As filed with the Securities and Exchange Commission on February 1, 2008

 Registration Statement No. 333-147842

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Amendment No. 1 to

FORM SB-2

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

GULF WESTERN PETROLEUM CORPORATION

(Name of small business issuer in its charter)

Nevada			1311		98-0489324
(State or jurisdiction of incorporation or organization)			(Primary Standard Industrial Classification Code Number)		(I.R.S. Employer Identification No.)

CALCULATION OF REGISTRATION FEE

 

Title of Each Class of Securities To be Registered	Amount to be Registered (1)	Proposed Maximum Offering Price Per Share (2)	Proposed Maximum Aggregate Offering Price (3)	Amount of Registration Fee (4)
Common Stock, $.001 par value per share	15,971,928 shares	$0.26	$6,047,285	$238

 

(1)

Represents the number of shares beneficially owned by the selling stockholders, including shares underlying a warrant and notes held by such selling stockholders on the date hereof, which shares may be resold by the selling stockholders. Pursuant to Rule 416 under the Securities Act, there are also being registered hereby such additional indeterminate number of shares as may become issuable pursuant to the antidilution provisions of the warrant and notes and issuable upon exercise of the warrant and conversion of the notes in connection with stock splits, stock dividends, recapitalizations or similar events.

(2)

Estimated solely for the purpose of calculating the registration fee. Pursuant to Rule 457(c) under the Securities Act, the registration fee is calculated on the basis of $0.26, the average of the bid and ask prices for the common stock on the Over-the-Counter Bulletin Board on January 28, 2008.

(3)

Calculated on the basis of 14,573,718 at a proposed maximum offering price of $0.39 per share and an additional 1,398,210 at a proposed maximum offering price of $0.26 per share.

(4)

Calculated based on an estimate of the proposed maximum aggregate offering price. In connection with the Company’s initial filing on December 5, 2007, the Company transmitted $175 by wire transfer to the SEC. The proposed maximum aggregate offering price has been increased to $6,047,285, resulting in an additional registration fee of $63.

 

The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

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The information in this prospectus is not complete and may be changed.  The selling stockholders may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective.  This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

Subject to completion dated Febrauary 1, 2008

Preliminary Prospectus

15,971,928 Shares

Gulf Western Petroleum Corporation

Common Stock

_______________________________________

This prospectus relates to the resale of 15,971,928 shares of our common stock held by the selling stockholders, including 10,885,928 shares issuable upon conversion of the: Principal and inteest of the outstanding notes, and 3,586,538 issuable upon exercise of outstanding warrants, owned by the selling stockholders.

 

We are not offering any shares of our common stock for sale under this prospectus, and we will not receive any of the proceeds from the resale of the shares of common stock issuable upon conversion of the notes or exercise of the warrant.  We will, however, receive proceeds from the exercise of the warrant.  The warrants, when exercised, will entitle the holder to receive a certain number of shares at initial exercise prices of $0.26 and $0.30 per share.  Therefore, if the warrants are exercised in full, we will issue 3,568,538 shares of our common stock and we will receive aggregate proceeds of approximately $937,500.

 

Our common stock is traded on the Over-The-Counter Bulletin Board under the symbol “GWPC.OB.”  The last reported sale price for our common stock on the Over-The-Counter Bulletin Board on January 30, 2008 was $0.28.

 

We do not intend to apply to have the warrants or the notes listed on any securities exchange or included in any automated quotation system, and there is no active trading market for them.

 

Investing in our common stock involves significant risks that are described in the “Risk Factors” section beginning on page 3 of this prospectus.

 

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Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

The date of this prospectus is ________, 2008

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TABLE OF CO NTEN TS

 

	Page
PROSPECTUS SUMMARY	1
RISK FACTORS	2
FORWARD LOOKING STATEMENTS	12
BUSINESS	14
DESCRIPTION OF PROPERTY	22
PLAN OF OPERATIONS	24
SELLING STOCKHOLDERS	28
PLAN OF DISTRIBUTION	31
DIRECTORS AND EXECUTIVE OFFICERS	34
CORPORATE GOVERNANCE	35
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT	36
EXECUTIVE COMPENSATION	37
INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS	39
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS	41
DESCRIPTION OF COMMON STOCK	42
RELATIONSHIPS WITH ISSUER OF EXPERTS NAMED IN REGISTRATION STATEMENT	43
LEGAL PROCEEDINGS	43
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS	43
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION OF SECURITIES ACT LIABILITIES	44
LEGAL MATTERS	44
EXPERTS	44
INDEX TO FINANCIAL STATEMENTS	45

 

You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with different information. We are not making an offer of our common stock in any state where the offer is not permitted. You should not assume that the information contained in this prospectus is accurate as of any date other than the date on the front of this prospectus.

 

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PROS PECT US SUMMARY

 

The following summary should be read together with the information contained in other parts of this prospectus and the documents we incorporate by reference to fully understand the offering as well as the other considerations that are important to you in making a decision about whether to invest in our common stock. As used in this prospectus, unless the context otherwise requires, “we,” “us” or “our” refers to Gulf Western Petroleum Corporation and its subsidiaries unless otherwise indicated or the context requires otherwise. We have provided definitions for some of the industry terms used in this prospectus in the “Glossary of Terms” in Appendix A.

 

Our Company

 

We are engaged in the exploration and development of natural gas and oil reserves within the United States, and holds oil and gas leases in Texas, Kansas and Kentucky.  We are actively pursuing oil and gas prospects and opportunities principally through our network of relationships with individuals and companies in the business of oil and gas exploration and production.

 

Our principal executive offices are located at 4801 Woodway Drive, Suite 306W, Houston, Texas 77056, and our phone number is (713) 355-7001. Our website address is www.gulfwesternpetroleum.com.  Information on our website is not incorporated by reference into this prospectus and does not constitute part of this prospectus.

The Offering

 

On September 10, 2007, we entered into a Securities Purchase Agreement with Metage Funds Limited and NCIM Limited (together, the “Buyers”), pursuant to which, among other things, we sold to the Buyers (1) 1,500,000 shares of our common stock, par value $0.001 per share, (2) senior secured convertible notes in an original aggregate principal amount of $3,700,000, and (3) a warrant  to purchase up to an aggregate of 3,461,538 shares of our common stock at an exercise price of $0.26 per share, subject to certain adjustments to the number of shares and the exercise price described in the warrant.  We also entered into a registration rights agreement with the Buyers providing registration rights for the shares of common stock issued at closing and the shares issuable upon exercise of the warrant and conversion of the notes.  The registration statement of which this prospectus is a part was filed in response to a requirement of registration under the registration rights agreement.

 

In addition on July 3, 2007 , we borrowed $500,000 under a convertible secured note from NCIM Limited.  In consideration, we also issued a warrant to acquire 125,000 shares of our common stock at an exercise price of $0.30 per share.  The note provided NCIM Limited the right to convert all or part of the outstanding balance of the note into shares of common stock at a conversion rate of $0.45 per share.  This note was replaced with the senior secured convertible note issued under the Securities Purchase Agreement on September 10, 2007 described above.  We have agreed to include the shares issuable pursuant to the warrant in this registration statement.

 

This prospectus relates to the resale of 15,971,928 shares of our common stock either owned by the Buyers or issuable upon the conversion of the principal and interest of the outstanding notes and exercise of outstanding warrants owned by the Buyers, including 10,885,390 shares issuable upon conversion of outstanding notes, and 3,586,538 issuable upon exercise of outstanding warrants, owned by the Buyers.  We refer to the Buyers elsewhere herein as the selling stockholders.

 

Use of Proceeds

 

We will not receive any of the proceeds from the resale of the shares of common stock.  We will, however, receive proceeds from the exercise of the warrants.  The warrants, when exercised, will entitle the holder to receive a certain number of shares at initial exercise prices of $0.26 and $0.30 per share.  Therefore, if the warrants are exercised in full, we will issue 3,586,538 shares of our common stock and we will receive aggregate proceeds of approximately $937,500.  We intend to use the proceeds primarily to provide working capital for the development of wells in the Frio formation in Texas.

 

Over-The-Counter Bulletin Board Symbol

 

Our common stock is traded on the Over-The-Counter Bulletin Board under the symbol “GWPC.OB.”  The warrants are not, and will not be, listed on any securities exchange or included in any automated quotation system.

 

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RISK F ACT ORS

 

An investment in our common stock involves a high degree of risk.  You should consider carefully the risks and uncertainties described below and the other information included in, or incorporated by reference into, this prospectus, including our financial statements and related notes, before deciding to invest in our common stock.  If any of the following risks or uncertainties actually occurs, our business, financial condition and operating results would likely suffer.  In that event, the market price of the offered securities could decline and you could lose all or part of the money you paid to buy our common stock.

 

Risks Related to our Business

 

Without additional financing, there is substantial doubt about our ability to continue as a going concern .

 

Our audited consolidated financial statements as of August 31, 2007 and 2006 and for each of the two years ended August 31, 2007 and 2006, and from inception (January 20, 2005) to August 31, 2007 were prepared assuming that we will continue as a going concern.  We are in our development stage and have had limited operations and no revenues from our inception through August 31, 2007.  Our independent accountants in their audit report have expressed substantial doubt about our ability to continue as a going concern.  Our continued operations are dependent on our ability to achieve profitability and to generate and maintain positive operating cash flows.  This is driven by our ability to complete equity and debt financings sufficient to fund the acquisition, drilling and development of profitable oil and gas properties.  Such financings may not be available to us or may not be on reasonable terms.  Our financial statements do not include any adjustments that may result from the outcome of this uncertainty.

 

We have a very limited history of operations in oil and natural gas exploration and production and accordingly may not be successful in carrying out our business objectives .

 

We were incorporated in the State of Nevada on February 21, 2006 as Georgia Exploration, Inc., a Vancouver based mineral resource exploration company with interests in 14 non-oil and gas mineral claims in British Columbia.  On January 3, 2007, we consummated a merger with Wharton Resources Corp.  Upon completion of the merger, our core business and strategic focus became the exploration and development of oil and natural gas reserves in the United States.

 

We have raised limited financing and have incurred operating losses since our inception, with total losses of approximately $5,700,000 through November 30, 2007.  We have no track record of successful oil and gas exploration and development activities that would allow an investor to assess the likelihood of us, or guarantee that we will be successful, as an oil and natural gas exploration and production company.  We may fail to achieve or maintain successful operations, even in favorable market conditions.  There is a substantial risk that we will not be successful in our exploration activities, or if initially successful, in thereafter generating any operating revenues or otherwise achieving sustained and recurring operating cash flows.

 

We may require additional funding, and our failure to raise additional capital necessary to support and expand our operations could reduce our ability to compete and could harm our business .

 

Over the next twelve months, we plan to spend approximately $11.7 million for oil and natural gas exploration, drilling and development expenditures, and approximately $1.4 million for general and administrative, operating and public company expenses, and working capital requirements.  See “Plan of Operations” for more information.  Based on our plan of operation, our current available cash and projected operating cash flows are not sufficient to fund our capital and operating requirements over the next twelve month period.  In particular, our current and projected operating cash flows from our Frio formation oil and gas production in Dewitt and Lavaca Counties, Texas are not sufficient to repay the total $3.7 million principal balance due on September 10, 2008 under the notes issued to the selling stockholders.  The first six months of interest on these notes totaling $266,500 is due on March 10, 2008.  We are dependent on external financing sources to raise funds sufficient to repay the principal balance due on these notes at maturity.

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To execute our plans, we will require substantial financing and are actively working on options to raise equity and/or debt financing through private placements and public offerings. However, in the event that we are unable to raise the financing to meet our needs, or if we are able to obtain sufficient financing from investors or private lenders but it is on commercial terms unacceptable to us or our stockholders, we will be required to scale back or slow our capital investment program. Should we raise funds through equity and debt placements, existing equity and ownership in us could be negatively affected due to the dilution of existing equity ownership of our shares.

 

The notes issued to the selling stockholders mature in twelve months and are secured by substantially all of our assets, so the failure to repay the notes could cause us to cease operations .

 

As noted above, the notes issued to the selling stockholders are due on September 10, 2008 and are secured by a lien on substantially all of our assets, including our oil and gas lease interests and our equity interests in our subsidiaries.  We are dependent on external financing sources to raise funds sufficient to repay the principal due under these notes at maturity. Alternate external financing may be comprised of equity and debt, which may or may not be available to us on reasonable terms.  If we are not successful in or unable to repay the $3.7 million principal balance on the maturity of the notes, since substantially all our assets are pledged as security to the lenders, we may be unable to continue our business and as a result may be required to scale back or cease operations for our business, the result of which would be that our stockholders would lose some or all of their investment.

 

Our related party transactions may cause conflicts of interests that may adversely affect our ability to operate our business .

We have entered into and may, in the future, enter into various transactions and agreements with entities wholly or partially owned by our officer and directors, including Orbit Energy, LLC, which is owned by CodeAmerica Investments, LLC, for which Wm. Milton Cox, our Chairman and CEO, is the Managing Member, and Paragon Capital, LLC for which Bassam Nastat, our President and a Director, serves as Manager.  We believe that the transactions and agreements that we have entered into with related parties are on terms that are at least as favorable to us as could reasonably have been obtained at such time from third parties.  However, these relationships could create, or appear to create, potential conflicts of interest when members of our senior management are faced with decisions that could have different implications for us and those entities or their affiliates.

Potential conflicts of interest can exist if a related party director or officer has to make a decision that has different implications for us and the related party.  We cannot be certain as to how potentially conflicted board members or officers will evaluate their fiduciary duties or how such individuals will act under such circumstances. Furthermore, the appearance of conflicts, even if such conflicts do not materialize, might adversely affect the public's perception of us, as well as our relationship with other companies and our ability to enter into new relationships in the future, which could have a material adverse effect on our ability to do business.

Our exploration and development operations are subject to many risks which may affect our ability to profitably extract oil and natural gas reserves or achieve targeted returns.  In addition, continued growth requires that we acquire and successfully develop additional oil and natural gas reserves.  

 

Oil and natural gas exploration may involve unprofitable efforts, not only from dry wells, but from wells that are productive but do not produce sufficient net revenues to return a profit after drilling, operating and other costs. Completion of a well does not assure a profit on the investment or recovery of drilling, completion and operating costs. In addition, drilling hazards or environmental damage could greatly increase the cost of operations, and various field operating conditions may adversely affect the production from successful wells. These conditions include delays in obtaining governmental approvals or consents, shut-ins of connected wells resulting from extreme weather conditions, insufficient storage or transportation capacity or other geological and mechanical conditions. Production delays and declines from normal field operating conditions cannot be eliminated and can be expected to adversely affect revenue and cash flow levels to varying degrees.

 

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Our commercial success depends on our ability to find, acquire, develop and commercially produce oil and natural gas reserves.  Without the continual addition of new reserves, any existing reserves and the production therefrom will decline over time as such existing reserves are depleted.  A future increase in our reserves will depend not only on our ability to explore and develop any properties we may have from time to time, but also on our ability to select and acquire suitable producing properties or prospects.  We may not be able to continue to locate satisfactory properties for acquisition or participation.  Moreover, if such acquisitions or participations are identified, we may determine that current markets, terms of acquisition and participation or pricing conditions make such acquisitions or participations economically disadvantageous.  We also may be unable to discover or acquire commercial quantities of oil and natural gas at all.

