As filed with the Securities and Exchange Commission on November 6, 2006
Registration No. 333-120235
U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM S-8
POST-EFFECTIVE AMENDMENT NO. 1
Registration Statement
Under the Securities Act of 1933
TIDELANDS OIL & GAS CORPORATION
--------------------------------------------------------------------------------
(Exact Name of Registrant as specified in charter)
Nevada 66-0549380
---------------------------------- ------------------------------------
(State of Incorporation) (IRS Employer Identification No.)
1862 West Bitters Rd., San Antonio, TX 78248
--------------------------------------------------------------------------------
(Address of principal executive offices)
1862 W. Bitters Rd.
San Antonio, TX 78248
(210) 764-8642
2004 Non-Qualified Stock Grant and Option Plan
(Full Title of the Plan)
Michael Ward, President With Copies to:
1862 W. Bitters Rd. Gregory M. Wilson, Esq.
San Antonio, TX 78248 18610 E. 32nd Ave.
(210) 764-8642 Greenacres, WA 99016
(509) 891-8373
(Name and Address of agent for Service
(210) 764-8642
(Telephone number, including area code for agent for service)
CALCULATION OF REGISTRATION FEE
================================================================================
Proposed Proposed
Title of (1) maximum maximum
securities Securities offering aggregate Amount of
to be to be price per offering Registration
registered registered share (2) price (2) Fee (3)
---------- ---------- --------- --------- ------------
Common 5,000,000 $0.87 $4,350,000 $551.15
$.001 par shares
value
================================================================================
(1) Includes an indeterminate number of additional shares which may be issued
pursuant to the above plan as a result of any future stock split, stock
dividend, or similar adjustment.
(2) Estimated pursuant to Rule 457(c) solely for purposes of calculating the
amount of the registration fee, based upon the average of the high and low
prices reported on November 1, 2004 as reported on the NASD OTC Bulletin Board.
(3) 5,000,000 of the shares authorized under the Plan were registered on
November 5, 2004 pursuant to the original Registration Statement. A fee of
$551.15 was previously paid in connection with the original Registration
Statement.
EXPLANATORY NOTE
----------------
On November 5, 2004, we filed with the Securities and Exchange Commission
("SEC") a Registration Statement No. 333-120235 on Form S-8, pertaining to
5,000,000 shares of common stock, $0.001 par value, and options to purchase
common stock available for issuance under the 2004 Non-Qualified Stock Grant and
Option (the "Plan").
As of the date of this Post Effective Amendment No. 1, a total of 2,149,878
shares have been issued under the Plan, leaving 2,850,122 shares of our common
stock and options to purchase common stock available under the Plan.
The Post-Effective Amendment No. 1 to the Registration Statement includes a
reoffer prospectus registering 1,150,000 shares of common stock, all of which
represent shares awarded pursuant to the Plan to a certain officer and director
of the Company (the "Selling Stockholder") for resale by the Selling
Stockholder. The reoffer prospectus which is filed as a part of this
Registration Statement has been prepared in accordance with the requirements of
Form S-8, and, pursuant to General Instruction C of Form S-8, may be used for
reoffers or resales of the shares of common stock that have been acquired by the
Selling Stockholder pursuant to the Plan.
Except as described above, no other changes have been made to our Form S-8
Registration Statement No. No. 333-120235. For the convenience of the reader and
as required under SEC rules, this Post-Effective Amendment No. 1 to Form S-8
sets forth the complete text of Form S-8 rather than just the amended portions
thereof. For Items not modified herein, reference should be made to our
Registration Statement No. 333-120235 on Form S-8 as filed with the SEC on
November 5, 2004. The filing of this Post-Effective Amendment No. 1 is not an
admission that our Registration Statement No. 333-120235 on Form S-8, when
filed, knowingly included any untrue statement of a material fact or omitted to
state a material fact necessary to make the statements made therein not
misleading.
REOFFER PROPECTUS
1,150,000 Shares of Common Stock under the
2004 Non-Qualified Stock Grant and Option Plan
TIDELANDS OIL & GAS CORPORATION
The shares of common stock, $0.001 par value (the "Common Stock" or "Shares"),
of Tidelands Oil & Gas Corporation (the "Company" or "we") covered by this
Reoffer Prospectus may be offered and sold to the public by stockholders of the
Company (the "Selling Stockholders"), some of whom may be deemed to be
"affiliates" (as that term is defined in Rule 405 of the General Rules and
Regulations of the Securities Act of 1933, as amended (the "Securities Act")) of
the Company. The Selling Stockholders acquired the Shares under the Company's
2004 Non-Qualified Stock Grant and Option Plan (the "Plan").
All or a portion of the Shares may be offered for sale, from time to time, on
the Nasdaq OTC Bulletin Board or otherwise, at prices and terms then obtainable,
subject to certain limitations. However, any Shares covered by this Reoffer
Prospectus which qualify for sale pursuant to Rule 144 under the Securities Act
may be sold under Rule 144 instead of pursuant to this Reoffer Prospectus. See
"Plan of Distribution."
We will not receive any of the proceeds from the sale of the Shares by the
Selling Stockholders. All expenses of registration incurred in connection with
this offering are being borne by the Company, but all brokerage commissions,
discounts and other expenses incurred by individual Selling Stockholders will be
borne by such Selling Stockholders.
Our Common Stock is listed on the Nasdaq OTC Bulletin Board under the symbol
"TIDE." The closing bid and ask prices of our Common Stock on the Nasdaq OTC
Bulletin Board on November 2, 2006 were $0.48 and $0.49, respectively.
This prospectus shall not constitute an offer to sell or the solicitation of an
offer to buy nor shall there be any sale of these securities in any state in
which such offer, solicitation or sale would be unlawful prior to registration
or qualification under the securities laws of any such state.
See "Risk Factors" beginning on page 3 for information that should be carefully
considered by prospective investors.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
REOFFER PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
The date of this Reoffer Prospectus is November 3, 2006.
Table of Contents Page
AVAILABLE INFORMATION 1
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE 2
PROSPECTUS SUMMARY
The Company 3
The Offering 3
Risk Factors 3
RISK FACTORS 6
FORWARD-LOOKING STATEMENTS 16
USE OF PROCEEDS 17
SELLING STOCKHOLDERS 17
PLAN OF DISTRIBUTION 18
INDEMNIFICATION OF DIRECTORS AND OFFICERS 19
LEGAL MATTERS 19
EXPERTS 19
AVAILABLE INFORMATION
The Company is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith is required to file periodic reports, proxy statements and other
information with the U.S. Securities and Exchange Commission (the "Commission").
The reports, proxy statements and other information filed by the Company can be
inspected and copied at the public reference facilities maintained by the
Commission at 100 F Street, N.E., Washington, D.C. 20549, and at the
Commission's Regional Offices. Copies of such materials can also be obtained by
1
mail from the public reference facilities of the Commission at 100 F Street,
N.E., Washington, D.C. 20549 at prescribed rates. You may obtain information on
the operation of the Public Reference Room by calling the Commission at
1-(800)-SEC-0330. The Commission also maintains a site on the World Wide Web
that contains reports, proxy and information statements and other information
regarding registrants that file electronically. The address of such site is
http://www.sec.gov. See "Incorporation of Certain Documents by Reference."
Our public website is http://www.tidelandsoilandgas.com. We make available free
of charge on our website, via a link to our Real-Time SEC filings, our annual
reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form
8-K, proxy statements and Forms 3, 4 and 5 filed on behalf of directors and
executive officers and any amendments to such reports filed or furnished
pursuant to the Exchange Act as soon as reasonably practicable after such
material is electronically filed with, or furnished to, the SEC.
