U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report: June 17, 2004
TIDELANDS OIL & GAS CORPORATION
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(Exact Name of registrant as specified in its Charter)
Nevada 0-29613 66-0549380
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State of Incorporation Commission File No. I.R.S. Employer
Identification No.
1862 West Bitters Rd. San Antonio, TX 78248
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, ( 210 ) 764 - 8642
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(Registrant's former name and address)
ITEM 7. FINANCIALS STATEMENTS AND EXHIBITS.
(a) Financial statements of businesses acquired.
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On May 25, 2004, we entered into a Purchase and Sale Agreement (the
"Agreement") for Reef Ventures, L.P. by and between Impact International, LLC
("Impact") and Coahuila Pipeline, LLC, ("Coahuila"), (jointly "Seller") and
Tidelands Oil & Gas Corporation ("Tidelands") and Arrecefe Management, LLC
("Arrecefe"), (jointly "Buyer"). We formed Arrecefe to act as the General
Partner of Reef Ventures. Arrecefe is a wholly owned subsidiary of Tidelands and
acts as the General Partner of Reef Ventures, L.P. On June 18, 2004 the
Agreement was closed. Tideland's purchased Impact's 72% interest in Reef
Ventures, L.P. Arrecefe purchase Coahuila's 1% interest in Reef Ventures, L.P.
The following are the consolidated audited financial statements of Reef
Ventures, L.P. for the year ending December 31, 2003.
REEF VENTURES, LP
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2003
WITH
INDEPENDENT AUDITORS' REPORT
CONTENTS
Independent Auditors' Report...................................................1
Consolidated Balance Sheet.....................................................2
Consolidated Statement of Operations and Accumulated Deficit...................3
Consolidated Statement of Changes in Partners' Equity..........................4
Consolidated Statement of Cash Flows...........................................5
Notes to Consolidated Financial Statements.....................................6
INDEPENDENT AUDITORS' REPORT
The Partners of Reef Ventures, LP
We have audited the accompanying consolidated balance sheet of Reef Ventures, LP
(the "Partnership") as of December 31, 2003, and the related consolidated
statements of operations and accumulated deficit, changes in partners' equity
and cash flows for the period from inception to December 31, 2003. These
financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Reef Ventures, LP
as of December 31, 2003, and the consolidated results of its operations and its
cash flows for the period from inception to December 31, 2003, in conformity
with accounting principles generally accepted in the United States of America.
TULLIUS TAYLOR SARTAIN & SARTAIN LLP
March 5, 2004
1
REEF VENTURES, LP
CONSOLIDATED BALANCE SHEET
December 31, 2003
Assets
Current assets:
Cash $ 2,553
Accounts receivable - gas sales 897,597
Accounts receivable - other 161,651
Prepaid expenses 1,873
-----------
Total current assets 1,063,674
Property and equipment 5,926,268
Accumulated depreciation 49,386
-----------
Property and equipment, net 5,876,882
Other assets 308
-----------
Total assets $ 6,940,864
===========
Liabilities and Partners' Equity
Current liabilities:
Accounts payable $ 13,339
Accounts payable - partners 569,097
Accrued liabilities - gas purchases 460,363
-----------
Total current liabilities 1,042,799
Partners' equity:
Contributed capital 5,957,627
Accumulated deficit (59,562)
-----------
Total partners' equity 5,898,065
-----------
Total liabilities and partners' equity $ 6,940,864
===========
See notes to consolidated financial statements.
2
REEF VENTURES, LP
CONSOLIDATED STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
Period from inception to December 31, 2003
Gas sales $ 897,597
Costs and expenses:
Cost of purchased gas 855,920
Pipeline operating expenses 51,120
General and administrative expense 733
Depreciation 49,386
---------
Total costs and expenses 957,159
---------
Net loss (59,562)
Accumulated deficit, beginning of period --
---------
Accumulated deficit, end of year $ (59,562)
=========
See notes to consolidated financial statements.