 

Our oil and natural gas operations are subject to operating hazards that may increase our operating costs to prevent such hazards, or may materially affect our operating results if any of such hazards were to occur.

 

Oil and natural gas exploration, development and production operations are subject to all the risks and hazards typically associated with such operations, including hazards such as fire, explosion, blowouts, cratering, sour gas releases and spills, each of which could result in substantial damage to oil and natural gas wells, production facilities, other property and the environment or in personal injury. Oil and natural gas production operations are also subject to all the risks typically associated with such operations, including encountering unexpected formations or pressures, premature decline of reservoirs and the invasion of water into producing formations. Losses resulting from the occurrence of any of these risks could have a material adverse effect on our results of operations, liquidity and financial condition.

To date, we have not generated revenues from production of our oil and natural gas lease interests.  Our oil and natural gas exploration and development activities will be focused on the exploration and development of our oil and natural gas rights which are high-risk ventures with uncertain prospects for success.  In addition, we will not have earnings to support our activities should the wells drilled or properties acquired prove not to be commercially viable.  We may be unable to successfully produce commercial quantities of oil and natural gas as a result of our exploration and development efforts or to generate sufficient revenues from production of our reserves.

Our exploration and development activities will depend in part on the evaluation of data obtained through geophysical testing and geological analysis, as well as test drilling activity.  The results of such studies and tests are subjective, and our exploration and development activities based on positive analysis may not produce oil or natural gas in commercial quantities.  As developmental and exploratory activities are performed, further data required for evaluation of our oil and natural gas interests may become available.  The exploration and development activities that will be undertaken by us are subject to greater risks than those associated with the acquisition and ownership of producing properties.  The drilling of development wells may result in dry holes or a failure to produce oil and natural gas in commercial quantities.  Moreover, any drilling of exploratory wells is subject to significant risk of dry holes.

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Sales of any production of oil or natural gas from our present or future reserves are subject to numerous factors beyond our control which could make it difficult to market and sell any oil and natural gas at price and cost levels that are acceptable or profitable to us.

The marketability of any oil or natural gas that may be discovered by us will be affected by numerous factors beyond our control, including market fluctuations, the supply and demand for natural gas, the proximity and capacity of natural gas pipelines, oil transportation, and processing equipment, as well as by government regulations, including regulations relating to the prices, taxes, royalties, land tenure, allowable production, the import and export of natural gas and environmental protection.  These factors cannot be predicted.  We are in the initial stage of negotiating contracts for the delivery and sale of oil or natural gas production from our properties.  There is no guarantee that any such contracts will be obtained or, if obtained, will be on terms which are economically viable to us.  

If we are unable to successfully compete with the large number of oil and natural gas producers in our industry, we may not be able to achieve profitable operations.

 

Oil and natural gas exploration is intensely competitive in all its phases and involves a high degree of risk.  We compete with numerous other participants in the search for and the acquisition of oil and natural gas properties and in the marketing of oil and natural gas.  Our competitors include oil and natural gas companies that have substantially greater financial resources, staff and facilities than us.  Our ability to increase reserves in the future will depend not only on our ability to explore and develop our existing properties, but also on our ability to select and acquire suitable producing properties or prospects for exploratory drilling.  The activities of our competitors in the marketplace may negatively impact our operations and our ability to attract quality projects.  In addition, new competitors, some of whom may have extensive experience in related fields or greater financial resources, may enter the market.  Increased competition could result in a loss of projects and market share.  Either of these results could seriously harm our business and operating results.

We are subject to various regulatory requirements, including environmental regulations, and may incur substantial costs to comply and remain in compliance with those requirements.  

Our operations in the United States are subject to regulation at the federal, state and local levels, including regulation relating to matters such as the exploration for and the development, production, marketing, pricing, transmission and storage of oil and natural gas, as well as environmental and safety matters.  Failure to comply with applicable regulations could result in fines or penalties being owed to third parties or governmental entities, the payment of which could have a material adverse effect on our financial condition or results of operations.  Our operations are subject to significant laws and regulations, which may adversely affect our ability to conduct business or increase our costs.  Extensive federal, state and local laws and regulations relating to health and environmental quality in the United States affect nearly all of our operations.  These laws and regulations set various standards regulating various aspects of health and environmental quality, provide for penalties and other liabilities for the violation of these standards, and in some circumstances, establish obligations to remediate current and former facilities and off-site locations.

 

Environmental legislation provides for, among other things, restrictions and prohibitions on spills, releases or emissions of various substances produced in association with oil and natural gas operations. The legislation also requires that wells and facility sites be operated, maintained, abandoned and reclaimed to the satisfaction of the applicable regulatory authorities. Compliance with such legislation can require significant expenditures and a breach may result in the imposition of fines and penalties, some of which may be material. Environmental legislation is evolving in a manner expected to result in stricter standards and enforcement, larger fines and liability and potentially increased capital expenditures and operating costs. The discharge of oil, natural gas or other pollutants into the air, soil or water may give rise to liabilities to governments and third parties and may require us to incur costs to remedy such discharge. Environmental laws may result in a curtailment of production or a material increase in the costs of production, development or exploration activities or otherwise adversely affect our financial condition, results of operations or prospects.  We could incur significant liability for damages, clean-up costs and/or penalties in the event of discharges into the environment, environmental damage caused by us or previous owners of our property or non-compliance with environmental laws or regulations. In addition to actions brought by governmental agencies, we could face actions brought by private parties or citizens groups.  Any of the foregoing could have a material adverse effect on our financial results.

 

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Moreover, we cannot predict what legislation or regulations will be enacted in the future or how existing or future laws or regulations will be administered, enforced or made more stringent. Compliance with more stringent laws or regulations, or more vigorous enforcement policies of the regulatory agencies, could require us to make material expenditures for the installation and operation of systems and equipment for remedial measures, all of which could have a material adverse effect on our financial condition or results of operations.

Our ability to successfully market and sell oil and natural gas is subject to a number of factors that are beyond our control, and that may adversely impact our ability to produce and sell oil and natural gas, or to achieve profitability.     

The marketability and price of oil and natural gas that may be acquired or discovered by us will be affected by numerous factors beyond our control.  Our ability to market our natural gas may depend upon our ability to acquire space on pipelines that deliver natural gas to commercial markets. We may also be affected by deliverability uncertainties related to the proximity of our reserves to pipelines and processing facilities, by operational problems with such pipelines and facilities, and by government regulation relating to price, taxes, royalties, land tenure, allowable production, the export of oil and natural gas and by many other aspects of the oil and natural gas business.

Our revenues, profitability and future growth and the carrying value of our oil and natural gas properties are substantially dependent on prevailing prices of oil and natural gas. Our ability to borrow and to obtain additional capital on attractive terms is also substantially dependent upon oil and natural gas prices. Prices for oil and natural gas are subject to large fluctuations in response to relatively minor changes in the supply of and demand for oil and natural gas, market uncertainty and a variety of additional factors beyond our control. These factors include economic conditions, in the United States and Canada, the actions of the Organization of Petroleum Exporting Countries, governmental regulation, political stability in the Middle East and elsewhere, the foreign supply of oil and natural gas, the price of foreign imports and the availability of alternative fuel sources. Any substantial and extended decline in the price of oil and natural gas would have an adverse effect on the carrying value of our proved reserves, borrowing capacity, revenues, profitability and cash flows from operations.

Volatile oil and natural gas prices make it difficult to estimate the value of producing properties for acquisition and often cause disruption in the market for oil and natural gas producing properties, as buyers and sellers have difficulty agreeing on such value. Price volatility also makes it difficult to budget for and project the return on acquisitions and development and exploitation projects.

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We cannot guarantee that title to our properties does not contain a defect that may materially affect our interest in those properties.

 

It is our practice in acquiring significant oil and natural gas leases or interest in oil and natural gas leases to retain lawyers to fully examine the title to the interest under the lease.  In the case of minor acquisitions, we rely upon the judgment of oil and natural gas lease brokers or landmen who do the field work in examining records in the appropriate governmental office before attempting to place under lease a specific interest.  As such, there may be title defects which affect lands comprising a portion of our properties which may adversely affect us.

Our business may be harmed if we are unable to retain our interests in leases .

All of our properties are held under interests in oil and gas mineral leases, some of which expire within the next twelve months. If we fail to meet the specific requirements of each lease, especially future drilling and production requirements, the lease may be terminated or otherwise expire. We may be unable to meet our obligations under each lease. The termination or expiration of our working interest relating to any lease would harm our business, financial condition and results of operations.

Our reserve estimates are subject to numerous uncertainties and may be inaccurate.

There are numerous uncertainties inherent in estimating quantities of oil or natural gas reserves and cash flows to be derived therefrom, including many factors beyond our control. The reserve and associated cash flow information set forth herein represent estimates only. In general, estimates of economically recoverable oil and natural gas reserves and the future net cash flows therefrom are based upon a number of variable factors and assumptions, such as historical production from the properties, production rates, ultimate reserve recovery, timing and amount of capital expenditures, marketability of oil and natural gas, royalty rates, the assumed effects of regulation by governmental agencies and future operating costs, all of which may vary from actual results. All such estimates are to some degree speculative, and classifications of reserves are only attempts to define the degree of speculation involved. For those reasons, estimates of the economically recoverable oil and natural gas reserves attributable to any particular group of properties, classification of such reserves based on risk of recovery and estimates of future net revenues expected therefrom prepared by different engineers, or by the same engineers at different times, may vary. Our actual production, revenues, taxes and development and operating expenditures with respect to our reserves will vary from estimates thereof and such variations could be material.

Estimates of proved reserves that may be developed and produced in the future are often based upon volumetric calculations and upon analogy to similar types of reserves rather than actual production history. Estimates based on these methods are generally less reliable than those based on actual production history. Subsequent evaluation of the same reserves based upon production history and production practices will result in variations in the estimated reserves and such variations could be material.

The reserve quantities included herein were prepared by an independent reserve engineer, MHA Petroleum Consultants, Inc. (“MHA”), and were prepared based on fiscal year-end prices and cost estimates assuming continuation of existing economic conditions as of August 31, 2007 .  Actual future net revenue will be affected by other factors such as actual production levels, supply and demand for oil and natural gas, curtailments or increases in consumption by oil and natural gas purchasers, changes in governmental regulation or taxation and the impact of inflation on costs.  The MHA reserve quantities and other calculations are based in part on the assumed success of activities we intend to undertake in future periods, including obtaining the financing required to fund the capital expenditures necessary to effect the drilling and completion of the reserves identified in the MHA reserve evaluation.  The reserves and estimated cash flows to be derived from the production of the reserves will be reduced if we are not successful in undertaking the activities required in future periods.

 

 

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We presently do not carry our own insurance and may be exposed to significant liability should any claims arise for which we are not insured.

Our involvement in the exploration for and development of oil and natural gas properties may result in our becoming subject to liability for pollution, blowouts, property damage, personal injury or other hazards. We do not presently maintain our own insurance covering liabilities arising from our operations.  Even if we obtain insurance prior to drilling, such insurance has limitations on liability that may not be sufficient to cover the full extent of such liabilities. In addition, such risks may not in all circumstances be insurable or, in certain circumstances, we may elect not to obtain insurance to deal with specific risks due to the high premiums associated with such insurance or other reasons. The payment of such uninsured liabilities would reduce the funds available to us. The occurrence of a significant event that we are not fully insured against, or the insolvency of the insurer of such event, could have a material adverse effect on our financial position, results of operations or prospects.

 

Some of our oil and natural gas properties are held in the form of licenses and leases.  If we default on those licenses or leases, we may lose our interest in those properties.

 

Our properties are held in the form of licenses and leases and working interests in licenses and leases. If we or the holder of the license or lease fail to meet the specific requirement of a license or lease, the license or lease may terminate or expire. We may not be able to maintain or otherwise meet the obligations required of each license or lease. The termination or expiration of our licenses or leases or the working interests relating to a license or lease may have a material adverse effect on our results of operations and business.

 

The loss or unavailability of our key personnel for an extended period of time could adversely affect our business operations and prospects.

Our success depends in large measure on certain key personnel, including our President, Chief Executive Officer and Chief Financial Officer. The loss of the services of such key personnel could have a material adverse effect on us.  We do not currently have such insurance in effect for these key individuals. In addition, the competition for qualified personnel in the oil and natural gas industry is intense and we may be unable to continue to attract and retain all personnel necessary for the development and operation of our business.

We depend on the services of third parties for material aspects of our operations, including drilling operators, and accordingly if we cannot obtain certain third party services, we may not be able to operate.

We may rely on third parties to operate some of the assets in which we possess an interest. Assuming the presence of commercial quantities of oil and natural gas on our properties, the success of the oil and natural gas operations, whether considered on the basis of drilling operations or production operations, will depend largely on whether the operator of the property properly fulfills our obligations.  As a result, our ability to exercise influence over the operation of these assets or their associated costs may be limited, adversely affecting our financial performance.  Our performance will therefore depend upon a number of factors that may be outside of our full control, including the timing and amount of capital expenditures, the operator’s expertise and financial resources, the approval of other participants, the selection of technology, and risk management practices.  The failure of third party operators and their contractors to perform their services in a proper manner could adversely affect our operations.

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We will be subject to the requirements of Section 404 of the Sarbanes-Oxley Act.  If we are unable to timely comply with Section 404 or if the costs related to compliance are significant, our profitability, stock price and results of operations and financial condition could be materially adversely affected.

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, beginning with our annual report on Form 10-KSB for the fiscal year ending August 31, 2008, we will be required to furnish a report by management on our internal control over financial reporting.  This report will contain, among other matters, an assessment of the effectiveness of our internal control over financial reporting, including a statement as to whether or not our internal control over financial reporting is effective.  This assessment must include disclosure of any material weaknesses in our internal control over financial reporting identified by our management.  Beginning for the fiscal year ending August 31, 2009, this report must also contain a statement that our auditors have issued an attestation report on management’s assessment of internal control.  

We cannot be certain that we will be able to complete our assessment, testing and any required remediation in a timely fashion.  These reporting and assessment obligations will place significant demands on our management, administrative, operational, internal audit and accounting resources. We anticipate that we will need to upgrade our reporting systems and procedures, implement additional financial and management controls, and hire additional accounting and finance staff. If we are unable to accomplish these objectives in a timely and effective fashion, our ability to comply with our financial reporting requirements and other rules that apply to reporting companies could be impaired.  In addition, during the evaluation and testing process, if we identify one or more material weaknesses in our internal control over financial reporting, we will be unable to assert that our system of internal control is effective. If we are unable to assert that our internal control over financial reporting is effective (or if our auditors are unable to attest that management’s report is fairly stated or they are unable to express an opinion on the effectiveness of our internal controls), we could lose investor confidence in the accuracy and completeness of our financial reports, which could have a material adverse effect on our stock price.