The Company has filed with the Commission a Registration Statement on Form S-8
under the Securities Act with respect to the shares of Common Stock offered by
this Reoffer Prospectus. This Reoffer Prospectus does not contain all the
information set forth in or annexed as exhibits to the Registration Statement.
For further information with respect to the Company and the Shares of Common
Stock offered by this Reoffer Prospectus, reference is made to the Registration
Statement and to the financial statements, schedules and exhibits filed as part
thereof or incorporated by reference herein. Copies of the Registration
Statement, together with such financial statements, schedules and exhibits, may
be obtained from the public reference facilities of the Commission at the
addresses listed above, upon payment of the charges prescribed therefor by the
Commission. Statements contained in this Reoffer Prospectus as to the contents
of any contract or other document referred to are not necessarily complete and,
in each instance, reference is made to the copy of such contract or other
documents, each such statement being qualified in its entirety by such
reference. Copies of such contracts or other documents, to the extent that they
are exhibits to the Registration Statement or incorporated by reference, may be
obtained from the public reference facilities of the Commission, upon the
payment of the charges prescribed therefor by the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents heretofore filed by the Company with the Commission
pursuant to the Exchange Act are hereby incorporated by reference, except as
superseded or modified herein:
(A) The Company's annual report on Form 10-K for the fiscal year ended December
31, 2005.
(B) All other reports filed pursuant to Section 13(a) or 15(d) of the Exchange
Act since the end of the fiscal year covered by the Company's annual report
referred to in (a) above.
In addition, all documents filed by the Company pursuant to Sections 13(a),
13(c), 14 and 15(d) of the Exchange Act after the date of this Reoffer
Prospectus and prior to the termination of the offering of the Shares of Common
Stock shall be deemed to be incorporated in and made a part of this Reoffer
Prospectus by reference from the date of filing of such documents. Any statement
contained in a document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this Reoffer
Prospectus to the extent that a statement contained herein or in any
subsequently filed document that is also incorporated by reference herein
modifies or replaces such statement. Any statements so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of this Reoffer Prospectus.
2
The Company hereby undertakes to provide without charge to each person,
including any beneficial owner of Shares of Common Stock, to whom this Reoffer
Prospectus is delivered, on written or oral request of any such person, a copy
of any or all of the foregoing documents incorporated herein by reference (other
than exhibits to such documents). Written or oral requests for such copies
should be directed to the Company at 1862 West Bitters Rd., San Antonio, TX
78248, telephone number (210) 764-8642, attention Corporate Secretary.
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this Reoffer
Prospectus. This summary is not complete and may not contain all of the
information that you should consider before purchasing our Common Stock. Certain
statements made in this Reoffer Prospectus constitute "forward-looking
statements" under the Private Securities Litigation Reform Act of 1995. See
"Forward-Looking Statements."
The Company
Tidelands Oil & Gas Corporation (the "Company"), formerly known as C2
Technologies, Inc., was incorporated under the laws of the State of Nevada on
February 25, 1997. C2 Technologies, Inc. changed its name to Tidelands Oil & Gas
Corporation on November 19, 1998. The Company has eleven subsidiaries which it
directly and indirectly owns as follows: (1) Rio Bravo Energy LLC, (2) Arrecefe
Management LLC, (3) Marea Associates, L.P. , (4) Terranova Energia, S.de R.L. de
C.V., (5) Esperanza Energy LLC and (6) Sonterra Energy Corporation. We also own
a 97% limited partnership interest in Reef Ventures, L.P.(7) Arrecefe
Management, LLC owns a 1% general partner interest in Reef Ventures, L.P. Rio
Bravo Energy, LLC owns 100% of the member interest in Sonora Pipeline LLC. (8)
Reef Ventures, L.P. owns 100% of the member interest in Reef International
LLC(9), Reef Marketing LLC(10) and (11) Tidelands Exploration and Production,
Inc.
The Company's products and services are primarily focused on development and
operation of transportation, processing, distribution and storage projects for
natural gas and natural gas liquids in the northeastern states of Mexico
(Chihuahua, Coahuila, Nuevo Leon and Tamaulipas) and the State of Texas.
Unless otherwise noted, the "Company" as used in this Prospectus, will refer to
Tidelands Oil & Gas Corporation as described above.
Our principal offices are located at 1862 W. Bitters Rd., San Antonio, TX 78248.
Our telephone number is 210-764-8642.
The Offering
The Selling Stockholder may offer and sell up to 1,150,000 Shares of our Common
Stock under this Reoffer Prospectus. We will not receive any of the proceeds
from the sale of these Shares.
Recent Developments
In the first two fiscal quarters of 2006, several significant developments
occurred with respect to our businesses operated by our Company.
3
Financing Transaction
---------------------
On January 20, 2006, the Tidelands' entered into Securities Purchase Agreements
with the following accredited investors, Palisades Master Fund, Crescent
International, Ltd., Double U Master Fund, LP, JGB Capital, LP, Nite Capital, LP
and RHP Master Fund, Ltd (collectively, "Purchasers"). We sold $6,569,732
Dollars, in the aggregate principal amount, of discounted convertible
debentures("Debentures") and Series "A" and Series "B" Warrants to purchase
common stock ("Warrants") for an aggregate payment of $5,396,098 after deduction
for the interest discount. The Company paid an 8% commission to the placement
agent, HPC Capital Management, LLC., a registered broker-dealer. The Company
granted HPC Capital Management Series A Common Stock Purchase Warrants as
additional transaction compensation. The Company received net proceeds
of$4,949,291 after deduction of legal costs, commissions and interest discount.
We are using the proceeds for working capital. This registration statement and
prospectus covers the re-offer and re-sale of the common shares underlying the
Debentures and Warrants.
On September 20, 2006, RHP Master Fund, Ltd. ("RHP") gave the Company its notice
of default for failure to timely pay liquidated damages associated with the
Company's failure to timely register the underlying debenture shares and
warrants with the Securities and Exchange Commission. RHPO accelerated payment
of the RHP Debenture at the Mandatory Default Amount. The Mandatory Default
Amount was 130% of the aggregate principal amount of the Debenture. On September
22, 2006, the Company paid RHP the sum of $791,375 thereby discharging the RHP
debenture obligation.
Under the Debenture terms defining default events, a Holder may elect to declare
the aggregate principal Debenture amount, together with other amounts owing to
the date of acceleration, immediately due and payable in cash at the Mandatory
Default Amount. In the RHP case, the elected Mandatory Default Amount was 130%
of the aggregate principal amount of the Debenture. On September 22, 2006, the
Company paid RHP the sum of $791,375 thereby discharging the RHP debenture
obligation.
On September 26, 2006, Palisades Master Fund, L.P. ("Palisades") gave the
Company its notice of election accelerating payment of the Palisades Debenture
at the Mandatory Default Amount asserting a cross default event triggered by the
RHP Master Fund, Ltd. Notice of Default Event received by the Company on
September 20, 2006, as disclosed in the Current Report filed on Form 8-K on
September 25, 2006. Palisades demanded immediate payment of its Debenture at the
Mandatory Default Amount of $5,597,687.
On September 28, 2006, Company entered into a Waiver and Amendment Agreement
(the, "Agreement") with Palisades and all of the remaining Holders, which
include Crescent International, Ltd., Double U Master Fund, L.P., JGB Capital,
L.P. and Nite Capital, L.P.
