operations (6,567,442) (23,174,855) (29,742,297)
Derivative Gain 0 (5) 15,390,000 15,390,000
Other Income 50,260 0 50,260
------------ ------------ ------------
Net (Loss) $ (6,517,182) $ (7,784,855) $(14,302,037)
============ ============ ============
Net (Loss) per Common Share:
Basic and Diluted $ (0.12) $ (0.27)
============ ============
Weighted Average Number of Common
Shares Outstanding:
Basic and Diluted 53,214,230 53,214,230
============ ============
SUMMARY OF RESTATED INTERIM REPORTS - 2005
MARCH 31, 2005 JUNE 30, 2005
-------------------------------------------- --------------------------------------------
Previously Restatement Restated Previously Restatement Restated
Reported (1) Adjustment Total Reported (1) Adjustment Total
------------ ------------ ------------ ------------ ------------ ------------
ASSETS
Current Assets:
Cash and Cash
Equivalents $ 4,623,198 -- $ 4,623,198 $ 3,468,839 -- $ 3,468,839
Accounts and Loans
Receivable 404,488 -- 404,488 309,323 -- 309,323
Inventory 60,159 -- 60,159 75,573 -- 75,573
Prepaid
Expenses 418,362 -- 418,362 302,531 -- 302,531
------------ ------------ ------------ ------------ ------------ ------------
Total Current Assets 5,506,207 -- 5,506,207 4,156,266 -- 4,156,266
------------ ------------ ------------ ------------ ------------ ------------
Property, Plant and
Equipment, Net 9,245,326 -- 9,245,326 9,630,591 -- 9,630,591
------------ ------------ ------------ ------------ ------------ ------------
Other Assets:
Deposits 6,608 -- 6,608 6,608 -- 6,608
Deferred Charges 38,750 -- 38,750 0 -- 0
Restricted Cash 75,000 -- 75,000 75,846 -- 75,846
Note Receivable 287,170 -- 287,170 286,114 -- 286,114
Goodwill 1,158,937 5,200,000 6,358,937 1,158,937 -- 1,158,937
------------ ------------ ------------ ------------ ------------ ------------
Total Other Assets 1,566,465 5,200,000 6,766,465 1,527,505 -- 1,527,505
------------ ------------ ------------ ------------ ------------ ------------
Total Assets $ 16,317,998 $ 5,200,000 $ 21,517,998 $ 15,314,362 $ 0 $ 15,314,362
============ ============ ============ ============ ============ ============
LIABILITIES AND
STOCKHOLDERS'
EQUITY
Current Liabilities:
Current Maturities of
Note Payable $ 225,000 $ -- $ 225,000 $ 112,500 $ -- $ 112,500
Convertible Debenture
Payable 5,000,000 -- 5,000,000 2,480,000 -- 2,480,000
Accounts Payable and
Accrued Expenses 438,830 -- 438,830 656,302 -- 656,302
Derivative Liability 0 8,062,500 8,062,500 0 -- 0
------------ ------------ ------------ ------------ ------------ ------------
Total Current
Liabilities 5,663,830 8,062,500 13,726,330 3,248,802 -- 3,248,802
------------ ------------ ------------ ------------ ------------ ------------
Long-Term Debt:
Note Payable,
less Current
Maturities 6,592,301 -- 6,592,301 4,255,990 -- 4,255,990
------------ ------------ ------------ ------------ ------------ ------------
Total
Liabilities 12,256,131 8,062,500 20,318,631 7,504,792 -- 7,504,792
------------ ------------ ------------ ------------ ------------ ------------
Stockholders' Equity:
Common Stock 62,364 -- 62,364 74,281 -- 74,281
Additional Paid-in
Capital 22,918,580 13,151,198 36,069,778 28,655,789 9,531,144 38,186,933
Subscriptions
Receivable (550,000) -- (550,000) (550,000) -- (550,000)
Minority Interest -- -- -- -- -- --
Accumulated Deficit (18,369,077) (16,013,698) (34,382,775) (20,370,500) (9,531,144) (29,901,644)
------------ ------------ ------------ ------------ ------------ ------------
Total Stockholders'
Equity 4,061,867 (2,862,500) 1,199,367 7,809,570 -- 7,809,570