Any failure to maintain effective internal controls could have a material adverse effect on our business, operating results and stock price. In addition, expenses related to services rendered by our accountants, legal counsel and consultants will increase in order to ensure compliance with these laws and regulations. Failure to comply with Section 404 may make it more difficult for us to obtain certain types of insurance, including director and officer liability insurance.  We may be forced to accept reduced policy limits and coverage and/or to incur substantially higher costs to obtain the same or similar coverage.  The impact of these events could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, on committees of our board of directors, or as executive officers.

Risks Related to our Common Stock

Shares of our common stock may continue to be subject to price volatility and illiquidity because our shares may continue to be thinly traded and may never become eligible for trading on a national securities exchange .

 

The trading volume for our common stock has historically been insignificant, and an active trading market for our common stock may never develop. There currently is limited analyst coverage of our business. We do not have very many shares of common stock outstanding and the amount of shares in our public “float” will continue to be limited due to the fact that significant portions of our outstanding shares are held by our officers and directors and their affiliates. As a result of the thin trading market for our common stock, and the lack of analyst coverage, the market price for our shares may continue to fluctuate significantly, and will likely be more volatile than the stock market as a whole. There may be a limited demand for shares of our common stock due to the reluctance or inability of certain investors to buy stocks quoted for trading on the Over-The-Counter Bulletin Board (“OTCBB”), limited analyst coverage of our common stock, and a negative perception by investors of stocks traded on the OTCBB.  As a result, even if prices appear favorable, there may not be sufficient demand in order to complete a shareholder’s sell order. Without an active public trading market or broader public ownership, shares of our common stock are likely to be less liquid than the stock of most public companies, and any of our shareholders who attempt to sell their shares in any significant volumes may not be able to do so at all, or without depressing the publicly quoted bid prices for their shares.

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In addition, we may never achieve a listing of our common stock on a national securities exchange. Initial listing on a national securities exchange is subject to a variety of requirements, including minimum trading price and minimum public “float” requirements, and could also be affected by the general skepticism of such markets concerning companies that are the result of mergers with inactive publicly-held companies. There are also continuing eligibility requirements for companies listed on public trading markets. If we are unable to satisfy the initial or continuing eligibility requirements of any such market, then our stock may not be listed or could be delisted. This could result in a lower trading price for our common stock and may limit your ability to sell your shares, any of which could result in you losing some or all of your investments.

Our common stock is subject to the “penny stock” rules of the Securities and Exchange Commission and the trading market in our securities is limited, which makes transactions in our stock cumbersome and may reduce the value of an investment in our stock .

 

The Securities and Exchange Commission (the “SEC”) has adopted Rule 3a51-1 which establishes the definition of a “penny stock,” for the purposes relevant to us, as any equity security that (i) has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, or (ii) is not registered on a national securities exchange or listed on an automated quotation system sponsored by a national securities exchange. For any transaction involving a penny stock, unless exempt, Rule 15g-9 of the Securities and Exchange Act of 1934, as amended, requires:

 

•

that a broker or dealer approve a person’s account for transactions in penny stocks; and

 

•

the broker or dealer receives from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.

 

In order to approve a person’s account for transactions in penny stocks, the broker or dealer must:

 

•

obtain financial information and investment experience objectives of the person; and

 

•

make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.

 

The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating to the penny stock market, which, in highlight form:

 

•

sets forth the basis on which the broker or dealer made the suitability determination; and

 

•

attests that the broker or dealer received a signed, written agreement from the investor prior to the transaction.

 

Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading, and about the commissions payable to both the broker-dealer and the registered representative.  Current quotations for the securities and the rights and remedies and to be available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.  Generally, brokers may be less willing to execute transactions in securities subject to the “penny stock” rules.  This may make it more difficult for investors to dispose of our common stock and cause a decline in the market value of our stock.

 

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Substantial sales of our common stock by the selling stockholders or us could cause our stock price to decline and issuances by us may dilute your ownership interest in our company.

 

The 15,971,928 shares covered by this prospectus represents approximately 20% of our outstanding common stock on a fully diluted basis, assuming exercise of all outstanding warrants and vested stock options, and the conversion of all convertible debt into shares of our common stock.  In addition, our executive officers and directors own approximately 44.4% of our outstanding common stock on a fully diluted basis.  We are unable to predict the amount or timing of sales by the selling stockholders of our common stock.  Any sales of substantial amounts of our common stock in the public market by the selling stockholders or us, or the perception that these sales might occur, could lower the market price of our common stock.  As described in more detail elsewhere herein, we plan to raise capital through debt or equity financing in order to implement strategies in furtherance of our business plan.  If we issue additional equity securities to raise this additional capital, your ownership interest in us may be diluted and the value of your investment may be reduced.

 

The market valuation of our business may fluctuate due to factors beyond our control and the value of your investment may fluctuate correspondingly.

 

The market valuation of energy companies, such as us, frequently fluctuate due to factors unrelated to the past or present operating performance of such companies.  Our market valuation may fluctuate significantly in response to a number of factors, many of which are beyond our control, including:

 

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changes in securities analysts’ estimates of our financial performance;

 

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fluctuations in stock market prices and volumes, particularly among securities of energy companies;

 

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changes in market valuations of similar companies;

 

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announcements by us or our competitors of significant contracts, new technologies, acquisitions, commercial relationships, joint ventures or capital commitments;

 

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variations in our quarterly operating results;

 

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fluctuations in oil and natural gas prices; and

 

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additions or departures of key personnel.

 

As a result, the value of your investment in us may fluctuate.

 

State securities laws may limit secondary trading, which may restrict the states in which and conditions under which you can sell the shares offered by this prospectus .

 

Secondary trading in common stock sold in this offering will not be possible in any state until the common stock is qualified for sale under the applicable securities laws of the state or there is confirmation that an exemption, such as listing in certain recognized securities manuals, is available for secondary trading in the state.  If we fail to register or qualify, or to obtain or verify an exemption for the secondary trading of, the common stock in any particular state, the common stock could not be offered or sold to, or purchased by, a resident of that state. In the event that a significant number of states refuse to permit secondary trading in our common stock, the liquidity for the common stock could be significantly impacted thus causing you to realize a loss on your investment.

Investors should not look to dividends as a source of income .

 

In the interest of reinvesting initial profits back into our business, we do not intend to pay cash dividends in the foreseeable future.  Consequently, any economic return will initially be derived, if at all, from appreciation in the fair market value of our stock, and not as a result of dividend payments.

 

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FORWARD LOOKING STA TEMENTS

 

We caution readers that certain important factors (including without limitation those set forth below) may affect our actual results and could cause such results to differ materially from any forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), made herein.  We intend such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and are including this statement for purposes of complying with those safe-harbor provisions.  You should not rely on forward-looking statements in this prospectus.  Our forward-looking statements are based on current management expectations that involve risks and uncertainties that may result in such expectations not being realized.  Without limiting the generality of the foregoing, words such as “may,” “expect,” “believe,” “plan,” “anticipate,” “intend,” “could,” “estimate” or “continue” are intended to identify forward-looking statements.  These statements are based on our beliefs as well as assumptions we have made using information currently available to us.  Some, but not all, of the factors that may cause these differences include those discussed in “Risk Factors.”

 

In particular, this prospectus contains forward-looking statements pertaining to the following:

 

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oil and natural gas production levels;

 

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capital expenditure programs;

 

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the estimated quantity of oil and natural gas reserves;

 

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projections of market prices and costs;

 

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supply and demand for oil and natural gas;

 

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expectations regarding the ability to raise capital and to continually add to reserves through acquisitions, exploration and development;

 

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treatment under governmental regulatory regimes;

 

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drilling plans; and

 

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oil and gas reserve life.

 

The actual results could differ materially from those anticipated in these forward-looking statements as a result of the risk factors set forth below and elsewhere in this prospectus:

 

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our ability to continue as a going concern;

 

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our limited history of operations;

 

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our need for additional external funding;

 

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volatility in market prices for oil and natural gas;

 

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liabilities inherent in oil and natural gas operations;

 

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uncertainties associated with estimating oil and natural gas reserves;

 

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competition for, among other things, capital, acquisitions of reserves, undeveloped lands and skilled personnel;

 

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incorrect assessments of the value of acquisitions;

 

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geological, technical, drilling and processing problems;

 

·

fluctuations in foreign exchange or interest rates and stock market volatility; and

 

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the other factors discussed under “Risk Factors.”

 

These factors should not be considered exhaustive.

 

These forward-looking statements are made as of the date of this prospectus and we assume no obligation to update such forward-looking statements or to update the reasons why actual results could differ materially from those anticipated in such forward-looking statements.

 

As we are deemed a “penny stock issuer” within the meaning of the Securities Act and the Exchange Act, we are currently ineligible to rely on the safe harbor provisions of the Securities Act and the Exchange Act relating to forward-looking statements.  However, once we are no longer a “penny stock issuer,” we expect to be eligible to, and we intend to, rely on such safe harbor provisions.

 

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BU SINE SS

 

Corporate History

 

We were incorporated in the State of Nevada on February 21, 2006 as Georgia Exploration, Inc., a Vancouver, Canada based mineral resource exploration company with interests in 14 non-oil and gas mineral claims in British Columbia.  On January 3, 2007, we consummated a reverse merger with Wharton Resources Corp. (“Wharton” or “Wharton Corp.”).  The merger resulted in a change in control of us with Wharton’s former stockholders holding approximately 71.4% of the then issued and outstanding shares of our common stock.   On March 8, 2007, we changed our name to Gulf Western Petroleum Corporation.

 

General Overview

 

We are engaged in the acquisition, exploration and development of oil and natural gas reserves in the United States.  Upon completion of our reverse merger, Wharton’s oil and gas interests and reserves became our primary assets and our core business became the exploration and development of domestic oil and natural gas reserves in the United States.   We currently hold a portfolio of oil and gas lease interests in Texas, Kansas and Kentucky.

 

We hold proved undeveloped reserves in our Oakcrest Prospect located in south central Texas.  In connection with our Shamrock and Brushy Creek projects, we hold interests in eleven currently producing wells located in Dewitt and Lavaca Counties Texas that were drilled and completed during 2007, and commenced commercial levels of production during December 2007 and January 2008.  We have approximately 8,800 gross acres (6,864 net) under oil and gas leases that are located in southeastern Kansas together with interests in eight wells that are currently shut in, all of which comprise our Mound Branch Prospect gas reserve and infrastructure development initiative.  Our oil and gas lease interests in Kentucky are exploratory in nature.

 

We serve as operator for most of our oil and gas interests.  We may subcontract certain construction and functional requirements of physical operations to contractors that have the knowledge base, experience and skill sets that we require and which have physical resource presence in the geographic proximity of our interests. Specifically, we operate our Oakcrest Prospect, Mound Branch Prospect and Kentucky Prospects. Our interests in the Shamrock and Brushy Creek projects are operated by third parties pursuant to joint operating agreements that provide for our election to participate in capital expenditure activities proposed by an operator and our approval of authorizations of expenditures that an operator may propose.

 

We are actively pursuing financing options principally to initiate the drilling of our proved undeveloped natural gas and oil reserves in our Oakcrest Prospect located in Wharton County, Texas, and to further develop our interests in the Mound Branch Prospect..

 

Principal Properties

 

Oakcrest Prospect (Wilcox Formation), Wharton County, Texas

 

Our Oakcrest Prospect is located in south central Texas, approximately 75 miles southwest of Houston, Texas.   We hold oil and gas lease interests in approximately 866 acres with a working interest of 95.75% and we serve as operator.  The main target of hydrocarbon production is the Wilcox formation, with secondary targets for the Oakcrest Prospect being the Frio and Yegua formations that will be traversed while in route to the Wilcox formation during drilling. The lease acreage is adjacent to and lies immediately to the north-east of the existing Southwest Bonus Field.  The prospect is located in the central Gulf Coast Plain on the east side of the San Marcos Arch in Wharton County, Texas.   All Wilcox fields in the Gulf Coast Plain are fault-bounded and produce from simple, normal fault-bounded anticlines.  The Wilcox formation is Eocene-age and is found at a depth of approximately 11,000 to 12,500 feet.  A combination of aeromagnetic surveys and well control had originally defined the structure of the Oakcrest Prospect.  Through 2-D seismic data reprocessing and reinterpretation, two large normal faults that were previously identified were confirmed together with two smaller possible faults.

 

Initial production in the Southwest Bonus Field commenced in August 1998 with the Obenhaus Gas Unit which to date has yielded total production of approximately 4,206 MMcf. We do not hold interests in the Southwest Bonus Field. However in connection with the reserve evaluation of the Oakcrest Prospect, we acquired data for sixty one (61) Wilcox formation producing wells, located in the Southwest Bonus Field, that we evaluated to ascertain their estimated ultimate recoveries. Production data through June 2007 was obtained and evaluated to develop decline curve analysis for each well in order to forecast remaining and ultimate reserves for wells that are currently producing. For wells that were no longer producing, the cumulative natural gas and oil production were used to develop ultimate recoveries. Median recovery from the Southwest Bonus Field offset producing wells is approximately 2,436 MMcf and 73,100 barrels of oil per well.

 

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Production forecasts for the Oakcrest Prospect locations were derived based on the historical behavior of the Wilcox formation offset wells in the Southwest Bonus Field.  Based on the production behavior of the offset wells, the initial gas production rate for the Oakcrest wells was plotted to be 15,000 Mcf per day with an initial decline rate of 90% per year, and a hyperbolic exponent of 0.8.

 

We engaged MHA Petroleum Consultants, Inc. (“MHA”) to make a technical evaluation our Oakcrest Prospect natural gas and oil reserves, and to formulate estimates of the proved reserves and income attributable to our interests in the prospect.   In MHA’s evaluation of the Oakcrest Prospect, 17 potential well locations were identified.  Two well locations contain reserves categorized as proved reserves.  A summary of the results of MHA’s technical evaluation of oil and natural gas reserves categorized as proved as of August 31, 2007, together with the net undiscounted cash flows, discounted future cash flows at a 10.0% discount rate (“PV10”) on a before and after tax basis are as follows:

 

Summary of Oil and Natural Gas Reserves

(At August 31, 2007)

(Prepared with Fiscal Year-End Prices)

 

Oil

Natural Gas

Gross (MBBL)

Net (MBBL)

Gross (MMCF)

Net (MMCF)

Total Proved Reserves

146.2

106.7

4,872

3,308

Cash Flows and PV 10 Proved Reserves

Before (“BFIT”) and After (“AFIT”) Income Taxes

(Discounted at 10%)

		BFIT (in thousands)				AFIT (in thousands)
Future net revenue		$	28,610			$	28,610
Future operating costs			3,256				3,256
Future income taxes			-				2,604
Operating cash flow		$	25,354			$	22,750
Capital investment			8,693				8,693
Undiscounted future net cash flow		$	16,661			$	14,057
Discounted PV10 cash flow		$	13,066			$	11,168

 

The economics and cash flows presented in the above table are based on our 95.75% working interest and 73.0% net revenue interest in the Oakcrest Prospect.   The fiscal year-end prices used in calculating the information provided in the above table were West Texas Intermediate (“WTI”) of $73.19 per barrel (with a wellhead netback of $68.19 to us) and Henry Hub natural gas price of $7.00 per million cubic feet (with a wellhead netback of $6.45 per Mcf to us).