In consideration of that Agreement, all existing events of default known to the
Holders were waived in consideration of the issuance of 2,828,304 common shares.
The Company will issue the shares as follows: Palisades: 2,000,000; Crescent
International, Ltd.: 304,375; Double U Master Fund, L.P.:152,179; JGB
Capital,L.P.: 250,000; and Nite Capital, L.P.: 121,750.
On April 17, 2006, we filed an amendment to our articles of incorporation
increasing our authorized common stock capital from One Hundred Million
(100,000,000) shares, par value $0.001 per share to Two Hundred Fifty Million
(250,000,000) shares, par value $0.001 per share. The amendment was approved by
written consent of 77.5% of our Company shareholders.
4
Esperanza Energy LLC
--------------------
Esperanza Energy LLC ("Esperanza") was formed as a wholly owned subsidiary of
the Company in March 2006 to evaluate the feasibility of developing an offshore,
deep-water liquefied natural gas (LNG) regas terminal near Long Beach,
California. Esperanza would utilize TORP Technology's HiLoad LNG Regas unit
which attaches to an LNG tanker, directly vaporizes the LNG as it is offloaded
and injects the regasified natural gas into an undersea pipeline for
transportation of the natural gas to onshore metering stations and transmission
pipelines to supply nearby gas markets. The TORP HiLoad LNG Regas unit
eliminates the need for extensive above-ground storage tanks or large marine
structures required for berthing and processing of the LNG. Esperanza is
conducting the feasibility study for this project with the assistance of
best-in-class LNG, environmental, pipeline and legal advisors.
Sonora Pipeline LLC and Terranova Energia, S. de R.L. de C.V.
-------------------------------------------------------------
The cross-border gas pipeline and storage development activities of the above
entities to establish the Burgos Hub Export/Import project progressed forward in
two principal areas:
Permitting Activities:
----------------------
Sonora Pipeline LLC continued its efforts to finish all activities necessary to
move from NEPA pre-filing status to a submission for Certification for its two
international pipeline U.S. segments, the Progreso International Pipeline and
the Mission International Pipeline. Sonora believes it has filed all needed
revisions to the Draft Environmental Report for the Progreso International
Pipeline with FERC for purposes of the NEPA Environmental Assessment
requirements. This proposed pipeline will be the eastern leg of the U.S.
pipelines which will interconnect with the Tennessee Gas Pipeline transmission
lines at the Alamo Station and will deliver natural gas to the proposed Brasil
Storage facility approximately 17 miles south of the U.S./Mexico border at
Progreso, Texas. The proposed Mission International Pipeline segment was
re-designed in the first quarter of 2006 due to a routing conflict with a fiber
optic line. It will be approximately 24 miles long and will commence at the
existing HPL Valero-Gilmore gas plant in Hidalgo County, Texas and will extend
southward to the Arguelles crossing of the Rio Grande River into Mexico near the
city of Mission, Texas. The completion of NEPA pre-filing activities for the
Mission segment including responses to FERC inquiries and scoping of affected
stakeholders is anticipated during the second quarter of 2006. The current
catalog of FERC correspondence for Sonora's activities is located at
www.ferc.gov under Docket No. PF05-15.
On June 5, 2006, Tidelands Oil & Gas Corporation subsidiary, Terranova Energia,
S.de R.L. de C.V. was awarded a Permit (#G/183/TRA 2006) by the Comision
Reguladora de Energia de Mexico (CRE) to begin construction of the Terranova
Occidente and Oriente pipeline portions of its Burgos Hub Export/Import Project.
The Permit is for the Occidente and Oriente Sections of the Terranova pipelines.
The Occidente section will feature a 30-inch diameter pipeline, spanning
approximately 323 kilometers in length and will run from the Brasil storage
field to Nuevo Progreso, Mexico, with a proposed international pipeline crossing
into South Texas from Mexico at the Donna Station, which will provide the
opportunity for interconnects into Texas with TETCO, TGPL and Texas Gas
Services. The pipeline will also include a section that will stretch from the
Brasil storage field to Station 19 and up to Arguelles where another proposed
international pipeline crossing into South Texas is planned with opportunities
5
to interconnect with Houston Pipeline, Calpine and Kinder Morgan. A 36-inch
diameter pipeline spanning some 149 kilometers will characterize the Oriente
Section of the Terranova pipelines. It will run from the proposed offshore LNG
Regasification Terminal to Norte Puerto Mezquital and proceed to the Brazil
storage field. Both Terranova pipelines are designed to flow natural gas
bi-directionally between Texas and Mexico at a rate of approximately 1.2 BCFD
(billion cubic feet per day).
Additionally, we submitted the storage permit to the CRE on August 5, 2005 and
it was accepted for full review on October 14, 2005. Several unique questions
are presented by the filing of this permit due to the proposed location and the
lack of previous storage permit applications having been considered by the CRE.
We believe the CRE will consider and issue a decision on the storage permit
application by the first quarter of 2007.
Commercial Activities:
----------------------
The Company continues to present the pipeline and storage segments of the Burgos
Hub Export/Import project to commercial audiences in efforts to solicit their
interest and participation in the project at various levels. There have been
numerous introductory meetings with staff of the CFE and the Monterrey
industrial consumers of natural gas with a view toward clarifying their need and
usage of the proposed project facilities. Future efforts will concentrate on the
development and negotiation of precedent agreements for capacity reservation of
the project facilities. Preliminary evaluation of demand for storage capacity
reservation based upon direct discussion with the various customers is
conservatively estimated at 40 Bcf for the market area influenced by the
project. Similarly, several discussions continue with interested parties in the
U.S. and Mexico regarding the execution of a joint development agreement between
Terranova and their firms for the funding, development and ownership of the
Project.
RISK FACTORS
An investment in the Securities offered in this Prospectus involves a high
degree of risk and should only be made by persons who can afford the loss of
their entire investment. Accordingly, prospective investors should consider
carefully the following factors, in addition to the other information concerning
the Company and its business contained in this Prospectus, before purchasing the
Securities offered hereby. An investment in the common stock the selling
shareholders are offering to resell is risky. You should be able to bear a
complete loss of your investment. Before purchasing any of the common stock, you
should carefully consider the following risk factors, among others.
In addition to the other information presented in this report, the following
should be considered carefully in evaluating our business or purchasing shares
of our common stock. Investing in our common stock involves a high degree of
risk. This report contains various forward looking statements that involve risk
and uncertainties. Our actual results may differ materially from the results
discussed in the forward looking statements. Factors that might cause such a
difference include, but are not limited to, those discussed below and elsewhere
in this report.
OPERATING LOSSES
We have had significant losses ever since starting business and we expect to
continue losing money for some time. To date, we have incurred significant
losses. For the year ended December 31, 2005, we lost $7,662,904 and for the
year ended December 31, 2004, we lost $14,302,037. These losses were caused
primarily by:
6
o Financing costs in connection with acquisitions made in prior
years and the issuance of convertible debentures;
o Limited volumes of gas transported through the international
pipeline crossing;
o Pre-development and operating expenses associated with the
development of additional pipeline and storage projects in
Mexico;
o Idle assets not producing revenue, such as the gas plant and
associated pipeline.
LIMITED OPERATING HISTORY.
