Filed pursuant to Rule 424(b)(3)
Registration Statement File No. 333-135636
PROSPECTUS SUPPLEMENT DATED OCTOBER 25, 2006
TO PROSPECTUS DATED SEPTEMBER 15, 2006
22,629,143
Common Shares
TIDELANDS OIL & GAS CORPORATION
1862 W. Bitters Rd., San Antonio, TX 78248
The Resale of Shares of Common Stock
This Prospectus Supplement should be read in conjunction with our Prospectus
dated September 15, 2006 and in the "Risk Factors" beginning on page 5 of the
Prospectus.
This Prospectus Supplement updates the Risk Factors appearing on page 7, the
Selling Shareholder Table appearing on page 30 of the Prospectus, Principal
Shareholders appearing on page 37, and Certain Relationships and Related
Transactions appearing on page 40.
THIS INVESTMENT INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING ON
PAGE 5.
We may amend or supplement this Prospectus from time to time by filing
amendments or supplements as required. You should read the entire Prospectus and
any amendments or supplements carefully before you make your investment
decision.
This Prospectus Supplement is incorporated by reference into the Prospectus, and
all terms used herein shall have the meaning assigned to them in the Prospectus.
See "Risk Factors" beginning on page 5 of the accompanying Prospectus for a
description of certain factors that should be considered by prospective
Investors.
These securities have not been approved or disapproved by the Securities and
Exchange Commission or any state securities commission nor has the Securities
and Exchange Commission or any state securities commission passed upon the
accuracy or adequacy of the Prospectus. Any representation to the contrary is a
criminal offense.
The date of this Prospectus Supplement is October 25, 2006.
RISK FACTORS
WE MAY NOT HAVE ENOUGH FUNDING TO COMPLETE OUR BUSINESS PLAN.
We will need additional financing to fully implement our business plan. We
cannot give any assurance that this additional financing could be obtained of
attractive terms or at all. In addition, our ability to raise additional funds
through a private placement may be restricted by SEC rules which limit a
Company's ability to sell securities similar to those being sold in a registered
offering before the time that offering is completed or otherwise terminated.
Lack of funding could force us to curtail substantially or cease our operations.
FUTURE CAPITAL NEEDS COULD RESULT IN DILUTION TO INVESTORS; ADDITIONAL FINANCING
COULD BE UNAVAILABLE OR HAVE UNFAVORABLE TERMS.
Our Company's future capital requirements will depend on many factors, including
cash flow from operations, progress in its gas operations, competing market
developments, and the Company's ability to market its proposed products
successfully. Although the Company currently has specific plans and arrangements
for financing its working capital is presently insufficient to fund the
Company's activities. It will be necessary to raise additional funds through
equity or debt financings. Any equity financings could result in dilution to our
Company's then-existing stockholders. Sources of debt financing may result in
higher interest expense. Any financing, if available, may be on terms
unfavorable to the Company. If adequate funds are not obtained, the Company may
be required to reduce or curtail operations.
SUBSTANTIAL CAPITAL REQUIREMENTS
We may make substantial capital expenditures for the development, acquisition
and production of natural gas pipeline, processing systems and, or storage
facilities. If revenues or the Company's equity financing decrease as a result
of lower natural gas prices, operating difficulties, the Company may have
limited ability to expend the capital necessary to undertake or complete
proposed plans and opportunities. There can be no assurance that additional debt
or equity financing or cash generated by operations will be available to meet
these requirements.
SELLING SHAREHOLDERS
The following table provides certain information about the selling shareholder's
beneficial ownership of our common stock as of September 30, 2006 and as
adjusted to give effect to the sale of all of the shares being offered by this
prospectus.
The number of shares that Palisades Master Fund, Crescent International, Ltd.,
Double U Master Fund, LP, JGB Capital, LP, Nite Capital, LP and RHP Master Fund,
Ltd. "Purchasers"), will own at any time are subject to limitation in the
governing agreements for the Debentures and Warrants, respectively, so that the
aggregate number of shares of common stock of which such selling stockholder and
all persons affiliated with such selling stockholder (calculated pursuant to
Rule 13d-3 of the Securities Exchange Act of 1934, as amended) does not at any
time exceed 4.99% of our then outstanding common stock.