 

Estimated capital expenditures to drill and complete a well is approximately $4.3 million based on current rig rates, casing prices, sub-surface and surface equipme nt, and other ancillary services and materials required to drill and complete a Wilcox formation well.   

 

Our current plan of operations is to secure financing to fund the drilling of a minimum of two wells.  The location for the first well to be drilled has been identified, surveyed and staked, and a preliminary drilling permit has been secured.  Under the terms of our oil and gas lease, we have an obligation to spud an initial well before September 1, 2008.  A second well also targeting reserves identified as proved undeveloped is scheduled to spud immediately following the completion of the initial well.  Upon the drilling of the first and second Wilcox wells, we will make further technical evaluations to ascertain whether reserves originally categorized as probable have shifted to proved reserves with further data assembled through the drilling of these Wilcox wells.  If successful, we plan to drill a third Wilcox formation well during 2008 leveraging off the information acquired from the first two wells.     See “Plan of Operations – Texas Oakcrest (Wilcox Formation) Prospect.”

 

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Texas Shamrock and Brushy Creek Projects (Frio Formation), Dewitt and Lavaca Counties, Texas

 

Our Texas Frio formation wells that comprise our Shamrock and Brushy Creek Projects are our first wells to commence commercial production with the first well, the Pope No. 1 (Brushy Creek V), going on line in November 2007.    In our Frio initiative, we are participating in the drilling of a minimum of twelve Frio-age natural gas wells located in Dewitt and Lavaca Counties, Texas.   All twelve wells have been identified through newly-acquired 3-D seismic data.  Frio-age sediments lie below the Anahuac Shale, a detachment zone within the Post Isabel Fold Belt.  The Shamrock Project in Dewitt County consists of five Frio wells drilled in 2007, and our participation in the Brushy Creek Project consists of non-operated interests in seven Frio wells located in Lavaca County, Texas.  Our Texas Frio formation projects are operated by third parties.   The Shamrock Project is operated by Caskids Operating Company, and the Brushy Creek Project is operated by Suncoast Technical Services, Inc.

 

Shamrock Project

 

The Shamrock Project is a five well drilling program located in Dewitt County, Texas that is targeting Frio-age natural gas reserves that have been identified through 3-D seismic. Frio-age wells have proven to be prolific natural gas producers throughout the Texas Gulf Coast region. Typical Frio wells produce at approximately 200 to 250 Mcf per day with estimated total recoverable reserves of approximately 500 MMcf. The target formation is the Jameson Sand at total well depth at approximately 3200 feet. The five wells drilled and completed in the Shamrock Project are the Polinard-Lee No. 1, the Miller-Thomas No. 1, the Bushmill No. 1, the Red Breast No. 1 and the Michael Collins No. 1. All five wells had flow rates during test of 310 – 325 Mcf per day.   We hold an average 65.0% working interest and 45.5% net revenue interest in the wells.  Sales from the wells commenced on December 11, 2007.   Under current operating pressure conditions average daily gross production is estimated to be approximately 750 Mcf – 850 Mcf per day for the five wells in total, and we hold an average net revenue interest of approximately 45.4% in the five wells.  We have funded all required capital expenditure investments in the Shamrock Project associated with our net interest.  See “Plan of Operations – Texas Shamrock and Brushy Creek Projects” for more.

 

Brushy Creek Project

 

The Brushy Creek Project is a 3-D seismic controlled project situated in the prolific Oligocene Frio oil and natural gas trend located in the lower Texas Gulf Coast. The Brushy Creek Project was initiated in 2005, and to date has been successful in ten out of ten wells. The first ten wells resulted in six Frio discoveries, three Miocenen discoveries and one Yegua completion. These ten new wells entail drilling that targets several high quality amplitude anomalies similar to those that have proven to be productive in the previous drilling. We currently hold interests in seven Brushy Creek Project wells, and are evaluating the participation in three additional Frio wells scheduled for drilling. Our average working and net revenue interests in the existing seven drilled wells is 34.4% and 24.9%, respectively.

 

The seven wells drilled and completed during 2007 that we hold interests in are the Goodrich-Toyah No. 1, Nichol’s No. 1, Pope No. 1, Goodrich-Deleplain No. 1, Goodrich-Poindexter No. 1, O’Neal Smith No. 1 and the Williams No. 6.   These wells are in various stages of testing and interconnection.   We estimate the average daily gross production from the six completed wells to be approximately 925 Mcf – 1,000 Mcf per day, and we hold an average net revenue interest of 25.5% in the six wells

 

We have funded our share of the required capital expenditure investments in the seven existing wells and our plan of operation is to evaluate our further participation in the Brushy Creek Project. See “Plan of Operations – Texas Shamrock and Brushy Creek Projects” for more.

 

Mound Branch Reserve and Infrastructure Development Project, Elk County, Kansas

 

On January 30, 2007 we purchased Orbit Energy, LLC’s (“Orbit”) working and net revenue interests in approximately 8,800 gross acres located in Elk County, Kansas together with its interests in certain drilled wells and associated equipment (the “Mound Branch Project”).  Orbit is owned by CodeAmerica Investments, LLC for which Wm. Milton Cox, our Chairman and CEO, is the Managing Member, and Paragon Capital, LLC for which Bassam Nastat, our President and a Director, serves as Manager.

 

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The purchase price totaled $6.8 million, and consideration paid to Orbit was comprised of: a) $760,947 of funds that we advanced to Orbit for testing and evaluation of the existing well bores, reservoir formations and associated lease acreage; b) a thirty-six month $2.0 million 10% convertible note with principal due at maturity; and c) 4,039,053 shares of our common stock with a fair value of $1.00 per common share at the time of issuance, subject to a true up upon receipt of an independent report assessing the fair value of the assets acquired at no less than the purchase price of $6.8 million.  Should the valuation be less than the $6.8 million purchase price then the number of shares released to Orbit on January 30, 2008, the one-year anniversary of the purchase from Orbit, will be ratably reduced for the lower valuation and shares will be returned to treasury.  On January 30, 2008, we agreed to extend Orbit’s delivery of the independent valuation report for three months until April 30, 2008.  In connection with the extension, Orbit agreed to defer the quarterly interest payment due on the convertible note until April 30, 2008.

 

The Mound Branch Project is a natural gas reserve and gathering system development project of existing and after acquired oil and gas lease acreage, and existing wellbores previously drilled by Orbit and its working interest partners.  The Mound Branch Project consists of a three-year drilling program to drill fifty wells per year and for the construction of a 15-mile low-pressure gathering system.  The required gathering system would have design capacity of 8,000 Mcf per day, and is necessary for the delivery of existing and expected prospective well head production into the interstate natural gas pipeline grid in Kansas.   Orbit serves as the operator of the Mound Branch Project.

 

The Mound Branch natural gas reserves cover Cherokee Group clastic rocks over Mississippian limestones. Depth to the Mississippian basement in the Cherokee Group ranges from 0 feet at outcrops in the extreme southeastern corner of Kansas to more than 2,500 feet (762 m) in Elk and Chautauqua Counties as the Mississippian and Cherokee Group rocks gradually dip to the west and southwest.  The majority of wells are expected to produce from the Mulky and Summit coals at approximately 1,600 feet depth, with upside potential in the Mississippi Limestone, and Arbuckle sections at approximately 2,200 – 2,600 feet.   Recent testing of the first Mississippi Limestone well showed absolute open flow at 1,400 Mcf per day . The 72-hour flow tests indicate that the wells will be initially produced at approximately 350 to 400 Mcf per day.

 

Employees

We currently have five full-time and part-time employees. We generally utilize short term contractors, consultants and professional service providers, as necessary. Our directors and officers provide services on a month to month basis pursuant to oral arrangements, but have not signed employment or consulting agreements with us. We do not expect any material changes in the number of employees over the next twelve month period. We may enter formal written service agreements with our directors and officers in the future. We expect to utilize contractors and consultants as needed to meet our staffing needs, and will continue to periodically evaluate costs and benefits of staffing our resource requirements externally or internally. We expect that the level of success of our exploration and development initiatives will drive the timing and level of employees that we may retain in the future.

Going Concern

 

Our financial statements have been prepared assuming we will continue as a going concern. We are in our development stage and, accordingly, have several capital initiatives but no revenues. We have raised limited financing and have incurred operating losses since our inception. These factors raise substantial doubt about our ability to continue as a going concern, and our ability to achieve and maintain profitability and positive cash flows are dependent on our ability to secure sufficient financing to fund the acquisition, drilling and development of profitable oil and natural gas properties. We are actively pursuing financing options which we believe would allow us to establish and sustain commercial production. There are no assurances that we will be able to obtain additional financing from investors or private lenders and, if available, such financing may not be on commercial terms acceptable to us or our stockholders. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. We intend to raise financing sufficient to fund our capital expenditure and working capital requirements for the next twelve months principally through private placements and possibly public offerings.

 

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DES CRIPT ION OF PROPERTY

 

Reserves

 

Our proved natural gas and associated oil reserves have been estimated as of August 31, 2007 and presented in following table.  The reserves presented in the table are based on reserve evaluations performed by MHA Petroleum Consultants, Inc., an independent reserve engineer, and reported in their report entitled “Securities and Exchange Commission Evaluation, Oil & Natural Gas Reserves, Oakcrest Prospect, Wharton County, Texas.”   The reserve quantities were prepared based on fiscal year-end prices and cost estimates assuming continuation of existing economic conditions as of August 31, 2007.  There are numerous uncertainties inherent in estimating quantities of proved reserves and estimates of reserve quantities and values must be viewed as being subject to significant change as more data about the properties becomes available.

 

All reserves classified as proved as of August 31, 2007, are associated with our Oakcrest Prospect located in Wharton County, Texas.

 

		Proved Reserves
		Developed				Undeveloped				Total
Natural gas (Mcf)			-				3,307,601				3,307,601
Oil (Bbls)			-				106,697				106,697
Total proved reserves (Mcfe)			-				3,947,783				3,947,783

From our inception through August 31, 2007,  we have not had natural gas or oil production arising from or attributable to our oil and gas interests.

 

Drilling Activity and Productive Wells

 

Information with regard to our drilling activities during the year ended August 31, 2007, and well status at August 31, 2007 are presented in the following table:

 

		At August 31, 2007
		Gross				Net
Drilled:
Exploratory			10.0				3.6
Development			-				-
Total			10.0				3.6
Total Wells
Productive			-				-
Non-productive			-				-
Under testing and evaluation			10.0				3.6
Total			10.0				3.6

All wells drilled during the year ended August 31, 2007 were drilled in Texas in connection with the Shamrock and Brushy Creek projects. At August 31, 2007, these wells were undergoing completion operations and testing in order to make a determination of the productive status of each well.

 

We did not drill any wells during the period from our inception through the year ended August 31, 2006.

 

Acreage

 

The following table summarizes by state our developed and undeveloped acreage as of August 31, 2007. The term of the undeveloped leasehold acreage ranges from one to three years.   Our Oakcrest Prospect lease acreage located in Wharton County, Texas expires on September 1, 2008 unless we have commenced and maintain a continuous drilling schedule, initiate production or negotiate a renewal with the holder of the mineral rights.

 

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		Developed								Undeveloped
State		Gross				Net				Gross				Net
Kansas			-				-				8,800				6,864
Kentucky			-				-				5,600				4,032
Texas			-				-				1,687				1,099

Delivery Commitments

We have no significant delivery commitments.

Office Lease

We share office space in Houston, Texas with Orbit under a month-to-month arrangement.    The office space is leased by Orbit.  During the years ended August 31, 2007 and 2006, we paid rent  totaling $42,994 and $38,210, respectively.

 

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PLAN OF OPE RAT IONS

 

The following Plan of Operations should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this prospectus. Our consolidated financial statements are prepared in accordance with United States Generally Accepted Accounting Principles. Unless otherwise specified, all dollar amounts are expressed in United States dollars.  

 

We are an oil and natural gas exploration and development company.  As of November 30, 2007 , the end of our most recent fiscal quarter, we have not generated operating revenues.  We are a development stage company, and our consolidated financial statements contained herein are prepared in accordance with SFAS No. 7, Accounting and Reporting by Development Stage Enterprises.  

 

We are engaged in the acquisition, exploration and development of oil and natural gas reserves in the United States.  We currently hold oil and gas lease interests in Texas, Kansas and Kentucky.  Our Texas Frio formation Shamrock and Brushy Creek Projects consist of oil and gas interests in eleven producing non-operated wells that were drilled, completed and interconnected during calendar year 2007.  These eleven wells commenced commercial production during the months of December 2007 and January 2008.  

 

As of August 31, 2007 , we hold proved undeveloped reserves in our Oakcrest Prospect located in Wharton County, Texas with estimated proved recoverable reserves of approximately 5.7 Bcfe and 3.9 Bcfe gross and net to our interests, respectively.  We are actively pursuing financing to initiate the drilling of our Oakcrest Prospect reserves.  We are also engaged in a natural gas supply and gas gathering system development project in Southeast Kansas to develop and interconnect wells in the Mound Branch Prospect.  The Mound Branch Project has shut in “behind pipe” oil and gas reserves and estimated potential net recoverable reserves associated with wells to be drilled in connection with a 150-well three-year drilling program. We intend to fund this through project financing, joint interest participation or other agreements that could entail a scaling back of our economic participation in the gathering system in order to effect the construction of the infrastructure necessary to deliver wellhead production from existing wells, and new wells to be drilled into downstream consuming markets.  We also hold exploratory oil and gas lease interests in Kentucky on our Baxter Bledsoe and Bell Prospects for which we believe that we will be able to determine potential recoverable reserves estimates once an initial exploratory well is drilled.

 

Since our inception, we have funded our oil and gas exploration and development activities, and our operating and working capital requirements, through the issuance of equity and debt securities, and through the contribution of funds and services by our officers and directors, some of which are also our principal shareholders.   Our issuances of securities have involved, among other things, a series of private equity placements with units consisting of shares of our common stock and warrants, the issuance of convertible securities in the form of secured notes and various bridge and short term notes.

 

Our monthly net operating cash requirements, including interest payments, are approximately $75,000 each month.  Our available cash at December 31, 2007 was $19,500.  To execute our business plan, we will be required to raise substantial capital in the near term.  While production from our Shamrock and Brushy Creek Projects is expected to provide revenues and cash flows to fund some of our operating cash requirements over the next twelve months, we will need to rely primarily on external sources of financing to fully fund our operating cash requirements, capital expenditure program and to meet debt service obligations.  An interest payment of $265,500 for the first six months on the convertible notes is due on March 10, 2008 , and $46,250 each month thereafter until the notes mature on September 10, 2008 or are converted into shares of our common stock.  If the notes are not converted by the noteholders prior to their maturity, we will require additional external financing to meet our $3.7 million principal debt service obligation.

 

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Over the next twelve months, we intend to use substantially all of our funds as they become available to fund our operating cash requirements of $1.4 million; to fund our $11.7 million exploration and development projects; and to meet our $3.7 million debt principal repayment obligations on the convertible notes.  Investments related to our exploration and development projects include approximately (i) $8.9 million to drill a minimum of two Oakcrest Prospect wells in Texas; (ii) $1.3 million on the development of the gas supply and gathering system for the Mound Branch Project; (iii) $1.2 million for other prospect identification, screening, evaluation and development; and (iv) $300,000 to drill a test exploration well in Kentucky on the Baxter Bledsoe Prospect.