We have a limited operating history and our financial health will be subject to
all the risks inherent in the establishment of a new business enterprise. The
likelihood of success of our company must be considered in the light of the
problems, expenses, difficulties, complications, and delays frequently
encountered in connection with the startup and growth of a new business, and the
competitive environment in which we will operate. Our success is dependent upon
the successful financing and development of our business plan. No assurance of
success is offered. Unanticipated problems, expenses, and delays are frequently
encountered in establishing a new business and marketing and developing
products. These include, but are not limited to, competition, the need to
develop customers and market expertise, market conditions, sales, marketing and
governmental regulation. The failure of the Company to meet any of these
conditions would have a materially adverse effect upon the Company and may force
the Company to reduce or curtail operations. No assurance can be given that the
Company can or will ever operate profitably.
WE DEPEND HEAVILY ON THE CONTINUED SERVICE OF OUR CHIEF EXECUTIVE OFFICER.
We place substantial reliance upon the efforts and abilities of Michael Ward,
our chief executive officer. The loss of Mr. Ward's services could have a
serious adverse effect on our business, operations, revenues or prospects. We
maintain key man insurance on his life in the amount of One Million Dollars.
RELIANCE ON MANAGEMENT.
All decisions with respect to the management of our Company will be made by our
Company's directors and officers. Accordingly, no person should purchase any
shares offered by this Prospectus unless the subscriber is willing to entrust
all aspects of management to the Directors and Officers of our Company. The loss
of their services could have a material adverse effect on our Company's business
and prospects.
TRADING IN OUR COMMON STOCK ON THE OTC BULLETIN BOARD MAY BE LIMITED.
Our common stock trades on the OTC Bulletin Board. The OTC Bulletin Board is not
an exchange. Trading of securities on the OTC Bulletin Board is often more
sporadic than the trading of securities listed on an exchange or NASDAQ. You may
have difficulty reselling any of the shares that you purchase from the selling
shareholders.
THERE HAS BEEN AN VOLATILE PUBLIC MARKET FOR OUR COMMON STOCK AND THE PRICE OF
OUR STOCK MAY BE SUBJECT TO FLUCTUATIONS.
We cannot assure you that a liquid transparent trading market for our common
stock will develop or be sustained. You may not be able to resell your shares at
or above the initial offering price. The market price of our common stock is
likely to be volatile and could be subject to fluctuations in response to
factors such as the following, most of which are beyond our control:
7
o operating results that vary from the expectations of
securities analysts and investors;
o changes in expectations as to our future financial
performance, including financial estimates by securities
analysts and investors;
o the operations, regulatory, market and other risks discussed
in this section;
o announcements by us or our competitors of significant
contracts, acquisitions, strategic partnerships, joint
ventures or capital commitments;
o announcements by third parties of significant claims or
proceedings against us; and
o future sales of our common stock.
In addition, the market for our stock has from time to time experienced extreme
price and volume fluctuations. These broad market fluctuations may adversely
affect the market price of our common stock.
OUR COMMON STOCK IS SUBJECT TO PENNY STOCK REGULATION.
Our common stock is subject to regulations of the Securities and Exchange
Commission relating to the market for penny stocks. The Securities Enforcement
and Penny Stock Reform Act of 1990 (the "Reform Act") also requires additional
disclosure in connection with any trades involving a stock defined as a "penny
stock" (generally, according to recent regulations adopted by the Commission,
any equity security that has a market price of less than $5.00 per share,
subject to certain exceptions), including the delivery, prior to any penny stock
transaction, of a disclosure schedule explaining the penny stock market and the
risks associated therewith. These regulations generally require broker-dealers
who sell penny stocks to persons other than established customers and accredited
investors to deliver a disclosure schedule explaining the penny stock market and
the risks associated with that market. These regulations also impose various
sales practice requirements on broker-dealers. The regulations that apply to
penny stocks may severely affect the market liquidity for our securities and
that could limit your ability to sell your securities in the secondary market.
RISKS RELATING TO LOW-PRICE STOCKS.
Because our stock is quoted on the NASD OTC Electronic Bulletin Board and
subject to the Penny Stock Regulations, an investor may find it difficult to
dispose of, or to obtain accurate quotations as to the market value of, our
Company's securities. The regulations governing low-priced or penny stocks could
limit the ability of broker-dealers to sell the Company's securities and thus
the ability of the purchasers of this Offering to sell their securities in the
secondary market.
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.
8
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.
WE CAN GIVE NO ASSURANCE REGARDING THE AMOUNTS OF CASH THAT WE WILL GENERATE.
The actual amounts of cash we generate will depend upon numerous factors
relating to our business which may be beyond our control, including:
o the demand for natural gas;
o profitability of operations;
o required principal and interest payments on any debt we may incur;
o the cost of acquisitions;
o our issuance of equity securities;
o fluctuations in working capital;
o capital expenditures;
o continued development of gas transportation network systems;
o prevailing economic conditions;
o government regulations.
WE DO NOT EXPECT TO PAY DIVIDENDS FOR SOME TIME, IF AT ALL.
No cash dividends have been paid on the Common Stock. We expect that any income
received from operations will be devoted to our future operations and growth. We
do not expect to pay cash dividends in the near future. Payment of dividends
would depend upon our profitability at the time, cash available for those
dividends, and other factors.
COMPETITION
Our Company will be competing with other established businesses that market
similar products. Many of these companies have greater capital, marketing and
other resources than we do. There can be no assurance that these or other
companies will not develop new or enhanced products that have greater market
acceptance than any that may be marketed by the Company. There can be no
assurance that our Company will successfully differentiate itself from its
competitors or that the market will consider our products to be superior or to
or more appealing than those of our competitors. Market entry by any significant
competitor may have an adverse effect on our sales and profitability. See
"Competition."
9
WE OPERATE IN HIGHLY COMPETITIVE MARKETS IN COMPETITION WITH A NUMBER OF
DIFFERENT COMPANIES.
We face strong competition in our geographic areas of operations. Our
competitors include major integrated oil companies, interstate and intrastate
pipelines. We compete with integrated companies that have greater access to raw
natural gas supply and are less susceptible to fluctuations in price or volume,
and some of our competitors that have greater financial resources may have an
advantage in competing for acquisitions or other new business opportunities.
GROWING OUR BUSINESS BY CONSTRUCTING NEW PIPELINES AND PROCESSING FACILITIES
SUBJECTS US TO CONSTRUCTION RISKS AND RISKS THAT RAW NATURAL GAS SUPPLIES WILL
NOT BE AVAILABLE UPON COMPLETION OF THE FACILITIES.
One of the ways we intend to grow our business is through the construction of
additions to our existing gathering systems, modification of our existing gas
processing plant and construction of new processing facilities. The construction
of gathering and processing facilities requires the expenditure of significant
amounts of capital, which may exceed our expectations. Generally, we may have
only limited raw natural gas supplies committed to these facilities prior to
their construction. Moreover, we may construct facilities to capture anticipated
future growth in production in a region in which anticipated production growth
does not materialize. As a result, there is the risk that new facilities may not
be able to attract enough raw natural gas to achieve our expected investment
return, which could adversely affect our results of operations and financial
condition.
A SIGNIFICANT COMPONENT OF OUR GROWTH STRATEGY WILL BE ACQUISITIONS AND WE MAY
NOT BE ABLE TO COMPLETE FUTURE ACQUISITIONS SUCCESSFULLY.
Our business strategy will emphasize growth through strategic acquisitions, but
we cannot assure you that we will be able to identify attractive or willing
acquisition candidates or that we will be able to acquire these candidates on
economically acceptable terms. Competition for acquisition opportunities in our
industry exists and may increase. Any increase in the level of competition for
acquisitions may increase the cost of, or cause us to refrain from, completing
acquisitions.