------------ ------------ ------------ ------------ ------------ ------------
Total Liabilities and
Stockholders' Equity $ 16,317,998 $ 5,200,000 $ 21,517,998 $ 15,314,362 $ 0 $ 15,314,362
============ ============ ============ ============ ============ ============
SUMMARY OF RESTATED INTERIM REPORTS - 2005
SEPTEMBER 30, 2005
--------------------------------------------
Previously Restatement
Reported (1) Adjustment Total
------------ ------------ ------------
ASSETS
Current Assets:
Cash and Cash
Equivalents $ 2,336,430 -- $ 2,336,430
Accounts and Loans
Receivable 208,668 -- 208,668
Inventory 90,332 -- 90,332
Prepaid
Expenses 208,879 -- 208,879
------------ ------------ ------------
Total Current Assets 2,844,309 -- 2,884,309
------------ ------------ ------------
Property, Plant and
Equipment, Net 10,097,779 -- 10,097,779
------------ ------------ ------------
Other Assets:
Deposits 6,708 -- 6,708
Deferred Charges 0 -- 0
Restricted Cash 101,471 -- 101,471
Note Receivable 284,944 -- 284,944
Goodwill 1,158,937 -- 1,158,937
------------ ------------ ------------
Total Other Assets 1,552,060 -- 1,552,060
------------ ------------ ------------
Total Assets $ 14,494,148 $ 0 $ 14,494,148
============ ============ ============
LIABILITIES AND
STOCKHOLDERS'
EQUITY
Current Liabilities:
Current Maturities of
Note Payable $ 168,750 $ -- $ 168,750
Convertible Debenture
Payable 980,000 -- 980,000
Accounts Payable and
Accrued Expenses 642,457 -- 642,457
Derivative Liability 0 -- 0
------------ ------------ ------------
Total Current
Liabilities 1,791,207 -- 1,791,207
------------ ------------ ------------
Long-Term Debt:
Note Payable,
less Current
Maturities 4,252,304 -- 4,252,304
------------ ------------ ------------
Total
Liabilities 6,043,511 -- 6,043,511
------------ ------------ ------------
Stockholders' Equity:
Common Stock 77,157 -- 77,157
Additional Paid-in
Capital 30,369,493 9,682,940 40,052,433
Subscriptions
Receivable (550,000) -- (550,000)
Minority Interest
Accumulated Deficit (21,446,013) (9,682,940) (31,128,953)
------------ ------------ ------------
Total Stockholders'
Equity 8,450,637 -- 8,450,637
------------ ------------ ------------
Total Liabilities and
Stockholders' Equity $ 14,494,148 $ 0 $ 14,494,148
============ ============ ============
-16-
SUMMARY OF RESTATED INTERIM REPORTS - 2005
Three Months Ended March 31, 2005 Six Months Ended June 30, 2005
-------------------------------------------- --------------------------------------------
Previously Restatement Restated Previously Restatement Restated
Reported (1) (2) Total Reported (1) (2) Total
------------ ------------ ------------ ------------ ------------ ------------
Revenues:
Gas Sales and
Pipeline Fees $ 586,949 $ -- $ 586,949 $ 849,490 $ -- $ 849,490
Construction
Services 41,126 -- 41,126 119,121 -- 119,121
------------ ------------ ------------ ------------ ------------ ------------
Total Revenues 628,075 -- 628,075 968,611 -- 968,611
------------ ------------ ------------ ------------ ------------ ------------
Expenses:
Cost of Sales 284,679 -- 284,679 415,248 -- 415,248
Operating
Expenses 66,774 -- 66,774 129,137 -- 129,137
Depreciation 115,441 -- 115,441 236,395 -- 236,395
Interest 209,787 -- 209,787 393,860 -- 393,860
Beneficial
Conversion
Feature
Interest 0 4,736,843 4,736,843 0 135,789 135,789
Sales, General
and
Administrative 1,220,911 597,500 1,818,411 3,098,570 1,578,500 4,677,070
Impairment
Losses 0 -- 0 0 5,200,000 5,200,000
------------ ------------ ------------ ------------ ------------ ------------
Total Expenses 1,897,592 5,334,343 7,231,935 4,273,210 6,914,289 11,187,499