The following table identifies the selling stockholders and indicates (i) the
nature of any position, office or other material relationship that each selling
stockholder has had with us during the past three years (or any of our
predecessors or affiliates) and (ii) the number of shares and percentage of our
outstanding shares of common stock owned by the selling stockholder prior to the
offering, the number of shares to be offered for the selling stockholder's
account and the number of shares and percentage of outstanding shares to be
owned by the selling stockholder after completion of the offering.
Table 1.
--------------------- ------------------ ------------------ ------------- --------------- -------------- ------------
Name of Selling Shares Shares Reserved Percent of Maximum Shares Percent of
Shareholder Beneficially for Adjustments/ Class of Number of Beneficially Class of
Owned Before Dilution Shares Shares to be Owned After Shares Owned
Offering (A) (B) Owned Sold in this the Offering After this
Before the Offering (C) Offering
Offering
--------------------- ------------------ ------------------ ------------- --------------- -------------- ------------
Palisades Master 13,198,308 3,458,342 4.99% 14,986,150 -0- -0-
Fund (1)
--------------------- ------------------ ------------------ ------------- --------------- -------------- ------------
Crescent 1,934,706 489,099 2.28% 2,119,430 -0- -0-
International,
Ltd.(2)
--------------------- ------------------ ------------------ ------------- --------------- -------------- ------------
Double U Master
Fund, LP(3) 967,295 244,535 1.14% 1,059,651 -0- -0-
--------------------- ------------------ ------------------ ------------- --------------- -------------- ------------
JGB Capital, LP(4) 1,589,081 401,724 1.87% 1,740,805 -0- -0-
--------------------- ------------------ ------------------ ------------- --------------- -------------- ------------
Nite Capital, LP(5) 773,882 195,640 0.92% 847,772 -0- -0-
--------------------- ------------------ ------------------ ------------- --------------- -------------- ------------
RHP Master Fund, 930,618 489,099 1.10% 1,419,717 -0- -0-
Ltd.(6)
--------------------- ------------------ ------------------ ------------- --------------- -------------- ------------
HPC Capital 65,696 19,709 0.08% 85,405 -0- -0-
Management Corp.(7)
--------------------- ------------------ ------------------ ------------- --------------- -------------- ------------
Total 19,459,586 5,298,148 22,258,930
--------------------- ------------------ ------------------ ------------- --------------- -------------- ------------
(A) The number and percentage of shares beneficially owned is determined in
accordance with Rule 13d-3 of the Securities Exchange Act of 1934, and the
information is not necessarily indicative of beneficial ownership for any other
purpose. Under such rule, beneficial ownership includes any shares as to which
the individual has sole or shared voting power or investment power and also any
shares that the individual has the right to acquire within 60 days of the date
of this prospectus through the exercise of any stock option or other right.
Unless otherwise indicated in the footnotes, each person has sole voting and
investment power (or shares such powers with his or her spouse) with respect to
the shares shown as beneficially owned. Percentage of beneficial ownership is
based on 84,537,270 shares of common stock outstanding as of September 30, 2006.
(B) This figure also includes a good faith calculation of additional number of
shares of common stock included in this registration statement that we are
required to registered issuable upon conversion of the convertible debentures
and warrants to account for anti-dilution and price protection adjustments based
upon 130% of shares issuable at the conversion rate.
(C) Assumes that the selling shareholder will convert all debentures and
exercise all warrant and sell all of the shares of the common stock offered by
this prospectus. We cannot assure you that the selling shareholders will sell
all or any of these shares.
(1) Represents 2,020,356 shares issued and outstanding and up to 11,527,808
shares of common stock issuable as follows: (a) 4,947,557 shares upon conversion
of the Debentures, (b) 1,632,694 shares of common stock issuable upon exercise
of the Series "A" Warrants at $0.935 per share; and (c) 4,947,557 shares of
common stock issuable upon exercise of the Series "B" Warrants at $1.275 per
share. PEF Advisors, LLC, ("PEF") serves as the investment manager Palisades
Master Fund, LP ("the Fund"). As a result of its role as investment manager to
the Fund, PEF may be deemed to be the beneficial owner, as defined in Rule 13d-3
under the Securities Exchange Act of 1934, of such securities held by the Fund.