Our strategy of acquisitions is dependent upon, among other things, our ability
to obtain debt and equity financing and possible regulatory approvals. Our
ability to pursue our growth strategy may be hindered if we are not able to
obtain financing or regulatory approvals, including those under federal and
state antitrust laws. Our ability to grow through acquisitions and manage such
growth will require us to invest in operational, financial and management
information systems and to attract, retain, motivate and effectively manage our
employees. The inability to manage the integration of acquisitions effectively
could have a material adverse effect on our financial condition, results of
operations and business. Pursuit of our acquisition strategy may cause our
financial position and results of operations to fluctuate significantly from
period to period.
IF WE ARE UNABLE TO MAKE ACQUISITIONS ON ECONOMICALLY AND OPERATIONALLY
ACCEPTABLE TERMS, OUR FUTURE FINANCIAL PERFORMANCE MAY BE LIMITED.
There can be no assurance that:
o we will identify attractive acquisition candidates in the
future;
o we will be able to acquire assets on economically acceptable
terms;
10
o any acquisitions will not be dilutive to earnings and
operating surplus; or
o any debt incurred to finance an acquisition will not affect
our ability to make distributions to you.
If we are unable to make acquisitions on economically and operationally
acceptable terms, our future financial performance will be limited to the
performance of our present gas gathering network.
Our acquisition strategy involves many risks, including:
o difficulties inherent in the integration of operations and
systems;
o the diversion of management's attention from other business
concerns; and
o the potential loss of key employees of acquired businesses.
In addition, future acquisitions may involve significant expenditures. Depending
upon the nature, size and timing of future acquisitions, we may be required to
secure financing. We cannot assure you that additional financing will be
available to us on acceptable terms.
OUR BUSINESS IS DEPENDENT UPON PRICES AND MARKET DEMAND FOR NATURAL GAS AND
PROPANE, WHICH ARE BEYOND OUR CONTROL AND HAVE BEEN EXTREMELY VOLATILE.
We are subject to significant risks due to fluctuations in commodity prices,
primarily with respect to the prices of gas that we may own as a result of our
processing and distribution activities.
The markets and prices for residue gas depend upon factors beyond our control.
These factors include demand for oil, and natural gas, which fluctuate with
changes in market and economic conditions and other factors, including:
o the impact of weather on the demand for oil and natural gas;
o the level of domestic oil and natural gas production;
o the availability of imported oil and natural gas;
o the availability of local, intrastate and interstate
transportation systems;
o the availability and marketing of competitive fuels;
o the impact of energy conservation efforts; and
o the extent of governmental regulation and taxation.
WE GENERALLY DO NOT OWN THE LAND ON WHICH OUR PIPELINES ARE CONSTRUCTED AND WE
ARE SUBJECT TO THE POSSIBILITY OF INCREASED COSTS FOR THE LOSS OF LAND USE.
We generally do not own the land on which our pipelines are constructed.
Instead, we obtain the right to construct and operate the pipelines on other
people's land for a period of time. If we were to lose these rights, our
business could be affected negatively.
RISKS RELATED TO THE RETAIL PROPANE AND ASSOCIATED BUSINESSES
o Decreases in the demand for propane because of warmer weather
may adversely affect our financial condition and results of
operations.
11
o Weather conditions have a significant impact on the demand for
propane for heating purposes. All of our propane customers
rely heavily on propane as a heating fuel. The volume of
propane sold is at its highest during the six-month peak
heating season of October through March and is directly
affected by the severity of the winter weather. We estimate
that approximately two-thirds of our annual retail propane
volume will be sold during these months. Actual weather
conditions can vary substantially from quarter to quarter and
year to year, significantly affecting our financial
performance. Furthermore, warmer than normal temperatures in
our service area can significantly decrease the total volume
of propane we sell. Consequently, our operating results may
vary significantly due to actual changes in temperature.
Weather conditions in any quarter or year may have a material
adverse effect on our operations.
o Sudden and sharp propane price increases that cannot be passed
on to customers may adversely affect our profits, income, and
cash flow.
o Energy efficiency and technology may reduce the demand for
propane and our revenues.
o The national trend toward increased conservation and
technological advances, including installation of improved
insulation and the development of more efficient furnaces and
other heating devices, has adversely affected the demand for
propane by retail customers. Future conservation and
efficiency measures or technological advances in heating,
conservation, energy generation, or other devices might reduce
demand for propane and our revenues.
o The propane business is highly regulated. New or stricter
environmental, health, or safety regulations may increase our
operating costs and reduce our net income.
o The propane business is subject to a wide range of federal,
state, and local environmental, transportation, health and
safety laws and regulations governing the storage,
distribution, and transportation of propane. We may have
increased costs in the future due to new or stricter safety,
health, transportation, and environmental regulations or
liabilities resulting from non compliance with operating or
other regulatory permits. The increase in any such costs may
reduce our net income.
o We will be subject to all operating hazards and risks normally
associated with handling, storing, transporting, and
delivering combustible liquids such as propane for use by
consumers. As a result, we may be a defendant in various legal
proceedings and litigation arising in the ordinary course of
business. Our insurance may not be adequate to protect us from
all material expenses related to potential future claims for
personal injury and property damage or that insurance will be
available in the future at economical prices. In addition, the
occurrence of a serious accident, whether or not we are
involved, may have an adverse effect on the public's desire to
use our products.
GOVERNMENT REGULATION AND ENVIRONMENTAL MATTERS
Our business is regulated by certain local, state and federal laws and
regulations relating to the exploration for, and the development, production,
marketing, pricing, transportation and storage of, natural gas and oil. We are
also subject to extensive and changing environmental and safety laws and
12
regulations governing plugging and abandonment, the discharge of materials into
the environment or otherwise relating to environmental protection. In addition,
we are subject to changing and extensive tax laws, and the effect of newly
enacted tax laws cannot be predicted. The implementation of new, or the
modification of existing, laws or regulations, including regulations which may
be promulgated under the Oil Pollution Act of 1990, could have a material
adverse effect on the Company.
FEDERAL, STATE OR LOCAL REGULATORY MEASURES COULD ADVERSELY AFFECT OUR BUSINESS.
While the Federal Energy Regulatory Commission, or FERC, does not directly
regulate the major portions of our operations, federal regulation, directly or
indirectly, influences certain aspects of our business and the market for our
products. As a raw natural gas gatherer and not an operator of interstate
transmission pipelines, we generally are exempt from FERC regulation under the
Natural Gas Act of 1938, but FERC regulation still significantly affects our
business. In recent years, FERC has pursued pro-competition policies in its
regulation of interstate natural gas pipelines. However, we cannot assure you
that FERC will continue this approach as it considers proposals by pipelines to
allow negotiated rates not limited by rate ceilings, pipeline rate case
proposals and revisions to rules and policies that may affect rights of access
to natural gas transportation capacity. We are currently attempting to permit
two pipeline segments in South Texas as part of our Burgos Hub and storage
project that will be subject to FERC regulation it built and operated.