 

Estimated Funding Requirements During the Twelve Months Ending November 30, 2008
Exploration, drilling, development and operating expenditures
Oakcrest Prospect – Drilling and completion of two Wilcox formation wells		$	8,900,000
Mound Branch Project – Development of natural gas reserves and gas gathering system			1,300,000
Baxter Bledsoe Prospect - Drill initial exploratory well			300,000
Other prospects			1,200,000
Debt service, principal on convertible notes			3,700,000
Operating, general and administrative, and interest, net (1)			900,000
Working capital			500,000
Total		$	16,800,000

(1)

Operating, G&A and debt interest, net of estimated operating cash flows from Gulf Western’s interests in the Shamrock and Brushy Creek Projects production. Average daily Shamrock production net to our interests totals approximately 352 Mcf per day, and Brushy Creek production net to our interests totals approximately 235 Mcf per day.   The current estimated average well net back price being realized by Gulf Western is approximately $7.25 per Mcf.

 

 The status of our current oil and gas projects and prospects, specific milestones and steps necessary to accomplish each milestone, timeframe and funding necessary are:

 

Texas Shamrock and Brushy Creek Projects

The five Frio formation wells that comprise the Shamrock Project have all been drilled, completed and interconnected into the downstream sales line.  Sales from the wells commenced on December 11, 2007 .   Under current operating pressure conditions average daily gross production is estimated to be approximately 750 Mcf – 850 Mcf per day for the five wells in total, and we hold an average net revenue interest of approximately 45.4% in the five wells.  We have funded all required capital expenditure investments in the Shamrock Project associated with our net interest.

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We participated in the drilling of seven Frio formation wells that constituted the Brushy Creek IV, V and VI Projects.   Five of the wells have been completed in the Frio formation and production sales have commenced.  A sixth well has been completed into the shallower Miocene formation, and sales of production has commenced.  The seventh well is not currently scheduled for completion.  The average daily gross production from the six completed wells is estimated to be approximately 925 Mcf – 1,000 Mcf per day, and we hold an average net revenue interest of 25.5% in the six wells.  We have funded all required capital investment in the Brushy Creek IV, V and VI Projects associated with our net interest.

We are currently evaluating participation in the drilling of three additional Frio formation wells that are part of the Brushy Creek VII Project; however, we have not yet made a definitive determination as to whether we will participate in the three additional wells.   Should we participate in the Brushy Creek VII Project, our share of capital expenditures in the three wells will total approximately $928,000 net to our interest.

 

Texas Oakcrest (Wilcox formation) Prospect

 

We hold oil and gas lease interests in Wharton County, Texas.  Third party technical reserve evaluations attribute total proved undeveloped recoverable natural gas and condensate Wilcox formation reserves of approximately 3.9 Bcfe, net to our interests.   For the Oakcrest Prospect, the Wilcox formation is found at a depth of approximately 11,000 to 12,500 feet, and the capital expenditure requirement to drill and complete each Wilcox well is approximately $4.5 million per well, net to our interest.

 

The location for the first well to be drilled has been identified, surveyed and staked, and a preliminary drilling permit has been secured.  Under the terms of our oil and gas lease, we have an obligation to spud an initial well before September 1, 2008 .  Approximately, 45 days are required to drill a well with approximately 15 days necessary to complete a well once drilled.  After the completion of a well, we have an obligation to maintain a continuous drilling schedule with no more than 120 days elapsing between completion of a well and the spudding of a new well.  Parcels of acreage drilled that are capable of production are “held by production” and bear a 23.75% landowner and overriding royalty burden.

 

Our next major milestone for the Oakcrest Prospect is to secure financing to fund the drilling of a minimum of two wells.  We will require $8.9 million to fund our capital expenditure requirements to accomplish this milestone.   The lead time necessary to schedule a drilling rig capable of drilling to necessary depths is approximately 60 days.  Thus, in order to accomplish a September 1, 2008 spud date for the first well, the placement and funding of financing needs to be completed by June 1, 2008 .   Once financing is secured, we intend to proceed to schedule a drilling rig, formalize the drilling permit, commission a drilling survey, and acquire a drilling title opinion, all of which will need to be accomplished concurrently with the closing of the financing.

 

Mound Branch Reserve and Gathering System Project

The Mound Branch Project is comprised of two interrelated and interdependent phases (completion of the gathering system and the drilling of wells), both of which must be accomplished in order to progress the overall Mound Branch program. In order to source financing necessary to fund a contemplated three year 150-well natural gas drilling project, we believe that we will have to demonstrate that the 15-mile low pressure gathering system will be built, in service and ready to transport wellhead production to market once production commences.   For either us or other participants to commit to financing to construct a low-pressure gas gathering system, we must have confidence that investments will be made to drill and develop the natural gas reserves that would utilize the gathering system.

 

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The next major milestone for the Mound Branch Project is for us to secure support for and commitments to the gas supply drilling program and to the gathering system development, both in terms of financial commitments and counterparty commitments to participate in their development.   Since our core business is the exploration and production of oil and gas reserves, we may find it necessary for us to scale back our economic participation in the gathering system in order for us to expedite its development.  We believe that commitments to develop the gathering system will assist us and enhance our ability to raise sufficient funding to undertake a multi-year drilling program.

 

We hold oil and gas leases for approximately 8,800 acres in Elk County, Kansas with expiration dates of 2009 and later.  We have acquired the right of way necessary to site and accomplish the construction of the gathering system. The next milestone for the Mound Branch Project is for us to facilitate and effect the construction and interconnection of the gathering system. We are currently negotiating with a third party developer to build the gathering system under terms that are commercially reasonable to us and which are equitable with the level of risk being assumed by the parties.

 

Our plan of action is to finalize the terms and conditions of the gas gathering system with the third party developer during the first three months of 2008.  The construction period for the gas gathering system is approximately 75 – 90 days, and once a deal is in place, we expect that the third-party gathering system developer would have the system constructed and placed in service by the end of our fiscal year on August 31, 2008 .   Concurrent with the gathering system being placed into service, our next milestone will be to acquire funding for the initial stage of our proposed 150-well drilling program.  Assuming completion of the gathering system by August 31, 2008 , we expect to commence the drilling program by the end of the calendar year 2008.

 

Based on our plan of operations, our current available cash is not sufficient to fund our capital and operating requirements over the next twelve-month period. To execute our plans, we will require substantial financing and are actively working on options to raise equity and/or debt financing through private placements and public offerings.  However, in the event that we are unable to raise the financing to meet our needs, or if we are able to obtain sufficient financing from investors or private lenders but it is on commercial terms unacceptable to us or our stockholders, we will be required to scale back or slow our capital program. Should we raise funds through equity and debt placements, existing equity ownership in us could be negatively affected due to the dilution of existing equity ownership of our common stock.  Substantially all our assets are pledged as security to the lenders.  Therefore, if we are not successful in executing our plan or unable to repay the $3.7 million principal balance on the maturity of the notes, we may be unable to continue our business and as a result may be required to scale back or cease operations of our business, the result of which would be that our stockholders would lose some or all of their investment.

 

Off Balance Sheet Arrangements

 

We do not have any off balance sheet financial arrangements.

 

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SELLING STO CKHO LDERS

 

The following table sets forth certain information concerning the selling stockholders.  Assuming that the selling stockholders offer all of their shares of our common stock, the selling stockholders will not have any beneficial ownership except as otherwise provided in the table below.  The shares are being registered to permit the selling stockholders to sell or otherwise dispose of the shares covered hereby, or interests therein, from time to time.  We will file a prospectus supplement to name successors to any named selling stockholders who are able to use the prospectus to resell the shares.  Such prospectus supplement would be required to be delivered, together with this prospectus, to any purchaser of such shares.  See “Plan of Distribution.”

 

Selling Stockholder		Number of Shares Owned Prior to Offering(1)				Number of Shares Being Offered(1)				Number of Shares Owned After Offering(2)				Percentage of Shares Owned After Offering(2)
Metage Funds Limited (3)			14,342,959				14,342,959				-				-
NCIM Limited (4)			1,628,969				1,628,969				-				-

 

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(1)

Ownership is determined in accordance with Rule 13d-3 under the Exchange Act.  The actual number of shares beneficially owned and offered for sale is subject to adjustment and could be materially less or more than the estimated amount indicated depending upon factors which we cannot predict at this time.  Includes 14,471,928 shares of common stock underlying the warrant and notes held by the selling stockholders.

 

(2)	Assumes the sale of all of the shares offered hereby to persons who are not affiliates of the selling stockholders.

 

(3)	Mr. Tom Sharp, Investment Manager, exercises voting and investment authority over the shares held by this selling stockholder.

 

(4)	Mr. J. Mervyn Roberts, Manager, exercises voting and investment authority over the shares held by this selling stockholder.

 

The shares to be sold by the selling stockholders relate to the Securities Purchase Agreement dated September 10, 2007 (the “Purchase Agreement”) between us, Metage Funds Limited (“Metage”) and NCIM Limited (“NCIM”).  Pursuant to the terms of the Purchase Agreement, we sold to the selling stockholders (1) 1,500,000 shares of our common stock (the “Metage Shares”), (2) senior secured convertible notes in an original aggregate principal amount of $3,700,000 (the “Convertible Notes”), and (3) a warrant to purchase up to an aggregate of 3,461,538 shares of our common stock at an exercise price of $0.26 per share, subject to certain adjustments to the number of shares and the exercise price described in the warrant (the “September Warrant”).  Also included in the shares to be sold are the 125,000 shares of our common stock issuable upon exercise of a warrant issued to NCIM on July 3, 2007 (the “July Warrant,” and together with the September Warrant, the “Warrants”).    The July Warrant was issued in connection with the $500,000 that we borrowed under a convertible secured note from NCIM (the “July Note”).  The July Note was replaced with a Convertible Note under the Purchase Agreement.  We also granted Metage and NCIM a right to participate in up to 25% of any future financing that we may contract for.  This right lasts until the later of (i) March 10, 2008 or (ii) 60 days after the first date on which none of the Convertible Notes remain outstanding.

 

In connection with both of these transactions, we paid Vicarage Capital Limited (“Vicarage”) for their services as placement agent.  We paid Vicarage $50,000 in cash for the July Note and $256,000 in cash in connection with the sale of the Convertible Notes in two separate payments based on the dates we received the proceeds (the “Vicarage Payments”). Additionally, we paid non-cash placement agent fees consisting of 300,000 shares of common stock (the “Vicarage Stock”) and a two-year warrant to purchase 100,000 shares of common stock at an exercise price of $0.40 per share in connection with the July offering (the “Vicarage Warrant”).

 

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The following table sets forth certain information concerning the net cash that is available to us as a result of the sale of the Convertible Notes, after payment of placement agent’s fees and certain future payment obligations to the selling stockholders.

 

Net cash available from the sale of the Convertible Notes
Gross proceeds		$	3,700,000	(1)
Total cash placement agent fees			(306,000	) (2)
Net proceeds			3,394,000
Total cash payment obligations to the selling stockholders			(695,302	) (3)
Net cash available		$	2,698,698
__________________________
(1) Includes cash proceeds of $500,000 received in July 2007 under the terms of the July Note.
(2) Includes cash paid to Vicarage in connection with the July and September offerings and excludes the Vicarage Stock and the Vicarage Warrant.
(3) Total cash payments represent interest on the Convertible Notes and total registration rights payments to be made.

The following table sets forth certain additional information regarding the conversion and exercise terms of the Convertible Notes and the Warrants.  In addition, the table presents whether the conversion or exercise price per share was above the market price of the common stock on the date of issuance (a premium) or was below such price (a discount).

 

		Number of Underlying Shares				Conversion/ Exercise Price				Total Conversion/ Exercise Price				Market Price of Underlying Common Shares (3)				Total Market Price of Underlying Common Shares (4)				Discount (Premium) of Total Conversion Price to Market Price
Convertible Notes
Face amount of the Convertible Notes			9,487,180	(1)		$	0.39			$	3,700,000			$	0.32			$	3,035,897			$	(664,103	)
Interest expense through maturity			1,398,210	(1)		$	0.39				545,302			$	0.32			$	447,427			$	(97,875	)
			10,885,390								4,245,302								3,483,324				(761,983	)
Warrants
July Warrant (NCIM)			125,000			$	0.30				37,500			$	0.27				33,750				(3,750	)
September Warrant (Metage)			3,461,538			$	0.26				900,000			$	0.32				1,107,692				207,692
			3,586,538								937,500								1,141,442				203,942
Common Stock
Metage Shares			1,500,000	(2)		$	-	(2)			-			$	0.32				480,000				480,000
Total			15,971,928							$	5,182,802							$	5,104,766			$	(78,036	)

__________________________

 

(1) Calculated by dividing the total conversion/exercise price by the fixed conversion/exercise price.

(2) Represents the Metage Shares, valued at $0.32 per share, the market price on the effective date of the Purchase Agreement.

(3) Represents the market price of our common stock on the effective date of the Purchase Agreement.

(4) Calculated by multiplying the number of underlying shares by the market price per share.

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The following table sets forth certain additional information regarding the total cash and non-cash costs to us of issuing the Convertible Notes as compared to the proceeds received by us from the offering.

 

Net proceeds:
Gross proceeds received from the sale of Convertible Notes		$	3,700,000	(1	)
Placement agent fees paid in cash			(306,000	)(2	)
Total			3,394,000
Cash Costs of Convertible Notes:
Interest payments expected over the life of the Convertible Notes			(545,302	)(3	)
Registration rights penalty			(150,000	)(4	)
Total cash costs of Convertible Notes			(695,302	)(5	)
Fair Value of Non-Cash Costs of Convertible Notes:
NCIM Warrant			(22,135	)(6	)
Vicarage Warrant			(13,138	)(7	)
Vicarage Shares			(96,000	)(8	)
Metage Shares			(480,000	)(8	)
September Warrant			(950,051	)(9	)
Total non-cash costs of Convertible Notes			(1,561,324	)
Total cost of Convertible Notes		$	(2,256,626	)
Ratio of total cost of Convertible Notes to net proceeds received from the sale of Convertible Notes			66	%

 

__________________________

(1) Includes cash proceeds of $500,000 received in July 2007 under the terms of the July Note.
(2) Represents the Vicarage Payments.
(3) Interest is at 15%, calculated based on the dates proceeds were received by us as follows:  $1.1 million on October 29, 2007 ; $2.1 million on September 10, 2007 ; and $500,000 on July 3, 2007 .  Interest may be paid in cash or converted into common stock at the option of the selling stockholders.  For the purposes of this calculation, interest is assumed to be paid in cash.
(4) Registration rights payments are shown at the maximum possible amount per the agreement.
(5) Does not include repayment of principal in the amount of $3,700,000 or any legal and accounting transactions costs associated with the September offering.
(6) Represents the value of the NCIM Warrant, determined using the Black-Scholes option pricing model.
(7) Represents the value of the Vicarage Warrant, determined using the Black-Scholes option pricing model.
(8) Valued at $0.32 per share, the closing price of the common stock on the effective date of the Purchase Agreement.
(9) Represents the value of the September Warrant, determined using the Black-Scholes option pricing model.