However, PEF does not have the right to receive dividends from, or the proceeds
from the sale of, such securities held by the Fund and disclaims any beneficial
ownership of such shares of common stock. As of April 20, 2005, Mr. David
Batista was delegated authority from PEF regarding the portfolio management
decisions of PEF Advisors with respect to the securities owned by the Fund. By
reason of such delegated authority, Mr. Batista may be deemed to have
dispositive and voting power over the securities owned by the Fund. However, Mr.
Batista does not have the right to receive dividends from, or the proceeds from
the sale of, such securities held by the Fund and disclaims any beneficial
ownership of such securities. Palisades Master Fund, LP has certified that it
acquired the securities in the ordinary course of business and at the time it
acquired the securities, it had no agreements or understandings, directly or
indirectly, with any person to distribute the securities. On September 15, 2006,
Palisades converted $304,375 of its debenture into 349,856 common shares.
(2) Represents 304,375 shares issued and outstanding and up to 1,630,331
shares of common stock issuable as follows: (a) 699,713 shares upon conversion
of the Debentures, (b) 230,905 shares of common stock issuable upon exercise of
the Series "A" Warrants at $0.935 per share; and (c) 699,713 shares of common
stock issuable upon exercise of the Series "B" Warrants at $1.275 per share.
Crescent International, Ltd. is a corporation organized under the laws of
Bermuda. Maxi Brezzi and Bachir Taleb-Ibrahimi, in their capacities as managers
of Cantara (Switzerland) S.A., the investment advisor to Crescent International,
Ltd., have voting control and investment authority over the securities owned by
Crescent. Messres. Brezzi and Taleb-Ibrahimi disclaim beneficial ownership of
the securities. The selling stockholder has agreed not to convert the Debentures
or to exercise warrants to the extent such stockholder's beneficial ownership of
our common stock would exceed 4.99% of our common stock then outstanding. The
selling stockholder is not a registered broker-dealer and is not affiliated with
any registered broker-dealer. The securities to be acquired on conversion or
exercise of outstanding securities will be acquired for investment. The selling
stockholder does not have any agreement or understanding, direct or indirect,
with any party to distribute the securities.
(3) Represents 152,179 shares issued and outstanding and up to 815,116
shares of common stock issuable as follows: (a) 349,835 shares upon conversion
of the Debentures, (b) 115,446 shares of common stock issuable upon exercise of
the Series "A" Warrants at $0.935 per share; and (c) 349,835 shares of common
stock issuable upon exercise of the Series "B" Warrants at $1.275 per share.
Double U Master Fund, LP is a master feeder structure organized in the British
Virgin Islands with B&W Equities, LLC as its General Partner. Isaac Winehouse is
the manager of B&W Equities, LLC. Mr. Weinhouse has voting and investment
control over the shares held by the Double U Master Fund, LP by virtue of his
manager role with B&W Equities, LLC. Mr. Weinhouse disclaims beneficial
ownership of the securities. The selling stockholder has agreed not to convert
the Debentures or to exercise warrants to the extent such stockholder's
beneficial ownership of our common stock would exceed 4.99% of our common stock
then outstanding. The selling stockholder is not a registered broker-dealer and
is not affiliated with any registered broker-dealer. The securities to be
acquired on conversion or exercise of outstanding securities will be acquired
for investment. The selling stockholder does not have any agreement or
understanding, direct or indirect, with any party to distribute the securities.
(4) Represents 250,000 shares issued and outstanding and up to 1,339,081
shares of common stock issuable as follows: (a) 574,713 shares upon conversion
of the Debentures, (b) 189,655 shares of common stock issuable upon exercise of
the Series "A" Warrants at $0.935 per share; and (c) 574,713 shares of common
stock issuable upon exercise of the Series "B" Warrants at $1.275 per share. JBG
Capital, LP is a Delaware limited partnership. Mr. Brett Cohen has voting and
investment control over the shares held by the JGB Capital, LP. Mr. Cohen
disclaims beneficial ownership of the securities. The selling stockholder has
agreed not to convert the Debentures or to exercise warrants to the extent such
stockholder's beneficial ownership of our common stock would exceed 4.99% of our
common stock then outstanding. The selling stockholder is not a registered
broker-dealer and is not affiliated with any registered broker-dealer. The
securities to be acquired on conversion or exercise of outstanding securities
will be acquired for investment. The selling stockholder does not have any
agreement or understanding, direct or indirect, with any party to distribute the
securities.