While state public utility commissions do not regulate our business, state and
local regulations do affect our business. We are subject to ratable take and
common purchaser statutes in the states where we operate. Ratable take statutes
generally require gatherers to take, without undue discrimination, natural gas
production that may be tendered to the gatherer for handling. Similarly, common
purchaser statutes generally require gatherers to purchase without undue
discrimination as to source of supply or producer. These statutes are designed
to prohibit discrimination in favor of one producer over another producer or one
source of supply over another source of supply. These statutes also have the
effect of restricting our right as an owner of gathering facilities to decide
with whom we contract to purchase or transport natural gas. Federal law leaves
any economic regulation of raw natural gas gathering to the states, and some of
the states in which we operate have adopted complaint-based or other limited
economic regulation of raw natural gas gathering activities. States in which we
operate that have adopted some form of complaint-based regulation, like
Oklahoma, Kansas and Texas, generally allow natural gas producers and shippers
to file complaints with state regulators in an effort to resolve grievances
relating to natural gas gathering access and rate discrimination. The states in
which we conduct operations administer federal pipeline safety standards under
the Pipeline Safety Act of 1968, and the "rural gathering exemption" under that
statute that our gathering facilities currently enjoy may be restricted in the
future. The "rural gathering exemption" under the Natural Gas Pipeline Safety
Act of 1968 presently exempts substantial portions of our gathering facilities
from jurisdiction under that statute, including those portions located outside
of cities, towns, or any area designated as residential or commercial, such as a
subdivision or shopping center.
OUR BUSINESS INVOLVES HAZARDOUS SUBSTANCES AND MAY BE ADVERSELY AFFECTED BY
ENVIRONMENTAL REGULATION.
Many of the operations and activities of our gathering systems, plants and other
facilities are subject to significant federal, state and local environmental
laws and regulations. These include, for example, laws and regulations that
impose obligations related to air emissions and discharge of wastes from our
facilities and the cleanup of hazardous substances that may have been released
at properties currently or previously owned or operated by us or locations to
13
which we have sent wastes for disposal. Various governmental authorities have
the power to enforce compliance with these regulations and the permits issued
under them, and violators are subject to administrative, civil and criminal
penalties, including civil fines, injunctions or both. Liability may be incurred
without regard to fault for the remediation of contaminated areas. Private
parties, including the owners of properties through which our gathering systems
pass, may also have the right to pursue legal actions to enforce compliance as
well as to seek damages for non-compliance with environmental laws and
regulations or for personal injury or property damage.
There is inherent risk of the incurrence of environmental costs and liabilities
in our business due to our handling of natural gas and other petroleum products,
air emissions related to our operations, historical industry operations, waste
disposal practices and the prior use of natural gas flow meters containing
mercury. In addition, the possibility exists that stricter laws, regulations or
enforcement policies could significantly increase our compliance costs and the
cost of any remediation that may become necessary. We cannot assure you that we
will not incur material environmental costs and liabilities. Furthermore, we
cannot assure you that our insurance will provide sufficient coverage in the
event an environmental claim is made against us.
Our business may be adversely affected by increased costs due to stricter
pollution control requirements or liabilities resulting from non-compliance with
required operating or other regulatory permits. New environmental regulations
might adversely affect our products and activities, including processing,
storage and transportation, as well as waste management and air emissions.
Federal and state agencies also could impose additional safety requirements, any
of which could affect our profitability.
RISK OF ADDITIONAL COSTS AND LIABILITIES RELATED TO ENVIRONMENTAL AND SAFETY
REGULATIONS AND CLAIMS
Our pipeline operations are subject to various federal, state and local
environmental, safety, health and other laws, which can increase the cost of
planning, designing, installing and operating such facilities. There can be no
assurance that costs and liabilities relating to compliance will not be incurred
in the future. Moreover, it is possible that other developments, such as
increasingly strict environmental and safety laws, regulations and enforcement
policies thereunder, and claims for damages to property or persons resulting
from our operations, could result in additional costs to and liabilities for us.
GOVERNMENTAL REGULATION OF OUR PIPELINES COULD INCREASE OUR OPERATING COSTS
Currently our operations involving the gathering of natural gas from wells are
exempt from regulation under the Natural Gas Act. Section 1(b) of the Natural
Gas Act provides that the provisions of the Act shall not apply to facilities
used for the production or gathering of natural gas. Our physical dimensions and
operations support the conclusion that our facilities perform primarily a
gathering function. We should not, therefore, be subject to Natural Gas Act
regulation. There, however, can be no assurance that this will remain the case.
The Federal Energy Regulatory Commission's oversight of entities subject to the
Natural Gas Act includes the regulation of rates, entry and exit of service,
acquisition, construction and abandonment of transmission facilities, and
accounting for regulatory purposes. The implementation of new laws or policies
that would subject us to regulation by the Federal Energy Regulatory Commission
under the Natural Gas Act could have a material adverse effect on our financial
condition and operations. Similarly, changes in the method or circumstances of
operation, or in the configuration of facilities, could result in changes in our
regulatory status.
Our gas gathering operations are subject to regulation at the state level, which
increases the costs of operating our pipeline facilities. Matters subject to
regulation include rates, service and safety. We have been granted an exemption
14
from regulation as a public utility in Texas. Presently, our rates are not
regulated in Texas. Changes in state regulations, or our status under these
regulations due to configuration changes in our operating facilities, that
subject us to further regulation could have a material adverse effect on our
financial condition. Litigation or governmental regulation relating to
environmental protection and operational safety may result in substantial costs
and liabilities.
Our operations are subject to federal and state environmental laws under which
owners of natural gas pipelines can be liable for clean-up costs and fines in
connection with any pollution caused by the pipelines. We can also be liable for
clean-up costs resulting from pollution which occurred before our acquisition of
the gathering systems. In addition, we are subject to federal and state safety
laws that dictate the type of pipeline, quality of pipe protection, depth,
methods of welding and other construction-related standards. While we believe
that the gathering systems comply in all material respects with applicable laws,
we cannot assure you that future events will not occur for which we may be
liable. Possible future developments, including stricter laws or enforcement
policies, or claims for personal or property damages resulting from our
operations could result in substantial costs and liabilities to us.
SOVEREIGN RISK
The Company is focusing on the development of infrastructure projects through
its Mexican entity, Terranova Energia S.de R.L. de C.V., in the nation of the
United Mexican States (Mexico). The risk of indirect or regulatory actions by
local, state or federal authorities in Mexico which may inhibit, delay, hinder
or block projects under development in Mexico is very high given the history of
operations conducted by past businesses other than the Company in Mexico. There
is a substantial risk that a set of actions taken by commission or omission by
the various actors in the public, private, nongovernmental and/or social sectors
could negatively impact a project or investment in Mexico. The legal system
employed in Mexico is dramatically different in its structure and method of
operation compared to the common law foundation present in the United States of
America. The level of legal protection afforded investors by the North American
Free Trade Agreement has not materially improved from a foreign investor's
viewpoint.
There can be no assurance that a commercially viable project will be completed
due to the above factors which could result in commercial competitors trying to
circumvent the market system through the exploitation of undocumented,
extraofficial channels of influence that constitute unfair competition. Federal,
state and local authorities are not well coordinated in their legal protections
and improper influence and competition may arise from any level of government to
disrupt or destroy the commercial viability of investments by foreign investors.
While the Company has taken precautions to limit its investments to prudent
levels, there is a continuing risk of adverse activities arising from the above
sources that could impair or result in the entire loss of investment in
otherwise commercially viable projects initiated by the Company in Mexico.