 

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The following table details the maximum potential common stock ownership that the selling stockholders, and the placement agent in the offering of the Convertible Notes and the Warrants, could have as a result of the conversion of the Convertible Notes, exercise of the Warrants and possible penalties under the same, based on 53,489,662 shares of common stock outstanding immediately prior to the sale of the Convertible Notes.

 

Maximum shares of common stock issued or issuable :
Exercise of July Warrant by NCIM			125,000
Exercise of Vicarage Warrant			100,000
Metage Shares			1,500,000
Exercise of September Warrant by Metage			3,461,538
Vicarage Shares			300,000
Conversion of principal balance of Convertible Notes			9,487,179	(1	)
Conversion of interest on Convertible Notes			1,398,210	(2	)
Total			16,371,928
Maximum potential ownership by NCIM, Metage and Vicarage as a percentage of common stock outstanding prior to the sale of the Convertible Notes			30.6	%

__________________________

 

(1) Number of underlying shares was determined by dividing the total principal balance of $3,700,000 by the fixed conversion price of $0.39.
(2) Number of underlying shares was determined by dividing maximum potential interest of $545,302 by the fixed conversion price of $0.39.

 

PLAN OF DIST RIBUTION

 

The selling stockholders, which as used herein includes donees, pledgees, transferees or other successors-in-interest selling shares of common stock or interests in shares of common stock received after the date of this prospectus from a selling stockholder as a gift, pledge, partnership distribution or other transfer, may, from time to time, sell, transfer or otherwise dispose of any or all of their shares of common stock or interests in shares of common stock on any stock exchange, market or trading facility on which the shares are traded or in private transactions.  These dispositions may be at fixed prices, at prevailing market prices at the time of sale, at prices related to the prevailing market price, at varying prices determined at the time of sale, or at negotiated prices.  The selling stockholders may sell their shares of common stock in the public market based on the market price at the time of sale or at negotiated prices.

 

Subject to the foregoing, the selling stockholders may use any one or more of the following methods when disposing of shares or interests therein:

 

•

ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;

 

•

block trades in which the broker-dealer will attempt to sell the shares as agent, but may position and resell a portion of the block as principal to facilitate the transaction;

 

•

purchases by a broker-dealer as principal and resale by the broker-dealer for its account;

 

•

an exchange distribution in accordance with the rules of the applicable exchange;

 

•

privately negotiated transactions;

 

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•

short sales effected after the date the registration statement, of which this prospectus is a part, is declared effective by the SEC;

 

•

through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise;

 

•

broker-dealers may agree with the selling stockholders to sell a specified number of such shares at a stipulated price per share; and

 

•

a combination of any such methods of sale.

 

The selling stockholders may, from time to time, pledge or grant a security interest in some or all of the shares of common stock owned by them and, if they default in the performance of their secured obligations, the pledgees or secured parties may offer and sell the shares of common stock, from time to time, under this prospectus, or under an amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act amending the list of selling stockholders to include the pledgee, transferee or other successors in interest as selling stockholders under this prospectus.  The selling stockholders also may transfer the shares of common stock in other circumstances, in which case the transferees, pledgees or other successors in interest will be the selling beneficial owners for purposes of this prospectus.  We will file a prospectus supplement to name successors to any named selling stockholders who are able to use the prospectus to resell the shares.  Such prospectus supplement would be required to be delivered, together with this prospectus, to any purchaser of such shares.

 

In connection with the sale of our common stock or interests therein, the selling stockholders may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the common stock in the course of hedging the positions they assume.  The selling stockholders may also sell shares of our common stock short and deliver these securities to close out their short positions, or loan or pledge the common stock to broker-dealers that in turn may sell these securities.  The selling stockholders may also enter into option or other transactions with broker-dealers or other financial institutions or the creation of one or more derivative securities which require the delivery to such broker-dealer or other financial institution of shares offered by this prospectus, which shares such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).

 

The aggregate proceeds to the selling stockholders from the sale of the common stock offered by them will be the purchase price of the common stock less discounts or commissions, if any.  Each of the selling stockholders reserves the right to accept and, together with their agents from time to time, to reject, in whole or in part, any proposed purchase of common stock to be made directly or through agents.  We will not receive any of the proceeds from this offering.

 

Certain of the selling stockholders also may resell all or a portion of the shares in open market transactions in reliance upon Rule 144 under the Securities Act, provided that they meet the criteria and conform to the requirements of that rule.

 

The other selling stockholders and any underwriters, broker-dealers or agents that participate in the sale of the common stock or interests therein may be “underwriters” within the meaning of Section 2(11) of the Securities Act.  Any discounts, commissions, concessions or profit they earn on any resale of the shares may be underwriting discounts and commissions under the Securities Act.  Selling stockholders who are “underwriters” within the meaning of Section 2(11) of the Securities Act will be subject to the prospectus delivery requirements of the Securities Act.

 

To the extent required, the shares of our common stock to be sold, the names of the selling stockholders, the respective purchase prices and public offering prices, the names of any agents, dealer or underwriter, any applicable commissions or discounts with respect to a particular offer will be set forth in an accompanying prospectus supplement or, if appropriate, a post-effective amendment to the registration statement that includes this prospectus.

 

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In order to comply with the securities laws of some states, if applicable, the common stock may be sold in these jurisdictions only through registered or licensed brokers or dealers.  In addition, in some states the common stock may not be sold unless it has been registered or qualified for sale or an exemption from registration or qualification requirements is available and is complied with.

 

We intend to advise the selling stockholders that the anti-manipulation rules of Regulation M under the Exchange Act may apply to sales of shares in the market and to the activities of the selling stockholders and their affiliates.  In addition, to the extent applicable we will make copies of this prospectus (as it may be supplemented or amended from time to time) available to the selling stockholders for the purpose of satisfying the prospectus delivery requirements of the Securities Act.  The selling stockholders may indemnify any broker-dealer that participates in transactions involving the sale of the shares against certain liabilities, including liabilities arising under the Securities Act.

 

The selling stockholders will not engage in any short sale of the securities offered by it pursuant to this prospectus until the registration statement of which this prospectus is a part has been declared effective by the SEC.

 

We have agreed to indemnify the selling stockholders against liabilities, including liabilities under the Securities Act and state securities laws, relating to the registration of the shares offered by this prospectus.

 

We have agreed with the selling stockholders to keep the registration statement of which this prospectus constitutes a part effective until the earlier of (1) such time as all of the shares covered by this prospectus have been disposed of pursuant to and in accordance with the registration statement or (2) the date on which the shares may be sold pursuant to Rule 144(k) of the Securities Act.

 

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DIRECTORS AND EXECUTIVE OFFI CERS

 

The following table sets forth information concerning our directors, executive officers and key employees as of January 30, 2008:

 

Name	Age	Position
Wm. Milton Cox	60	Chairman of the Board and Chief Executive Officer
Bassam “Sam” Nastat	39	President and Director
Donald L. Sytsma	50	Chief Financial Officer, Corporate Secretary, Treasurer  and Director
T. Arden McCracken	63	Director
J. Timothy Altum	52	Director

Wm. Milton Cox .  Mr. Cox has served as our Chairman and CEO since December of 2006 and as a director since January of 2007.  Since 1982, Mr. Cox has been the President and CEO of CodeAmerica Investments, LLC (“CodeAmerica”), which has various interests in mining and oil & natural gas production.  Since January of 2007, Mr. Cox has devoted substantially all of his professional time to the Company.  Mr. Cox has 25 years of experience in resource investment management as well as international business experience in oil, natural gas and mining.  From October of 2003 to February of 2006, Mr. Cox served as Chairman of Altus Explorations, Inc., an oil and natural gas company quoted on the OTCBB (“Altus”), and was its President and Chief Executive Officer from October of 2003 through June of 2005.  Mr. Cox has a Bachelor of Business Administration in Marketing from Memphis State University and Masters in Business Administration in Finance from the University of Mississippi.

Bassam “Sam” Nastat .  Mr. Nastat has served as our President since December of 2006 and as a director since January of 2007.  Since May 1994, Mr. Nastat has been the Vice President of Project Development and Finance for CodeAmerica, developing financing strategies to take advantage of exploration opportunities in Texas, Wyoming and Alaska.  Since January of 2007, Mr. Nastat has devoted substantially all of his professional time to the Company.  From November of 2003 to February of 2006 Mr. Nastat was a director of Altus and served as President of Altus from June of 2005 to February of 2006.   Mr. Nastat attended McMaster University, Hamilton, Ontario and the University of Tulsa, earning a certificate in Basic Petroleum Geology.

 

Donald L. Sytsma.   Mr. Sytsma has served as our Chief Financial Officer, Corporate Secretary and Treasurer since December of 2006 and as a director since January of 2007.  Since April of 2003, Mr. Sytsma has been an officer and a director of DLS Energy Associates, LLC, an independent consulting company and has worked in various capacities with them since 1995. Since January of 2007, Mr. Sytsma has devoted all of his professional time to the Company.  From November of 2003 to June of 2005 Mr. Sytsma was Chief Financial Officer of Altus.  From November 2003 through February 2006 Mr. Sytsma was a director of Altus.  Mr. Sytsma is a former Executive Committee member of the North American Energy Standards Board, and has chaired multiple industry subcommittees developing standards for the U.S. energy markets. Mr. Sytsma holds a Bachelor of Science in Accounting from Indiana University.

 

T. Arden McCracken .  Mr. McCracken has served as a director since March 12, 2007.  From 1996 to the present, he has worked as a senior engineering advisor to Pennzoil Exploration and Devon Energy.  He is responsible for evaluations and recommendations on all international ventures and for assisting in the preparation of the year end reserve report.  Mr. McCracken holds a Ph.D., M.S. and B.S. in Chemical Engineering from Clemson University.

 

J. Timothy Altum .  Mr. Altum has served as a director since March 22, 2007.  From 1998 to the present, he has worked as a geological adviser to PennzEnergy, Devon Energy Corp / BP with respect to their Eugene Island 330 Field, which is PennzEnergy’s largest single asset. His responsibilities include integration of geology, petrophysics, geophysics and engineering data into 3-D reservoir models.  Mr. Altum has a Bachelor of Science in Geology/Physics from Hardin Simmons University and Master of Science in Geology from Baylor University.

 

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There are no family relationships among our directors and executive officers.  No director, executive officer or promoter has been a director or executive officer of any business which has filed a bankruptcy petition or had a bankruptcy petition filed against it during the past five years. No director, executive officer or promoter has been convicted of a criminal offense or is the subject of a pending criminal proceeding during the past five years. No director, executive officer or promoter has been the subject of any order, judgment or decree of any court permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities during the past five years. No director, executive officer or promoter has been found by a court to have violated a federal or state securities or commodities law during the past five years.

 

None of our directors or executive officers or their respective immediate family members or affiliates is indebted to us.

 

CORPORATE GO VERNA NCE

 

Our Board of Directors (the “Board”) has five members.  We are not currently listed on a national securities exchange or in an inter-dealer quotation system that has requirements that a majority of the Board be independent.  The Board has determined that T. Arden McCracken and J. Timothy Altum are independent within the definition of independence set forth in the listing standards of the New York Stock Exchange, which is the definition that the Board has chosen to use for the purposes of determining independence, as the Over-the-Counter Bulletin Board does not provide such a definition.

 

The Board does not have an executive committee or any committee performing a similar function.  The Board is in the process of forming an audit committee, of which a majority of the members will be comprised of independent directors.  The Board has adopted a Code of Business Conduct and Ethics Compliance Program and an Insider Trading Policy providing guidelines with respect to transactions in Company securities and is applicable to all directors, officers, employees and consultants who receive or have accesses to material non-public Company information.   All participants in our 2007 Stock Option Plan are required to acknowledge receipt of the Code of Business Conduct and Ethics Compliance Program and the Insider Trading Policy to participate in the 2007 Stock Option Plan, and they are required upon request by us to periodically confirm their adherence and compliance to these policies as a condition of their continued participation in the 2007 Stock Option Plan.

 

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SECURITY OWNERSHIP OF CERTAIN BENEFIC IAL OWNERS AND MANAGEMENT

 

The following table sets forth information with respect to the beneficial ownership of our common stock as of January 30, 2008, by:

 

•

each person who is known by us to beneficially own 5% or more of the outstanding class of our capital stock;

 

•

each member of the Board;

 

•

each of our executive officers; and

 

•

all of our directors and executive officers as a group.

 

Beneficial ownership is determined in accordance with the rules of the SEC.  To our knowledge, each of the holders of capital stock listed below has sole voting and investment power as to the capital stock owned unless otherwise noted.

 

Name and Address of Beneficial Owner		Numbers of Shares of Common Stock Beneficially Owned				% of Common Stock Outstanding (1)
Wm. Milton Cox			17,269,527	(2)			30.5	%
Metage Funds Limited			13,166,667	(3)			23.3	%
Bassam “Sam” Nastat			10,019,526	(4)			17.7	%
Donald L. Sytsma			7,751,000	(5)			13.7	%
T. Arden McCracken			140,000	(6)			*
J. Timothy Altum			140,000	(7)			*
Executive Officers and Directors as a group (5 persons)			35,320,053			60.6		%

__________________________

(1)	Based on 56,603,107 shares outstanding as of January 30, 2008.

 

(2)

Includes 250,000 shares of common stock issuable upon the exercise of options which are currently exercisable or exercisable within 60 days hereof.  Wm. Milton Cox is the managing member of CodeAmerica Investments, LLC, the holder of record of 17,019,527 of these shares, and he is the beneficial owner of these shares.  Wm. Milton Cox is our Chairman and Chief Executive Officer.  CodeAmerica Investments LLC’s address is 6300 Germantown Rd., Suite 100, Olive Branch, MS 38654.

 

(3)

Includes 11,666,667 shares are issuable upon conversion of outstanding convertible notes and exercise of outstanding warrants. Metage Capital Limited, Mr. Tom Sharp, Investment Manager exercises voting and investment authority over these shares.  Metage’s address is 8 Pollen Street, London, England W1S 1NG.

 

(4)	Includes 500,000 shares of common stock issuable upon the exercise of options which are currently exercisable or exercisable within 60 days hereof.

 

(5)

Includes 250,000 shares of common stock issuable upon the exercise of options which are currently exercisable or exercisable within 60 days hereof.  Donald L. Sytsma is the managing member of Harbour EnCap, LLC, the holder of record of  7,500,000 of these shares, and he is the beneficial owner of these shares.  Donald L. Sytsma is a director and our Corporate Secretary, Treasurer, and Chief Financial Officer.  Harbour EnCap LLC’s address is 514 W. Jefferson Street, Culver, IN 46511.

 

(6)	Includes 140,000 shares of common stock issuable upon the exercise of options which are currently exercisable or exercisable within 60 days hereof.

 

(7)	Includes 140,000 shares of common stock issuable upon the exercise of options which are currently exercisable or exercisable within 60 days hereof.