(5) Represents 215,045 shares issued and outstanding and up to 558,837
shares of common stock issuable as follows: (a) 186,590 shares upon conversion
of the Debentures, (b) 92,362 shares of common stock issuable upon exercise of
the Series "A" Warrants at $0.935 per share; and (c) 279,885 shares of common
stock issuable upon exercise of the Series "B" Warrants at $1.275 per share.
Nite Capital, LP is a Delaware limited partnership. Keith Goodman is the manager
of the General Partner of Nite Capital, LP. Mr. Goodman has voting and
investment control over the shares held by the Nite Capital, LP. Mr. Goodman
disclaims beneficial ownership of the securities. The selling stockholder has
agreed not to convert the Debentures or to exercise warrants to the extent such
stockholder's beneficial ownership of our common stock would exceed 4.99% of our
common stock then outstanding. The selling stockholder is not a registered
broker-dealer and is not affiliated with any registered broker-dealer. The
securities to be acquired on conversion or exercise of outstanding securities
will be acquired for investment. The selling stockholder does not have any
agreement or understanding, direct or indirect, with any party to distribute the
securities. The selling stockholder has agreed not to convert the Debentures or
to exercise warrants to the extent such stockholder's beneficial ownership of
our common stock would exceed 4.99% of our common stock then outstanding. The
selling stockholder is not a registered broker-dealer and is not affiliated with
any registered broker-dealer. The securities to be acquired on conversion or
exercise of outstanding securities will be acquired for investment. The selling
stockholder does not have any agreement or understanding, direct or indirect,
with any party to distribute the securities. On September 25, 2006, Nite
converted $81,167 of its Debenture to 93,295 shares of common stock.
(6) Represents 930,618 shares of common stock issuable as follows: (a)
230,905 shares of common stock issuable upon exercise of the Series "A" Warrants
at $0.935 per share; and (c) 699,713 shares of common stock issuable upon
exercise of the Series "B" Warrants at $1.275 per share. RHP Master Fund, Ltd.
is an exempted company organized under the laws of the Cayman Islands. RHP
Master Fund, Ltd. is a party to an investment management agreement with Rock
Hill Investment Management, L.P., a limited partnership of which the general
partner is RHP General Partner, LLC. Pursuant to such agreement, Rock Hill
Investment Management directs the voting and disposition of shares owned by RHP
Master Fund. Messrs. Wayne Bloch and Peter Lockhart own all of the interests in
RHP General Partner. The aforementioned entities and individuals disclaim
beneficial ownership of the Company's Common Stock owned by the RHP Master Fund.
The selling stockholder has agreed not to convert the Debentures or to exercise
warrants to the extent such stockholder's beneficial ownership of our common
stock would exceed 4.99% of our common stock then outstanding. The selling
stockholder is not a registered broker-dealer and is not affiliated with any
registered broker-dealer. The selling stockholder does not have any agreement or
understanding, direct or indirect, with any party to distribute the securities.
(7) Represents 65,696 shares of common stock issuable upon exercise of
Series "A" Warrants at $0.935 per share issued in connection with the private
placement of the securities. HPC Capital Management Corp. is a registered
broker-dealer. It is a corporation organized under the laws of the State of
Georgia. Mr. Vincent Sbarra has voting and investment control over the shares
held by HPC Capital. Mr. Sbarra disclaims beneficial ownership of the
securities. The selling stockholder has agreed not to convert the Debentures or
to exercise warrants to the extent such stockholder's beneficial ownership of
our common stock would exceed 4.99% of our common stock then outstanding.