3
REEF VENTURES, LP
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' EQUITY
Period from inception to December 31, 2003
Beginning Ending
Partners' Capital Net Income Partners'
Equity Contributed (Loss) Equity
----------- ----------- ----------- -----------
Impact International, L.L.C $ -- $ 5,796,560 $ (58,964) $ 5,737,596
Coahuila Pipeline, L.L.C -- 62,438 (598) 61,840
Tidelands Oil & Gas Corporation -- 98,629 -- 98,629
Blackrock Capital Corporation -- -- -- --
----------- ----------- ----------- -----------
$ -- $ 5,957,627 $ (59,562) $ 5,898,065
=========== =========== =========== ===========
See notes to consolidated financial statements.
4
REEF VENTURES, LP
CONSOLIDATED STATEMENT OF CASH FLOWS
Period from inception to December 31, 2003
Cash Flows from Operating Activities
Cash paid to vendors $ (28,806)
-----------
Net cash used in operating activates (28,806)
Cash Flows from Investing Activities
Purchases of property and equipment (4,251,418)
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Net cash used in investing activities (4,251,418)
Cash Flows from Financing Activities
Capital contributions 4,282,777
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Net cash provided by financing activities 4,282,777
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Net increase in cash 2,553
Cash, beginning of period --
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Cash, end of year $ 2,553
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Reconciliation of Net Loss to Net Cash Used in
Operating Activities
Net loss $ (59,562)
Reconciling adjustments:
Depreciation 49,386
Changes in assets and liabilities:
Accounts receivable (1,059,248)
Prepaid expenses and other assets (2,181)
Accounts payable 13,339
Accounts payable - partners 569,097
Accrued liabilities - gas purchases 460,363
-----------
Net cash used in operating activities $ (28,806)
===========
Non-Cash Financing Activities
Partners' initial capital contribution $ 1,674,850
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5
REEF VENTURES, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003
Note 1 - Summary of Significant Accounting Policies
Basis of presentation
The consolidated financial statements of Reef Ventures, LP (the "Partnership")
include the accounts of the Partnership and its wholly owned subsidiaries, Reef
International, L.L.C. ("Reef International") and Reef Marketing, L.L.C. ("Reef
Marketing"). All significant intercompany balances and transactions have been
eliminated.
Description of business
Reef International is the holder of United States and Texas permits for the
construction, ownership, operation and maintenance of a 12-inch natural gas
pipeline and a 6-inch liquids line (together with loading and unloading
facilities) from Eagle Pass, Texas to Piedras Negas, Mexico. Reef Marketing is
an inactive company originally formed to conduct the marketing operations which
are now conducted in the name of the Partnership. The Partnership completed the
natural gas pipeline and metering facilities construction during the fourth
quarter of 2003 and on November 1, natural gas sales commenced.
The Agreement of Limited Partnership (the "Partnership Agreement"), dated April
16, 2003, was executed by and among Coahuila Pipeline, L.L.C. ("Coahuila"), an
Oklahoma limited liability company, as the General Partner; Impact
International, L.L.C. ("Impact"), an Oklahoma limited liability company, a
Limited Partner; Tidelands Oil & Gas Corporation ("Tidelands"), a Nevada
corporation, a Limited Partner; and Blackrock Capital Corporation ("Blackrock"),
a Virginia corporation, a Limited Partner.
Revenue Recognition
The Partnership recognizes natural gas revenue upon delivery.
Financial instruments
The Partnership's financial instruments that are exposed to concentrations of
credit risk consist of cash and accounts receivable. The Partnership places it
cash with a major financial institution. At times, cash balances may be in
excess of the FDIC insurance limit. The Partnership's accounts receivable
consist primarily of amounts due from its sole customer, a major natural gas
distribution company that is exporting gas into Mexico. The Partnership has an
open letter of credit as required under its natural gas purchase agreement. The
Partnership believes the carrying values of its financial instruments reported
in the consolidated balance sheet approximate fair value.
6
Accounts receivable
Accounts receivable primarily consists of accrued revenues related to the
transfer of natural gas prior to year-end, for which payment has not been
received as of year-end. An accounts receivable is considered to be past due if
any portion of the receivable balance is outstanding for more than 30 days. The
Partnership does not charge interest on receivables, and an allowance for
doubtful accounts was not determined to be necessary at December 31, 2003.