 

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EXECUTIVE COM PENSATI ON

 

Summary Compensation Table .  The following table provides information concerning compensation paid or accrued during the fiscal years ended August 31, 2007 and March 31, 2006 to our principal executive officer and each of our other two most highly paid executive officers whose salary and bonus exceeded $100,000, collectively referred to as the Named Executive Officers, determined at the end of the last fiscal year:

 

Name and Principal Position		Fiscal Year		Salary				Bonus				Option Awards (1)				All Other Compensation				Total
Wm. Milton Cox, Chairman and Chief Executive Officer		2007		$	-			$	-			$	238,721			$	140,000	(2)		$	378,821
		2006		$	-			$	-			$	-			$	-			$	-
Bassam “Sam” Nastat, President		2007		$	-			$	-			$	477,441			$	140,000	(3)		$	617,441
		2006		$	-			$	-			$	-			$	-			$	-
Donald L. Sytsma, Chief Financial Officer, Corporate Secretary and Treasurer		2007		$	-			$	-			$	238,721			$	120,000	(4)		$	358,721
		2006		$	-			$	-			$	-			$	-			$	-

(1)   Estimated fair value of options on the date of grant computed with the Black-Scholes option-pricing model. Amount identified is the non-cash fair value amortization of options granted that became vested by the recipient during the period then ending.  No options have been exercised by the recipients.  See “Outstanding Equity Awards at Fiscal Year End” for the material terms of each grant.

 

(2) Fees for services remitted to CodeAmerica Investments, LLC, for which Mr. Cox serves as the Managing Member.

 

(3) Fees for services remitted to Paragon Capital, LLC, for which Mr. Nastat serves as the Manager.

 

(4) Fees for services remitted to DLS Energy Associates, LLC and H&H Energy Consultants, an affiliate of DLS Energy Associates, LLC, for which Mr. Sytsma is the Managing Member.

 

Employment Agreements

 

We have not entered into employment agreements with any of our executive officers.  

 

Potential Payments Upon Termination or Change of Control

 

There are no payments due to any of our executive officers in connection with a termination or on a change of control.

 

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OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END August 31, 2007
		Option Awards																	Stock Awards
Name		Number of Securities Underlying Unexercised Options (#) Exercisable				Number of Securities Underlying Unexercised Options (#) Unexercisable				Equity Incentive Plan Awards Number of Securities Underlying Unexercised Unearned Options (#)				Option Exercise Price ($)			Option Expiration Date		Number of Shares or Units of Stock That Have Not Vested (#)				Market Value of Shares or Units of Stock That Have Not Vested ($)				Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)				Equity Incentive Plan Awards Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)
(a)		(b)				(c)				(d)				(e)			(f)		(g)				(h)				(i)				(j)
Wm. Milton Cox (1)			250,000				250,000				-			$	0.79		5/10/2017			-				-				-				-
Bassam “Sam” Nastat (2)			500,000				500,000				-			$	0.79		5/10/2017			-				-				-				-
Donald L. Sytsma (1)			250,000				250,000				-			$	0.79		5/10/2017			-				-				-				-

____________________

(1)

Mr. Cox and Mr. Sytsma received options to purchase 500,000 shares of common stock on May 10, 2007 with an exercise price of $0.79 per share.  The options vest quarterly over the twelve months following the date of issuance and expire on May 10, 2017.

 

(2)

Mr. Nastat received options to purchase 1,000,000 shares of common stock on May 10, 2007 with an exercise price of $0.79 per share, which vests over twelve months and expires on May 10, 2017.

 

Director Compensation

 

Our directors are not compensated in cash for their services but are reimbursed for out-of-pocket expenses incurred in furtherance of our business.  The following table sets forth information with respect to compensation paid to directors during the fiscal year ended August 31, 2007,  which also represents all compensation paid to such directors since they began their service as our directors.

Name		Fees Earned or Paid in Cash				Stock Awards				Option Awards				Non-Equity Incentive Compensation				Nonqualified Deferred Compensation Earnings				All Other Compensation				Total
(a)		(b)				(c)				(d)				(e)				(f)				(g)				(h)
T. Arden McCracken		$	-			$	-			$	143,296	(1)		$	-			$	-			$	-			$	143,296
J. Timothy Altum		$	-			$	-			$	143,296	(2)		$	-			$	-			$	-			$	143,296

____________________

(1)

Mr. McCracken received options to purchase 250,000 shares of common stock on May 10, 2007 with an exercise price of $0.79 per share.  The options vest quarterly over the twelve months following the date of issuance and expire on May 10, 2017.  He also received options to purchase 100,000 shares of common stock on June 14, 2007 with an exercise price of $0.50 per share, which vest over 20 months and expires on June 14, 2017. The estimated fair value of the options granted was computed with the Black-Sholes option-pricing model.  The amount identified in the table is the non-cash fair value amortization of options granted that became vested by the recipient during the fiscal year ended August 31, 2007.

 

(2)

Mr. Altum received options to purchase 250,000 shares of common stock on May 10, 2007 with an exercise price of $0.79 per share. The options vest quarterly over the twelve months following the date of issuance and expire on May 10, 2017.  He also received options to purchase 100,000 shares of common stock on June 14, 2007 with an exercise price of $0.50 per common shares, which vest over 20 months and expires on June 14, 2017. The estimated fair value of the options granted was computed with the Black-Sholes option-pricing model.  The amount identified in the table is the non-cash fair value amortization of options granted that became vested by the recipient during the fiscal year ended August 31, 2007.

 

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Other Information

From February 21, 2006 to January 3, 2007, we paid a total of $20,527 in consulting fees.  Of the total, Bijay Singh, our former director, received $10,000.  Sokhie Puar, one of our former directors and our former President, Corporate Secretary and Treasurer, received $10,527.

INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS

 

We have had the following transactions with our executive officers and directors, or with their affiliates in which they have direct or indirect material interests.  None of the transactions described below were on terms less favorable than what could have been obtained from unaffiliated third parties.  Any future transactions with our affiliates will be on terms no less favorable than what could have been obtained from unaffiliated third parties and will be approved by a majority of our board of directors, including a majority of the disinterested directors.

 

Oakcrest Prospect, Wharton County, Texas

 

In connection with the merger of us and Wharton Corp., we acquired oil and gas lease interests located in Wharton County, Texas.  The Oakcrest oil and gas lease interests were originally acquired by CodeAmerica.  When Wharton Corp. acquired the Oakcrest oil and gas lease interests from CodeAmerica on October 16, 2006, Wm. Milton Cox was also the Chairman and CEO of Wharton Corp.  CodeAmerica received 5,000,000 shares of our common stock for its Oakcrest oil and gas lease interests in the merger.

 

The acquisition of the Oakcrest oil and gas lease interests from CodeAmerica has been recorded on our records at its historical cost basis in the interests which totaled approximately $460,500.  When the Oakcrest lease interests were acquired by Wharton Corp., our shares of common stock were not publicly traded.  The fair value of the shares issued to CodeAmerica for the lease interests was equal to its historical cost basis in the lease interests.

 

Mound Branch Project, Elk County, Kansas

 

On January 30, 2007, we purchased Orbit’s working and net revenue interests in approximately 8,800 gross acres located in Elk County, Kansas together with its interests in drilled wells and associated equipment.  The purchase price totaled $6.8 million, and consideration paid to Orbit was comprised of (a) $760,947, representing funds advanced by us to Orbit for testing and evaluation of the existing well bores, reservoir formations and associated lease acreage, (b) a thirty-six month $2.0 million 10% convertible note with principal due at maturity, and (c) 4,039,053 shares of our common stock with a fair value of $1.00 per share at the time of issuance.

 

The note issued to Orbit bears interest at 10.0% per annum due quarterly in arrears.   Pursuant to the terms of the note, after the initial twelve months, (a) Orbit has the ability to convert the outstanding principal and interest balance into shares of common stock at a conversion price of $1.00 per share and (b) we may prepay all or a portion of the note without penalty.  On July 3, 2007 the note was amended to provide that interest payable for the first two quarters was deferred by Orbit until October 30, 2007.   At August 31, 2007, the outstanding principal under the note was $2.0 million and accrued interest totaled $116,712.

 

The shares of common stock issued to Orbit as part of the purchase price were placed in escrow to be released upon Orbit’s delivery to the escrow agent of an independent report assessing the fair value of the purchased assets at no less than the purchase price of $6.8 million.  Should the valuation be less than the $6.8 million purchase price, then the number of shares to be released from escrow will be ratably reduced for the lower valuation.  The shares remaining in escrow at the end of the twelve month period ending January 30, 2008 were to be cancelled and returned to treasury.  On January 30, 2008, we agreed to extend Orbit’s delivery of the independent valuation report for three months until April 30, 2008.  In connection with the extension, Orbit agreed to defer the quarterly interest payment due on the convertible note until April 30, 2008.

 

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The acquisition from Orbit was treated as a transaction between entities under common control and recorded in our records at Orbit’s historical cost in acquired assets of $3,227,568.  The difference between the $6.8 million purchase price and Orbit’s historical cost in the assets was recorded by us as a deemed dividend which totaled $3,572,432.

 

Orbit is 100% owned by CodeAmerica and Paragon, which as noted elsewhere in this prospectus, are controlled by Wm. Milton Cox and Bassam Nastat, each of whom is one of our officers and directors.  Immediately prior to the acquisition, Messrs. Cox and Nastat held a combined 22.5 million shares of common stock, or 49.6% of our then issued and outstanding common stock.   The 4,039,053 shares issued to Orbit increased their direct and indirect holdings in us to 52.5% of the then issued and outstanding common stock.  Should the independent fair market appraisal of the assets acquired be less than the purchase price, the shares of common stock released to Orbit will be ratably reduced for the lower valuation, and the direct and indirect combined holdings of Messrs. Nastat and Cox in us will be reduced.

 

Orbit serves as operator of the Mound Branch Project.   In conjunction with the terms of the Mound Branch Project purchase and sale agreement, we have been funding 100% of the costs incurred by Orbit for the testing and evaluation of the existing well bores, reservoir formations and associated lease acreage.  The share of costs not attributable to our working interest ownership in the property is recorded as a receivable from joint interest partners in the amount of $198,006.  We expect to collect this amount from our partners in the Mound Branch Project.

 

In addition to the $760,747 paid by us and applied as consideration against the purchase price from Orbit, Orbit has billed us $636,684 associated with the testing and evaluation of the Mound Branch Project since the acquisition.  A balance of $248,171 is recorded as payable to a related party as of August 31, 2007.  In the aggregate, through August 31, 2007, we have incurred costs totaling $1,397,631 on the testing and evaluation of the Mound Branch Project, of which $1,149,460 has been paid to Orbit.   The testing and evaluation procedures for the Mound Branch Project were completed in early October 2007.

 

Baxter Bledsoe Prospect, Clay County, Kentucky

 

On February 1, 2006, we purchased the Baxter Bledsoe Prospect oil and gas lease acreage from CodeAmerica for a cash purchase price of $330,000. The prospect has approximately 2,200 acres located in Clay County, Kentucky. This acquisition from CodeAmerica was treated as a transaction between entities under common control and recorded at CodeAmerica’s historical cost basis of approximately $170,000.  The difference between the $330,000 purchase price and CodeAmerica’s historical cost in the assets was recorded by us as a deemed dividend which totaled $160,000,

 

Bell Prospect, Bell County, Kentucky

 

On October 1, 2006, we purchased CodeAmerica’s oil and gas lease interests located in Bell County, Kentucky. The cash purchase price was $314,475, which included $59,475 for land, legal and title services expended by CodeAmerica on the prospect.  This acquisition from CodeAmerica was treated as a transaction between entities under common control and recorded at CodeAmerica’s historical cost basis of approximately $229,475.  The difference between the $314,475 purchase price and CodeAmerica’s historical cost in the assets was recorded by us as a deemed dividend which totaled $85,000.

 

Advances from Stockholder

 

During the months of April and May 2007, CodeAmerica made cash advances to us totaling $120,000 for general working capital requirements.  The advances were due on demand, did not bear interest and were outstanding as of August 31, 2007.  The advances were fully repaid during November 2007.

 

Office Rent

 

We share office space in Houston, Texas with Orbit under a month-to-month arrangement.   The office space is leased by Orbit.  During the years ended August 31, 2007 and 2006, we paid rent  totaling $42,994 and $38,210, respectively.

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MARKET FOR C OMMO N EQUITY AND RELATED STOCKHOLDER MATTERS

 

Our common stock has been quoted on the Over The Counter Bulletin Board (“OTCBB”) since July 10, 2006.  On March 8, 2007, we changed our symbol on the OTCBB from “GXPL.OB” to “GWPC.OB” and our common stock is currently trading on the OTCBB under that symbol.

 

The following table sets forth the range of the high and low closing prices, as reported by the OTCBB, for our common stock for the periods indicated.   The quotations represent inter-dealer prices, without retail mark up or commission and may not represent actual transactions.

 

		Sales Price
		High				Low
Quarter ended November 30, 2006		$	1.30			$	0.93
Quarter ended February 28, 2007		$	1.10			$	0.84
Quarter ended May 31, 2007		$	0.93			$	0.55
Quarter ended August 31, 2007		$	0.60			$	0.22
Quarter ended November 30, 2007		$	0.61			$	0.29
Quarter ending February 29, 2008 (as of January 30, 2008)		$	0.40			$	0.23

Our authorized capital stock consists of 1,200,000,000 shares of common stock.  As of January 30, 2008, 56,603,107 shares of common stock were issued and outstanding.  As of such date, there were approximately 36 holders of record of our common stock.

 

We have not paid dividends on our common stock and do not anticipate paying cash dividends in the immediate future as we contemplate that our cash flows will be used for continued growth of our operations.  The payment of future dividends, if any, will be determined by the Board in light of conditions then existing, including our earnings, financial condition, capital requirements, and restrictions in financing agreements, business conditions and other factors.  However, the Nevada Revised Statutes, do prohibit us from declaring dividends where, after giving effect to the distribution of the dividend we would not be able to pay our debts as they become due in the usual course of business; or our total assets would be less than the sum of our total liabilities, plus the amount that would be needed to satisfy the rights of shareholders who have preferential rights superior to those receiving the distribution.

 

Securities Authorized For Issuance Under Equity Compensation Plans

 

The following table sets forth information regarding our existing equity compensation plans as of August 31, 2007.

 

		Equity Compensation Plan Information
Plan Category		Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)		Weighted average exercise price of outstanding options, warrants and rights (b)		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c)
Equity compensation plans approved by security holders		-		-		-
Equity compensation plans not approved by security holders (1)		3,625,000		0.74		5,375,000
Total as of August 31, 2007		3,625,000		0.74		5,375,000

 

(1)      Consists of the 2007 Non-Qualified Stock Option Plan (the "Plan").  The Plan will be adopted by the Company's stockholders prior to March 9, 2008.

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DESCRIPTION OF CO MMO N STOCK

 

General

 

Our authorized capital stock consists of 1,200,000,000 shares of common stock, $0.001 par value per share, of which 56,603,107 shares of our common stock are issued and outstanding as of January 30, 2008.  All of our outstanding shares of common stock are duly authorized, validly issued and outstanding and fully paid and non-assessable.