PRINCIPAL SHAREHOLDERS
The following table sets forth the Common Stock ownership information as of
September 30, 2006, with respect to (i) each person known to the Company to be
the beneficial owner of more than 5% of the Company's Common Stock; (ii) each
director of the Company; and (iii) all directors, executive officers and
designated stockholders of the Company as a group. This information as to
beneficial ownership was furnished to the Company by or on behalf of the persons
named. Unless otherwise indicated, we believe that each has sole voting and
investment power with respect to the shares beneficially owned.
The percentage interest of each principal shareholder is based on the beneficial
ownership of such shareholder divided by the sum of the current outstanding
shares of common stock plus the additional shares, if any, which would be issued
to such shareholder (but not any other shareholder) when exercising warrants or
other rights in the future. Applicable percentage of ownership is based on
84,537,270 shares of common stock outstanding as of September 30, 2006 together
with securities exercisable or convertible into shares of common stock within 60
days of September 30, 2006, for each shareholder. Beneficial ownership is
determined in accordance with the rules of the Securities and Exchange
Commission and generally includes voting or investment power with respect to
securities. Shares of common stock subject to securities exercisable or
convertible into shares of common stock that are currently exercisable or
exercisable within 60 days of September 30, 2006 are deemed to be beneficially
owned by the person holding such securities for the purpose of computing the
percentage of ownership of such person, but are not treated as outstanding for
the purpose of computing the percentage ownership of any other person. Note that
affiliates are subject to Rule 144 and insider trading regulations and
percentage computation is for form purposes only.
(a) Beneficial Ownership of more than 5% based on 84,537,270 common shares.
Beneficial Ownership of 5%.
Table 1.
(1) (2) (3) (4)
Title of Class Name and Address Amount and Nature Percent of
Common Stock Class
Common Mercator Momentum 751,974 0.89%
Fund, LP (1) Common Stock
555 S. Flower St. Warrants (3)
Suite 4500
Los Angeles, CA 90071
Common Mercator Momentum 521,928 0.61%
Fund III, LP(1) Common Stock
555 S. Flower St. Warrants (4)
Suite 4500
Los Angeles, CA 90071
Common Monarch Pointe 1,690,460(5) 1.99%
Fund, Ltd. (1) Common Stock
c/o Bank of Ireland Warrants
Securities Services Ltd.
New Century House
International Fin. Ser.Ctr.
Mayor Street Lower
Dublin 1
Republic of Ireland
Common M.A.G. Capital, LLC(1) 6,536,072(1)(6) 7.7%
555 S. Flower St. Common Stock
Suite 4500 Warrants
Los Angeles, CA 90071
Common Robinson Reed (1) 200,000 (7) 0.23%
AV.DU Leman 8B Common Stock
CH-1003-Lausanne Warrants
Switzerland
Common David F. Firestone (1) 6,536,072(1) 7.7%
555 S. Flower St Common Stock
Suite 4500 Warrants
Los Angeles, CA 90071
Common Impact International, LLC(2) 8,842,980 10.46%
111 W. 5th St. Ste.720
Tulsa, OK 74103
Common Michael Ward (8) 8,467,038 9.83%
1862 W. Bitters Rd.
San Antonio, TX78248
Notes:
(1) Mercator Momentum Fund, LP, Mercator Momentum Fund III, LP, Monarch Pointe
Fund, Ltd., MAG Capital, LLC, formerly Mercator Advisory Group, LLC, Robinson
Reed and David F. Firestone are referred to "Reporting Persons". Mercator
Momentum Fund, LP, Mercator Momentum Fund III, LP, Monarch Pointe Fund, Ltd. and
MAG Capital, LLC, formerly Mercator Advisory Group, LLC, each hold warrants to
purchase shares of our common stock. The right to vote and the right to dispose
of the shares beneficially owned by Mercator Momentum Fund, LP, Mercator
Momentum Fund III, LP, Monarch Pointe Fund, Ltd. and Robinson Reed are, in each
case, shared among either of the three funds, as applicable, and both M.A.G.