PIPELINE SYSTEM OPERATIONS ARE SUBJECT TO OPERATIONAL HAZARDS AND UNFORESEEN
INTERRUPTIONS
The operations of our pipeline systems are subject to hazards and unforeseen
interruptions, including natural disasters, adverse weather, accidents or other
events, beyond our control. A casualty occurrence might result in injury and
extensive property or environmental damage. Although we intend to maintain
customary insurance coverages for gathering systems of similar capacity, we can
offer no assurance that these coverages will be sufficient for any casualty loss
we may incur.
15
OPERATING RISKS OF NATURAL GAS OPERATIONS
The natural gas business involves certain operating hazards. The availability of
a ready market for our natural gas products also depends on the proximity of
reserves to, and the capacity of, natural gas gathering systems, pipelines and
trucking or terminal facilities. As a result, substantial liabilities to third
parties or governmental entities may be incurred, the payment of which could
reduce or eliminate the funds available for exploration, development or
acquisitions or result in the loss of the Company's properties. In accordance
with customary industry practices, the Company maintains insurance against some,
but not all, of such risks and losses. The Company does not carry business
interruption insurance. The occurrence of such an event not fully covered by
insurance could have a material adverse effect on the financial condition and
results of operations of the Company.
OUR BUSINESS INVOLVES MANY HAZARDS AND OPERATIONAL RISKS, SOME OF WHICH MAY NOT
BE COVERED BY INSURANCE.
Our operations are subject to the many hazards inherent in the gathering,
compressing, treating and processing of raw natural gas and NGLs and storage of
residue gas, including ruptures, leaks and fires. These risks could result in
substantial losses due to personal injury and/or loss of life, severe damage to
and destruction of property and equipment and pollution or other environmental
damage and may result in curtailment or suspension of our related operations. We
are not fully insured against all risks incident to our business. If a
significant accident or event occurs that is not fully insured, it could
adversely affect our operations and financial condition.
INSURANCE
Companies engaged in the petroleum products distribution and storage business
may be sued for substantial damages in the event of an actual or alleged
accident or environmental contamination. The Company maintains $2,000,000 of
liability insurance. There can be no assurance that we will be able to continue
to maintain liability insurance at a reasonable cost in the future, or that a
potential liability will not exceed the coverage limits. Nor can there be any
assurance that the amount of insurance carried by us will enable it to satisfy
any claims for which it might be held liable resulting from the conduct of its
business operations.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
In this prospectus we make a number of statements, referred to as
"forward-looking statements", which are intended to convey our expectations or
predictions regarding the occurrence of possible future events or the existence
of trends and factors that may impact our future plans and operating results.
These forward-looking statements are derived, in part, from various assumptions
and analyses we have made in the context of our current business plan and
information currently available to us and in light of our experience and
perceptions of historical trends, current conditions and expected future
developments and other factors we believe to be appropriate in the
circumstances. You can generally identify forward-looking statements through
words and phrases such as "seek", "anticipate", "believe", "estimate", "expect",
"intend", "plan", "budget", "project", "may be", "may continue", "may likely
result", and similar expressions. When reading any forward looking statement you
should remain mindful that all forward-looking statements are inherently
uncertain as they are based on current expectations and assumptions concerning
future events or future performance of our company, and that actual results or
developments may vary substantially from those expected as expressed in or
implied by that statement for a number of reasons or factors, including those
relating to:
16
o whether or not markets for our products develop and, if they do
develop, the pace at which they develop;
o our ability to attract the qualified personnel to implement our growth
strategies,
o our ability to develop sales, marketing and distribution capabilities;
o the accuracy of our estimates and projections;
o our ability to fund our short-term and long-term financing needs;
o changes in our business plan and corporate strategies; and
o other risks and uncertainties discussed in greater detail in the
sections of this prospectus, including those captioned "Risk Factors"
and "Management's Discussion And Analysis Of Financial Condition And
Results Of Operations".
o Each forward-looking statement should be read in context with, and with
an understanding of, the various other disclosures concerning our
company and our business made elsewhere in this prospectus as well as
other pubic reports filed with the United States Securities and
Exchange Commission (the "SEC"). You should not place undue reliance on
any forward-looking statement as a prediction of actual results or
developments. We are not obligated to update or revise any
forward-looking statement contained in this prospectus to reflect new
events or circumstances unless and to the extent required by applicable
law.
USE OF PROCEEDS
All of the Shares of Common Stock are being offered by the Selling Stockholders.
We will not receive any proceeds from the sale of the Shares by the Selling
Stockholders.
SELLING STOCKHOLDER
The Shares offered under this Reoffer Prospectus are being registered for
reoffers and resales by Selling Stockholder of the Company who have acquired
such Shares under the Plan. The Selling Stockholder named in the following table
may resell all, a portion, or none of such Shares. There is no assurance that
any of the Selling Stockholder will sell any or all of the Shares offered by
them hereunder.
The following table sets forth certain information concerning the Selling
Stockholder as of the date of this Reoffer Prospectus, and as adjusted to
reflect the sale by the Selling Stockholder of the Shares offered hereby,
assuming all of the Shares offered hereby are sold:
-------------------- ------------------- ----------------- --------------- ----------------
Name Number of Shares Number of Shares Number of Percentage
Beneficially Owned Offered (2)(3) Shares Held Ownership After
(1) After Offering Offering(5)
-------------------- ------------------- ----------------- --------------- ----------------
James B. Smith (4) 2,049,000 1,150,000 899,000 1.05%
-------------------- ------------------- ----------------- --------------- ----------------
Total
-------------------- ------------------- ----------------- --------------- ----------------
17
(1) Represents shares beneficially owned by the named individual,
including shares that such person has the right to acquire within 60
days of the date of this Reoffer Prospectus pursuant to options
granted under the Plan. Unless otherwise noted, all persons referred
to above have sole investment power and will, upon exercise of the
options, have sole voting in the shares. This 2,049,000 figure
includes 1,150,000 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) Represents all outstanding Shares of Common Stock granted to the named
individuals under the Plan. The column does not include any shares
that may be acquirable under future grants of options or other stock
awards under the Plan.
(3) Does not constitute a commitment to sell any or all of the stated
number of Shares of Common Stock. The number of Shares offered shall
be determined from time to time by each Selling Stockholder at his
sole discretion.
(4) Mr. Smith is currently a member of the Company's board of directors
and Senior Vice President and CFO.
(5) Based on 85,417,922 shares issued and outstanding on October 20, 2006.
PLAN OF DISTRIBUTION
The sale of the Shares by the Selling Stockholders may be effected in
transactions on the Nasdaq OTC Bulletin Board, in negotiated transactions, or a
combination of such methods of sale. The Shares may be sold at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices or at negotiated prices. In addition, the Shares of Common Stock covered
by this Reoffer Prospectus may also be sold pursuant to Rule 144 under the
Securities Act, rather than pursuant to this Reoffer Prospectus. Because the
Company does not satisfy the requirements for use of Form S-3 under the
Securities Act, the number of Shares to be sold by any Selling Stockholder (or
any person with whom such Selling Stockholders is acting in concert for the
purpose of selling securities of the Company) selling "control securities" or
"restricted securities" (as such terms are defined under the Securities Act),
whether pursuant to this Reoffer Prospectus or otherwise, may not exceed, during
any three-month period, the amount specified by Rule 144(e) under the Securities
Act.
The Selling Stockholders may effect such transactions by selling the Shares
directly to purchasers or through underwriters or broker-dealers who may act as
agents or principals. Such underwriters or broker-dealers may receive
compensation in the form of discounts, concessions or commissions from the
Selling Stockholders or the purchasers of the Shares for whom such underwriters
or broker-dealers may act as agent or to whom they may sell as principal, or
both (which compensation as to a particular underwriter or broker-dealer may be
in excess of customary compensation).