Property and equipment
Property and equipment consists of costs incurred in the permitting of the
natural gas pipeline and the liquids line and construction of the natural gas
pipeline and are recorded at cost. The carrying value of these assets is also
based on estimates, assumptions and judgments relative to capitalized costs,
useful lives and salvage values. Depreciation is provided on the straight-line
method over the estimated useful life of the pipeline of 20 years. Renewals and
betterments that extend the lives of the property and equipment are capitalized.
Gains or losses from the ordinary sale or retirement of property and equipment
are recorded in net income (loss).
At December 31, 2003, there were no major commitments for construction or
acquisition of property and equipment.
Impairment of long-lived assets
The Partnership evaluates its long-lived assets for impairment when events or
changes in circumstances indicate, in management's judgment, that the carrying
value of such assets may not be recoverable. This impairment evaluation of
tangible long-lived assets is measured pursuant to the guidelines of Statement
of Financial Accounting Standards No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." When an indicator of impairment has occurred,
management's estimate of undiscounted future cash flows attributable to the
assets is compared to the carrying value of the assets to determine whether an
impairment has occurred. A probability-weighted approach is applied to consider
the likelihood of different cash flow assumptions and possible outcomes,
including a sale in the near term or maintaining the assets for the remaining
estimated useful life. If an impairment of the carrying value has occurred, the
amount of the impairment recognized in the financial statements is determined by
estimating the fair value of the asset(s) and recording a loss for the amount
that the carrying value exceeds the estimated fair value. The use of alternate
judgments and/or assumptions could result in the recognition of different levels
of impairment charges in the financial statements. No assets were determined to
be impaired in 2003.
7
Income taxes
The Partnership, as a business entity, is not taxable as a corporation.
Accordingly, the accompanying financial statements do not reflect provisions for
income taxes since taxable income or loss attributable to the Partnership will
be reported by the individual owners.
Partnership management expenses
Under the terms of the Partnership Agreement, the General Partner is entitled to
be reimbursed for its direct and indirect charges incurred in the performance of
its duties. However, the General Partner does not receive a management fee or
other compensation for these services. During the period from inception to
December 31, 2003, the General Partner did not invoice the Partnership for any
of its indirect costs.
Derivatives
The Partnership does not utilize financial or commodity derivative instruments
to hedge its market risks.
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts in the financial statements and accompanying notes.
Although management believes the estimates it uses are reasonable, actual
results could differ from those estimates.
One of the most significant estimates made by the Partnership in determining the
underlying amounts included in the financial statements, and for which it would
be reasonably possible that future events or information could change those
estimates, involves assessing whether any impairment to the carrying values of
its long-lived assets has occurred. Consequently, impairment adjustments to the
carrying values are reasonably possible in the future.
Note 2 - Partners' Equity
In April 2003, Impact and Coahuila acquired 75% interest in Reef International
and Reef Marketing from Tidelands, which retained 25% interest. Simultaneously,
Impact, Coahuila and Tidelands contributed their respective interests in Reef
International and Reef Marketing to the Partnership, a Texas limited partnership
formed on April 9, 2003. At the inception of the Partnership, each partner's
capital account was credited with its cost basis in Reef International and Reef
Marketing in accordance with the terms of the Partnership Agreement.
In accordance with the related agreements, Impact and Coahuila have contributed
additional capital to the Partnership to fund the pipeline construction costs
and $10,000 per month to fund operating expenses and overhead costs.
8
Partners' Capital consists of 1,000 units of limited partnership interest owned
as follows:
Coahuila Pipeline, L.L.C., General Partner...........................10
Impact International, L.L.C., Limited Partner.......................720
Tidelands Oil & Gas Corporation, Limited Partner....................250
Blackrock Capital Corporation, Limited Partner.......................20
All profits and losses of the Partnership are allocated first to Coahuila and
Impact until they receive an amount equal to 150% of their respective capital
contributions. Thereafter, all profits and losses are shared in proportion to
each partners' capital ownership. Distributions are to be shared similar to
profits and losses.