Capital, LLC and David F. Firestone. The documentation governing the terms of
the warrants contain provisions prohibiting any exercise of the warrants that
would result in the Reporting Persons owning beneficially more than 9.99% of the
outstanding common stock as determined under Section 13(d) of the Securities
Exchange Act of 1934. The Reporting Persons have never had beneficial ownership
of more than 9.99% of our outstanding common stock. Beneficial share ownership
as reported on Schedule 13G.
(2) Represents issued and outstanding common stock. Robert May has voting and
dispositive authority over Impact International,LLC. Share ownership as reported
on Form 4 September 29, 2006.
(3) Mercator Momentum Fund, LP is a private investment limited partnership
organized under California law. MAG Capital, LLC, a California limited liability
company, formerly Mercator Advisory Group, LLC, is its general partner. David F.
Firestone is the Managing Member of the MAG Capital, LLC. Mercator Momentum
Fund, LP holds common stock warrants to purchase up to 751,974 shares of our
common stock. Half the warrants are exercisable at $0.80 per share and half
exercisable at $0.87 per share.
(4) Mercator Momentum Fund III, LP is a private investment limited partnership
organized under California law. MAG Capital, LLC, a California limited liability
company, is its general partner. David F. Firestone is the Managing Member of
the MAG Capital, LLC. Mercator Momentum Fund III, LP holds warrants to purchase
up to 518,092 shares of our common stock and 3,836 shares of common stock. Half
the warrants are exercisable at $0.80 per share and half exercisable at $0.87
per share.
(5) Monarch Pointe Fund, Ltd. is a corporation organized under of the British
Virgin Islands. Mercator Advisory Group controls the investments of Monarch
Pointe Fund. Monarch Pointe Fund holds warrants to purchase up to 1,690,460
shares of our common stock. Half the warrants are exercisable at $0.80 per share
and half exercisable at $0.87 per share.
(6) MAG Capital, LLC, formerly Mercator Advisory Group, LLC, holds warrants to
purchase up to 3,371,710 shares of our common stock. Half the warrants are
exercisable at $0.80 per share and half exercisable at $0.87 per share.
(7) Robinson Reed holds 200,000 common stock warrants, 100,000 exercisable at
$0.80 per share and 100,000 exercisable at $0.87 per share.
(8) Mr. Ward is the President, Chief Executive officer and Chairman of our Board
of Directors.
(b) Security Ownership of Management. Based on 84,537,270 shares as set forth in
(a) above as of September 30, 2006.
Table 2.
Title of Class Name and Address Amount and Nature Percent of Class
Common Michael Ward 8,467,038 9.83%
1862 W. Bitters Rd.
San Antonio, TX 78248
Common James B. Smith 1,549,000(1) 1.83%
1862 W. Bitters Rd.
San Antonio, TX 78248
Common Ahmed Karim 652,500 0.77%
1532 Woods Dr.
N. Vancouver, B.C.
Canada V7R 1A9
Common Robert W. Dowies 200,000 0.23%
1862 W. Bitters Rd.
San Antonio, TX 78248
Common Carl Hessel (2) 2,592,221 3.06%
c/o Margaux Investment
Management Group, S.A.
9 Rue de Commerce
CH 1211 Geneva 11
Switzerland
Total 13,460,759 15.92%
Notes:
(1) Includes 650,000 shares in the name of James B. Smith, 39,000 held in Smith
IRA account, 500,000 shares in the name of Aigle Partners, Ltd. in which Mr.
Smith has a partnership interest and 360,000 shares in the name of du Midi
Trust, in which Mr. Smith has a beneficial interest.
(2) Mr. Hessel is a partner in Margaux Investment Management Group, S.A. Mr.
Hessel also exercises voting and dispositive control over the Margaux securities
and as such beneficial ownership reflects 1,988,889 shares owned by Margaux and
600,332 shares owned personally by Mr. Hessel.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On October 11, 2006, James B. Smith received 500,000 shares under the terms of
his employment agreement representing his annual stock grant. The shares were
issued from the Company's 2004 Non-Qualified Stock Grant and Option Plan.
On September 25, 2006, the Company issued each member of its board of directors
150,000 common shares as annual directors' compensation. Michael Ward, Ahmed
Karim and Carl Hessel received restricted common shares. James B. Smith received
shares from the 2004 Non-Qualified Stock Grant and Option Plan.