We will not receive any of the proceeds from the sale of the Shares. While all
expenses of registration incurred in connection with this offering are being
borne by the Company, all brokerage commissions and other expenses incurred by
individual Selling Stockholders will be borne by such Selling Stockholders.
Under the rules and regulations promulgated under the Exchange Act, subject to
certain exceptions, any person engaged in a distribution of securities may not
simultaneously engage in market making activities with respect to such
securities for a period of one business day (if such securities have an average
daily trading volume over a two-month period of $100,000 and the public float
value of the issuer's equity securities is $25 million or more) or five business
days (in all other cases) prior to the day of the pricing of the securities that
are the subject of the distribution. Trading in "actively traded securities" by
18
persons other than the issuer (or Selling Stockholder) and affiliates is exempt
from such restrictions. "Actively traded securities" are securities with an
average daily trading volume of $1,000,000 issued by companies with a public
float of at least $150 million. In addition, and without limiting the foregoing,
the Selling Stockholders and any other person participating in such distribution
will be subject to other applicable provisions of the Exchange Act, including
without limitation, Rules 100 through 105 of Regulation M promulgated under the
Exchange Act, which provisions may limit the timing of purchases and sales of
any of the Shares of Common Stock by the Selling Stockholders and any other such
person.
There can be no assurance that any of the Selling Stockholders will sell any or
all of the Shares of Common Stock offered by them hereunder.
An investor may only purchase the Shares of Common Stock being offered hereby if
such shares are qualified for sale or are exempt from registration under the
applicable securities laws of the state in which such prospective purchaser
resides. We have not registered or qualified the Common Stock under any state
securities laws and, unless the sale of such Shares to a particular investor is
exempt from registration or qualification under applicable state securities
laws, the sale of such Shares to an investor may not be effected until such
Shares have been registered or qualified with applicable state securities
authorities.
Indemnification of Directors and Officers
The Nevada Corporation Law and the Company's Certificate of Incorporation and
Bylaws authorize indemnification of a director, officer, employee or agent of
the Company against expenses incurred by him or her in connection with any
action, suit, or proceeding to which such person is named a party by reason of
having acted or served in such capacity, except for liabilities arising from
such person's own misconduct or negligence in performance of duty. In addition,
even a director, officer, employee or agent of the Company who was found liable
for misconduct or negligence in the performance of duty may obtain such
indemnification if, in view of all the circumstances in the case, a court of
competent jurisdiction determines such person is fairly and reasonably entitled
to indemnification. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors, officers, or
persons controlling the Company pursuant to the foregoing provisions, the
Company has been informed that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Act and is therefore unenforceable.
LEGAL MATTERS
The legality of the securities offered hereby has been passed upon by Gregory M.
Wilson, Attorney at Law. Mr. Wilson is a shareholder of our Company.
EXPERTS
The financial statements incorporated by reference in this Reoffer Prospectus
have been audited by Baum & Company, P.A., certified public accountants, given
on the authority of that firm as experts in accounting and auditing.
PART II
INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
Item 3. Incorporation of Documents by Reference
The following documents previously filed by Tidelands Oil & Gas
Corporation (the "Company"), which are on file with the Securities and Exchange
Commission (the "Commission"), are incorporated in this registration statement
by reference:
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(a) The Company's annual report on Form 10-K for the fiscal year ended
December 31, 2005;
(b) All other reports filed pursuant to Section 13(a) or 15(d) of the
Exchange Act since the end of the fiscal year covered by the Company's
annual report referred to in (a) above.
(c) All reports and documents subsequently filed by it pursuant to
Sections 13(a), 13(c), 14 and 15(d) of the Securities Exchange Act of
1934 shall be deemed to be incorporated by reference in the
registration statement and to be part thereof from the date of filing
of such documents.
In addition, all documents subsequently filed pursuant to Sections
13(a), 13(c), 14 and 15(d) of the Securities Exchange Act of 1934, prior to the
filing of a post-effective amendment to the registration statement which
indicates that all of the shares of common stock offered have been sold or which
de-registers all of the shares then remaining unsold, will be deemed to be
incorporated by reference in the registration statement and to be a part hereof
from the date of filing of the documents. Any statement contained in a document
incorporated or superceded for purposes of this registration statement, to the
extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supercedes such statement. Any such statement so modified or
superceded will not be deemed, except as so modified or superceded, to
constitute a part of this registration statement.
Item 4. DESCRIPTION OF SECURITIES
Not applicable, the class of securities to be offered is registered
under Section 12 of the Securities Exchange Act of 1934.
Item 5. INTERESTS OF NAMED EXPERTS AND COUNSEL.
Certain legal matters in connection with this registration statement
will be passed upon for Tidelands Oil & Gas Corporation by Wilson Law Offices.
Mr. Wilson is a shareholder of the Company. This plan registered shares which
have been and may be issued in the future for legal services rendered to the
company.
Item 6. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Article Twelve of the Company's Articles of Incorporation provides that
the Company's directors and officers will not have any personal liability to the
Company or its stockholders for damages for breach of fiduciary duties as
directors or officers. This provision does not alleviate or limit any liability
of an officer or director for acts or omissions which involve intentional
misconduct, fraud or a knowing violation of the law or the payment of dividends
in violation of the Nevada Revised Statutes. This article does not provide for
the Company to indemnify the officers or directors, however, such
indemnification may be implied. Sections 78.751 and 78.752 of the Nevada General
Corporation Law authorize a corporation to indemnify its directors, officers,
employees, or agents in terms sufficiently broad to permit such indemnification
under certain circumstances for liabilities (including provisions permitting
advances for expenses incurred) arising under the 1933 Act.
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Item 7. EXEMPTION FROM REGISTRATION CLAIMED.
Not Applicable.
Item 8. EXHIBITS.
The following documents are incorporated by reference from the
Company's Periodic Report filings, SEC File # 0-29613, as filed with the
Securities & Exchange Commission.
Exhibit Number Description
(3.1)* Articles of Incorporation of Tidelands Oil & Gas Corporation,
formerly C2 Technologies, Inc.
(3.2)* Certificate of Amendment of Articles of Incorporation of
Tidelands Oil & Gas Corporation, formerly C2 Technologies,
Inc.
(3.3)* By-Laws
(5.0) Opinion of Counsel regarding the legality of the securities
registered under this Registration Statement
(10) 2004 Non-Qualified Stock Grant and Option Plan
(23.0) Consent of Independent Certifying Public Accountant
-------------------
* Previously filed.
Item 9. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers and sales are being
made, a post-effective amendment to this registration statement 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 purposes of determining any liability under the
Securities Act of 1933, each filing of the registrant's annual report pursuant
to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and,
where applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement 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.
(5) Insofar as indemnification for liabilities under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act, and is,
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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 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.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-8 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned thereunto duly
authorized, in the San Antonio, State of Texas, on November 6, 2006.
Dated: November 6, 2006
TIDELANDS OIL & GAS CORPORATION
a Nevada corporation
/s/ Michael Ward
---------------------------------
Michael Ward
President, Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Company and in
the capacities and on the dates indicated.
Date: November 6, 2006 /s/ Michael Ward
---------------------------------
Michael Ward, President, Director
/s/ James B. Smith
---------------------------------
James B. Smith, Sr. V.P, Director
/s/ Ahmed Karim
---------------------------------
Ahmed Karim, Director
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