------------ ------------ ------------ ------------ ------------ ------------
(Loss) from
Operations (1,269,517) (5,334,343) (6,603,860) (3,304,599) (6,914,289) (10,218,888)
Derivative Gain
(Loss) -- (2,894,500) (2,894,500) -- 5,168,000 5,168,000
Gain (Loss) on
Equipment Sale (3,167) -- (3,167) (3,167) -- (3,167)
Interest and
Dividend Income 35,992 -- 35,992 69,651 -- 69,651
Minority
Interest -- -- -- -- -- --
Litigation
Settlement 0 -- 0 0 -- 0
------------ ------------ ------------ ------------ ------------ ------------
Net (Loss) $ (1,236,692) $ (8,228,843) $ (9,465,535) $ (3,238,115) $ (1,746,289) $ (4,984,404)
============ ============ ============ ============ ============ ============
Net (Loss) Per
Common Share,
Basic and Diluted: $ (0.02) $ -- $ (0.15) $ (0.05) $ -- $ (0.07)
============ ============ ============ ============ ============ ============
Weighted Average
Number of Common
Shares Outstanding:
Basic and
Diluted 61,893,359 -- 61,893,359 67,941,251 -- 67,941,251
============ ============ ============ ============ ============ ============
-17-
SUMMARY OF RESTATED INTERIM REPORTS - 2005
Nine Months Ended September 30, 2005
--------------------------------------------
Previously Restatement
Reported (1) (2) Total
------------ ------------ ------------
Revenues:
Gas Sales and
Pipeline Fees $ 1,097,505 $ -- $ 1,097,505
Construction
Services 119,121 -- 119,121
------------ ------------ ------------
Total Revenues 1,216,626 -- 1,216,626
------------ ------------ ------------
Expenses:
Cost of Sales 635,113 -- 635,113
Operating
Expenses 210,545 -- 210,545
Depreciation 360,817 -- 360,817
Interest 503,950 -- 503,950
Beneficial
Conversion
Feature
Interest 0 (501,659) (501,659)
Sales, General
and
Administrative 4,022,271 2,556,200 6,578,471
Impairment
Losses 0 5,200,000 5,200,000
------------ ------------ ------------
Total Expenses 5,732,696 7,254,541 12,987,237
------------ ------------ ------------
(Loss) from
Operations (4,516,070) (7,254,541) (11,770,611)
Derivative Gain
(Loss) -- 5,168,000 5,168,000
Gain (Loss) on
Equipment Sale (3,167) -- (3,167)
Interest and
Dividend Income 96,240 -- 96,240
Minority
Interest -- -- --
Litigation
Settlement 109,369 188,456 297,825
------------ ------------ ------------
Net (Loss) $ (4,313,628) $ (1,898,085) $ (6,211,713)
============ ============ ============
Net (Loss) Per
Common Share,
Basic and Diluted: $ (0.06) $ -- $ (0.09)
============ ============ ============
Weighted Average
Number of Common
Shares Outstanding:
Basic and
Diluted 69,378,850 -- 69,378,850
============ ============ ============
(1) Adjust goodwill to period ending balances.
(2) Adjust to recognize fair value of derivative financial instruments as
liabilities at December 31, 2004 ($5,168,000) and first quarter
adjustment ($2,894,500) necessitated by marking to market the fair
value of the derivative.
(3) Adjustments associated with the issuance of convertible debentures.
(4) Adjustments to recognize the fair value of services and related
expenses paid for by the issuance of stock.
(5) Adjustments to recognize the gain / (loss) on changes in the derivative
liability. equity to derivative liabilities when the conversion price
became variable.
Item 9.01 Financial Statements and Exhibits
(c) Exhibits
Item Number Description
99.1 Letter from Baum & Co. dated April 14, 2006
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
TIDELANDS OIL & GAS CORPORATION
Dated: April 17, 2006
/s/Michael Ward
-------------------------------
By: Michael Ward
Title: President, CEO