Note 3 - Accounts Payable - Partners
During 2003, the Partnership required operating funds in excess of the $10,000
per month capital contributions described in Note 2 above. Impact and Coahuila
advanced the necessary operating funds. Such amounts have been classified in the
consolidated balance sheet as accounts payable - partners and will be repaid
without interest from available future cash flows.
9
(b) Pro forma financial information.
--------------------------------
The following unaudited proforma combined financial statements includes
Tideland's financial information and proforma adjustments. The balance sheet has
been presented as March 31, 2004 reflects the acquisition of a 73% interest in
Reef Ventures, L.P.
The proforma financial statements have been prepared utilizing the historical
financial statements of Reef Ventures, L.P. and Tidelands Oil and Gas
Corporation and should be read in conjunction with the separate historical
financial statements and notes thereto of these companies for the respective
periods presented. The unaudited proforma balance sheet has been presented as of
March 31, 2004. The unaudited proforma statement of operations has been
presented for December 31, 2003 and March 31, 2004. We have not included the
unaudited proforma consolidated statement of operations for March 31, 2003 since
Reef Ventures, L.P. did not commence operations until April 2003.
The proforma financial information is based on the purchase method of
accounting. The proforma combined statements of operations assume the
acquisition of Reef Ventures, L.P. had occurred at the beginning of the period
presented in the statements. All inter-company accounts and transactions have
been eliminated.
The proforma combined financial statements do not purport to be indicative of
the financial positions and results of operations which actually would have been
obtained if the acquisition had occurred on the date indicated or the results
which may be obtained in the future. The purpose of the proforma financial
statements is to report the effect of the subsequent acquisitions and the effect
upon the reporting history of the registrant. The proforma financial statement
should be read in conjunction with the audited financial statements and related
notes for the companies.
Tidelands Oil & Gas Corporation, Inc., and Reef Ventures, LP
Unaudited Proforma Consolidated Statement of Operations
For the Three Months Ended March 31, 2004
Tidelands Oil Reef Proforma Proforma
& Gas Corp. Ventures, LP Adjustments Consolidated
------------- ------------- ------------- -------------
Revenues $ -- $ 1,720,202 $ 0 $ 1,720,202
------------- ------------- ------------- -------------
Costs and Expenses
Cost of Purchased Gas 0 1,645,561 0 1,645,561
Pipeline Operating Expenses 0 9,834 0 9,834
Depreciation Expenses 11,280 74,052 0 85,332
General and Adminstrative Expenses 1,526,928 12,780 0 1,539,708
------------- ------------- ------------- -------------
Total Costs and Expenses 1,538,208 1,742,227 0 3,280,435
------------- ------------- ------------- -------------
Loss From Operations (1,538,208) (22,025) 0 (1,560,233)
Interest Income 3,867 0 0 3,867
------------- ------------- ------------- -------------
Net Loss $ (1,534,341) $ (22,025) $ -- $ (1,556,366)
============= ============= ============= =============
Net (Loss) Per Common Share:
Basic $ (0.03)
=============
Weighted Average Number of Shares
Outstanding, Basic 46,850,314
=============
Net (Loss) Per Common Share:
Diluted $ (0.03)
=============
Weighted Average Number of Common Shares
Outstanding, Diluted 58,733,717
=============
Tidelands Oil & Gas Corporation, Inc., and Reef Ventures, LP
Unaudited ProForma Consolidated Balance Sheet
March 31, 2004
Tidelands Oil Reef Proforma Proforma
& Gas Corp. Ventures, LP Adjustments Consolidated
------------- ------------- ------------- -------------
ASSETS:
Current Assets
Cash $ 3,548,489 $ 30,735 $ 0 $ 3,579,224
Accounts Receivable 745 455,490 0 456,235
Prepaid Expenses 580,708 0 0 580,708
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Total 4,129,942 486,225 -- 4,616,167
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Property, Plant and Equipment (Net) 733,170 5,801,590 -- 6,534,760
------------- ------------- ------------- -------------
Investment - Reef Ventures 98,629 -- (98,629) --
------------- ------------- ------------- -------------
Other Assets
Goodwill 0 0 744,380 744,380
Deposits 3,800 308 0 4,108
------------- ------------- ------------- -------------
Total 3,800 308 744,380 748,488
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Total Assets $ 4,965,541 $ 6,288,123 $ 645,751 $ 11,899,415
============= ============= ============= =============
LIABILTIES, STOCKHOLDERS' EQUITY AND PARTNERSHIP CAPITAL
Current Liabilities
Accounts Payable & Accrued Expenses $ 183,811 $ 410,101 $ 0 $ 593,912
Current Maturities of Long Term Debt 150,000 0 0 150,000
------------- ------------- ------------- -------------
Total 333,811 410,101 -- 743,912
------------- ------------- ------------- -------------
Long-Term Debt -- -- 6,523,773 6,523,773
------------- ------------- ------------- -------------
Total Liabilities 333,811 410,101 6,523,773 7,267,685
------------- ------------- ------------- -------------
STOCKHOLDERS' EQUITY AND PARTNERSHIP CAPITAL
Common Stock and Partners' Contributed Capital 48,876 5,959,609 (5,959,609) 48,876
Additional Paid-in Capital 16,750,398 0 0 16,750,398
Subscriptions Receivable (18,000) 0 0 (18,000)
Accumulated (Deficit) (12,149,544) (81,587) 81,587 (12,149,544)
------------- ------------- ------------- -------------
Total Stockholders' Equity & Partnership Capital 4,631,730 5,878,022 (5,878,022) 4,631,730
------------- ------------- ------------- -------------
TOTAL LIABILTIES, STOCKHOLDERS' EQUITY
AND PARTNERSHIP CAPITAL $ 4,965,541 $ 6,288,123 $ 645,751 $ 11,899,415
============= ============= ============= =============
Tidelands Oil & Gas Corporation, Inc., and Reef Ventures, LP
Pro Forma Adjustment
Adjustment for purchase of Reef Ventures, LP for a $6,523,773 long-term note.
Goodwill of $744,380 has been recorded representing the purchase price in excess
of the book value of Reef Ventures, LP.
Tidelands Oil & Gas Corporation, Inc., and Reef Ventures, LP
Unaudited Proforma Consolidated Statement of Operations
December 31, 2003
Tidelands Oil Reef Proforma Proforma
& Gas Corp. Ventures, LP Adjustments Consolidated
------------- ------------- ------------- -------------
Revenues $ 178,856 $ 897,597 $ 0 $ 1,076,453
------------- ------------- ------------- -------------
Costs and Expenses
Cost of Purchased Gas 0 855,920 0 855,920
Operating Expenses 27,767 51,120 0 78,887
Depreciation Expenses 43,006 49,386 0 92,392
General and Adminstrative Expenses 2,990,295 733 0 2,991,028
------------- ------------- ------------- -------------
Total Costs and Expenses 3,061,068 957,159 0 4,018,227
------------- ------------- ------------- -------------
Loss From Operations (2,882,212) (59,562) 0 (2,941,774)
Gain on Sale of Subsidiary 1,533,731 0 0 1,533,731
------------- ------------- ------------- -------------
Net Loss $ (1,348,481) $ (59,562) $ -- $ (1,408,043)
============= ============= ============= =============
Net (Loss) Per Common Share:
Basic
(Loss) from Operations $ (0.08)
Gain - Extraordinary Item 0.04
-------------
Total $ (0.04)
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Weighted Average Number of Common Shares
Outstanding, Basic 39,254,316
=============
Net (Loss) Per Common Share:
Diluted
(Loss) from Operations $ (0.06)
Gain - Extraordinary Item 0.03
-------------
Total $ (0.03)
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Weighted Average Number of Common Shares
Outstanding, Diluted 44,764,219
=============
*Tidelands Oil & Gas Corporation, Inc. - Twelve Months
Ended December 31, 2003
Reef Ventures, LP - April 16, 2003
(Inception) to December 31, 2003
(c) Exhibits. n/a
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
TIDELANDS OIL & GAS CORPORATION
Dated: August 11, 2004
/s/Michael Ward
--------------------
By: Michael Ward
Title: President