 

Common Stock

 

Holders of our common stock are entitled to one vote for each share on all matters submitted to a stockholder vote.  Holders of common stock do not have cumulative voting rights.  Therefore, holders of a majority of the shares of common stock voting for the election of directors can elect all of the directors.  Holders of 10% of the voting shares entitled to vote at a meeting, represented in person or by proxy, are necessary to constitute a quorum at any meeting of our stockholders.  A vote by the holders of a majority of our outstanding shares is required to effectuate certain fundamental corporate changes such as liquidation, merger or an amendment to our Articles of Incorporation or bylaws.

 

Holders of common stock are entitled to share in all dividends that the Board, in its discretion, declares from legally available funds.  In the event of a liquidation, dissolution or winding up, each outstanding share entitles its holder to participate pro-rata in all assets that remain after payment of liabilities and after providing for each class of stock, if any, having preference over the common stock. Holders of our common stock have no preemptive rights, no conversion rights and there are no redemption provisions applicable to our common stock.

 

Holders of our common stock may only transfer, sell or otherwise dispose of our common stock held pursuant to an effective registration statement under the Securities Act, pursuant to an available exemption from the registration requirements of the Securities Act or Rule 144 promulgated under the Securities Act.  In connection with any transfer, sale or disposition of any of our common stock other than pursuant to an effective registration statement or Rule 144, we may require you to provide us a written opinion of counsel providing that such transfer, sale or disposition does not require registration under the Securities Act.

 

Dividend Policy

 

We have never declared or paid any cash dividends on our common stock. We currently intend to retain future earnings, if any, to finance the expansion of our business. As a result, we do not anticipate paying any cash dividends in the foreseeable future.

 

Restrictions on Takeover

 

The provisions of the Nevada corporate laws apply to any acquisition of a controlling interest in a certain type of Nevada corporation known as an “Issuing Corporation,” unless the articles of incorporation or bylaws of the corporation in effect the tenth day following the acquisition of a controlling interest by an acquiring person provide that the provisions of those sections do not apply to the corporation, or to an acquisition of a controlling interest specifically by types of existing or future stockholders, whether or not identified.

 

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An “Issuing Corporation” is a corporation organized in the state of Nevada and which has 200 or more stockholders of record, with at least 100 of whom have addresses in the state of Nevada appearing on the stock ledger of the corporation and does business directly in the state of Nevada.  As we currently have less than 200 stockholders the statute does not currently apply to us. To the extent such provisions may apply to us in the future, the Nevada corporate law provisions do not restrict the directors of an “Issuing Corporation” from taking action to protect the interests of the corporation and its stockholders, including, but not limited to, adopting or signing plans, arrangements or instruments that deny rights, privileges, power or authority to a holders of a specified number of shares or percentage of share ownership or voting power.

 

Transfer Agent

 

The transfer agent for our common stock is Nevada Agency and Trust Company.

 

RELATIONSHIPS WITH ISSUER OF EXPERTS NAMED IN REG ISTRA TION STATEMENT

 

None.

 

LEGAL PROC EEDI NGS

 

We know of no material, active or pending legal proceedings against us, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our interest.

 

CHANGES IN AND DISA GRE EMENTS WITH ACCOUNTANTS

 

On January 18, 2007, our independent auditor, Dale Matheson Carr-Hilton Labonte LLP (“DMCL”) was dismissed by the board. DMCL conducted the audit of our March 31, 2006 balance sheet, and the statements of operations, stockholders’ equity and cash flows for the period from February 21, 2006 (date of inception) through March 31, 2006. In DMCL’s report dated April 25, 2006, there were no adverse opinions or disclaimers of the opinion, or qualification or modification as to uncertainty, audit scope, or accounting principles, with the exception of a statement regarding the uncertainty of our ability to continue as a going concern.

 

During the period from our inception through March 31, 2006 and the subsequent interim period through the dismissal date, there were no disagreements with DMCL on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures, which if not resolved to DMCL’s satisfaction would have caused DMCL to make reference to the subject matter of the disagreements in connection with DMCL’s report.

 

On January 18, 2007, our Board approved the engagement of Malone & Bailey, PC (“M&B”) of Houston, Texas as our principal accountant. Neither we nor anyone on our behalf consulted with M&B regarding either the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on our financial statements, nor has M&B provided us with a written report or oral advice that was an important factor considered by us in reaching a decision as to any accounting, auditing, or factual reporting issue, or any matter that was the subject of a disagreement or reportable events with M&B.

 

On October 5, 2007, the Board dismissed M&B as the Company’s independent registered public accounting firm.  M&B’s reports on our financial statements for the two fiscal years ended August 31, 2006 and 2005, did not contain an adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles, except for concerns about our ability to continue as a going concern.  During our two most recent fiscal years ended August 31, 2006 and 2005, and through October 5, 2007, there were no disagreements between us and M&B on any manner of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of M&B, would have caused it to make reference to the subject matter of the disagreements in connection with its report on our financial statements for such years.  There were no reportable events that occurred within the two most recent fiscal years ended August 31, 2006 and 2005, or within the interim period through October 5, 2007.

 

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On October 5, 2007, the Board approved the engagement of GBH CPAs, PC (“GBH”) as our new independent registered public accounting firm.  Neither we nor anyone on our behalf consulted with GBH regarding either the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on our financial statements, nor has GBH provided us with a written report or oral advice that was an important factor considered by us in reaching a decision as to any accounting, auditing, or factual reporting issue, or any matter that was the subject of a disagreement or reportable events with GBH.

 

DISCLOSURE OF COMMISSION POSITION ON

INDEMNIFICATION OF SECURITIES ACT LIABILITIES

 

Our bylaws provide that each of our officers and directors shall be indemnified by us against all costs and expenses actually and necessarily incurred by him or her in connection with the defense of any action, suit or proceeding in which he or she may be involved or to which he or she may be made a party by reason of his or her being or having been such director or officer, except in relation to matters as to which he or she has been finally adjudged in such action, suit or proceeding to be liable for negligence or misconduct in the performance of duty.

 

The indemnification provisions of our bylaws diminish the potential rights of action, which might otherwise be available to stockholders by affording indemnification against most damages and settlement amounts paid by a director in connection with any stockholder derivative action. However, there are no provisions limiting the right of a stockholder to enjoin a director from taking actions in breach of his fiduciary duty, or to cause us to rescind actions already taken, although as a practical matter courts may be unwilling to grant such equitable remedies in circumstances in which such actions have already been taken. As we do not presently have directors’ liability insurance, we may be forced to bear a portion or all of the cost of the director’s claims for indemnification under such provisions. If we are forced to bear the costs for indemnification, the value of our stock may be adversely affected.

 

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.

 

LEGAL MATTERS

 

Certain legal matters in connection with the common stock offered hereby will be passed on for us by Rice Silbey Reuther & Sullivan, LLP, 3960 Howard Hughes Parkway, Suite 700, Las Vegas, Nevada 89169.  Any underwriters will be advised about other issues relating to any offering by their own legal counsel.

 

E XPE RTS

 

Our consolidated financial statements as of August 31, 2007 and 2006, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the two years in the period ended August 31, 2007, and the period from inception (January 20, 2005) to August 31, 2007, appearing in this prospectus  have been audited by GBH CPAs, PC, independent registered public accountants, as set forth on their report thereon appearing elsewhere in this prospectus, and are included in reliance upon the report of such firm, given upon their authority as experts in accounting and auditing.

The reference to the report of MHA Petroleum Consultants, Inc. with respect to estimates of proved reserves of oil and natural gas located in Wharton County, Texas is made upon the authority of the firm as experts with respect to such matters.

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INDEX TO FIN ANCI AL STATEMENTS

 

Report of Independent Registered Public Accounting Firm	F-1
Consolidated Balance Sheets as of August 31, 2007 and 2006	F-2
Consolidated Statements of Operations for the years ended August 31, 2007 and 2006 and the period from Inception (January 20, 2005) to August 31, 2007 (Restated)	F-3
Consolidated Statement of Stockholders’ Equity (Deficit) for the period from Inception (January 20, 2005) to August 31, 2007	F-4
Consolidated Statements of Cash Flows for years ended August 31, 2007 and 2006 and the period from Inception (January 20, 2005) to August 31, 2007	F-5
Notes to the Consolidated Financial Statements – August 31, 2007	F-6
Consolidated Balance Sheets as of November 30, 2007 (unaudited) and August 31, 2007	F-24
Consolidated Statements of Operations for the three months ended November 30, 2007 and 2006 and the period from Inception (January 20, 2005) to November 30, 2007 (unaudited)	F-25
Consolidated Statements of Cash Flows for the period from Inception (January 20, 2005) to  November 30, 2007 (unaudited)	F-26
Consolidated Statement of Stockholders’ Equity (Deficit) for the three months ended  November 30, 2007 and 2006 and the period from Inception (January 20, 2005) to November 30, 2007 (unaudited)	F-27
Notes to the Consolidated Financial Statements (unaudited) – November 30, 2007	F-29

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors

Gulf Western Petroleum Corporation

Houston, Texas

 

We have audited the accompanying consolidated balance sheets of Gulf Western Petroleum Corporation (a development stage company) as of August 31, 2007 and 2006, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the two years in the period ended August 31, 2007, and the period from inception (January 20, 2005) to August 31, 2007.   These consolidated financial statements are the responsibility of Gulf Western’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Gulf Western Petroleum Corporation as of August 31, 2007 and 2006, and the results of operations and cash flows for the years then ended, and the period from inception (January 20, 2005) to August 31, 2007, in conformity with accounting principles generally accepted in the United States of America.

 

The accompanying consolidated financial statements have been prepared assuming that Gulf Western Petroleum Corporation will continue as a going concern. As discussed in Note 3 to the consolidated financial statements, Gulf Western Petroleum Corporation was formed on January 20, 2005 and has not generated any revenues since inception, which raises substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are described in Note 3.  The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

As described in Note 13 to the consolidated financial statements, the accompanying statement of operations for the year ended August 31, 2007 has been restated to properly present basic and diluted net loss per share.

GBH CPAs, PC

www.gbhcpas.com

Houston , Texas

November 28, 2007 (February 1 , 2008, as to the effects of the restatement described in Note 13)

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GULF WESTERN PETROLEUM CORPORATION

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED BALANCE SHEETS

As of August 31, 2007 and 2006

ASSETS		2007				2006
Current assets
Cash		$	1,925			$	312,581
Accounts receivable – joint interest partners			198,106				-
Accounts receivable – related party			11,488				-
Total current assets			211,519				312,581
Deferred financing costs, net of amortization			56,123				-
Office equipment, net of depreciation of $6,507 and $1,350, respectively			13,185				6,022
Oil and gas properties, full cost method:
Properties subject to amortization			1,090,988				773,016
Properties not subject to amortization			6,824,775				136,987
Total assets		$	8,196,590			$	1,228,606
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities
Accounts payable		$	1,065,092			$	712,312
Accounts payable – related parties			380,148				3,296
Stock payable			100,000				-
Advances from stockholder			417,254				242,745
Due to parent			-				460,231
Accrued interest			15,041				4,765
Accrued interest – related party			116,712				-
Notes payable							312,500
Convertible note payable, net of unamortized debt discount of $11,290 and $-0-, respectively			238,710				-
Total current liabilities			2,332,957				1,735,849
Convertible note – related party			2,000,000				-
Convertible notes payable, net of unamortized debt discount of $17,536 and $-0-, respectively			482,464				76,883
Asset retirement obligation			50,949				-
Total liabilities			4,866,370				1,812,732
STOCKHOLDERS’ EQUITY (DEFICIT)
Common shares, $0.001 par value, 1.2 billion shares authorized, 53,489,662 and 25,000,000 shares issued and outstanding, respectively			53,490				25,000
Additional paid-in capital			7,093,980				(24,000	)
Deficit accumulated during the development stage			(3,817,250	)			(585,126	)
Total stockholders’ equity (deficit)			3,330,220				(584,126	)
Total liabilities and stockholders’ equity (deficit)		$	8,196,590			$	1,228,606

The accompanying notes are an integral part of these consolidated financial statements.

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GULF WESTERN PETROLEUM CORPORATION

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF OPERATIONS

For the Years Ended August 31, 2007 and 2006

and the Period from Inception (January 20, 2005) through August 31, 2007

		Year Ended August 31, 2007				Year Ended August 31, 2006				Inception through August 31, 2007
		(Restated)
Revenue		$	-			$	-			$	-
Operating expenses
General and administrative			2,680,342				60,958				2,741,449
Depreciation			5,157				1,350				6,507
Total operating expenses			2,685,499				62,308				2,747,956
Operating loss			(2,685,499	)			(62,308	)			(2,747,956	)
Other (income) expense
Financing costs			(118,017	)			278,517				389,095
Interest expense			663,306				4,765				668,071
Currency exchange loss			1,336				10,792				12,128
Total other expense			546,625				294,074				1,069,294
Net loss			(3,232,124	)			(356,382	)			(3,817,250	)
Net loss per share:
Basic and diluted		$	(0.08	)		$	(0.01	)
Weighted average shares outstanding:
Basic and diluted			42,052,238				25,000,000

The accompanying notes are an integral part of these consolidated financial statements.

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GULF WESTERN PETROLEUM CORPORATION

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)

For the Period from Inception (January 20, 2005) through August 31, 2007

		Common Shares				Par Amount				Additional Paid-In-Capital				Accumulated Deficit				Total
Issuance of common shares at inception			25,000,000			$	25,000			$	(24,000	)		$	-			$	1,000
Net loss, inception through August 31, 2005			-								-				(228,744	)			(228,744	)
Balance, August 31, 2005			25,000,000			$	25,000				(24,000	)		$	(228,744	)		$	(227,744	)
Net loss			-				-				-				(356,382	)			(356,382	)
Balance, August 31, 2006			25,000,000			$	25,000			$	(24,000	)		$	(585,126	)		$	(584,126	)
Issuance of common shares to related party for oil and gas properties
-October 16, 2006 ($0.09 per share)			5,000,000				5,000				455,496				-				460,496
Balance, January 3, 2007 (prior to reverse merger)			30,000,000			$	30,000			$	431,496			$	(585,126	)		$	(123,630	)
Common shares issued for reverse merger
-January 3, 2007 ($0.001 per share)			27,645,000				27,645				(27,645	)			-				-
Cancellation of shares on reverse merger
-January 3, 2007 ($0.001 per share)			(15,645,000	)			(15,645	)			15,645				-				-
Balance, January 3, 2007 (after  reverse merger)			42,000,000			$	42,000			$	419,496			$	(585,126	)		$	(123,630	)
Issuance of common shares for debenture
-January 3, 2007 ($0.73 per share)			108,109				108				78,369				-				78,477
Beneficial conversion feature of debentures			-				-				75,390				-				75,390
Issuance of common shares to related party for oil and gas properties
January 30, 2007 ($1.00 per share)			4,039,053				4,039				4,035,014				-				4,039,053
Issuance of units for cash in private placement
-January 22, 2007 ($1.00 per unit)			3,205,000				3,205				3,201,795				-				3,205,000
-May 10, 2007 ($1.00 per unit)			525,000				525				524,475				-				525,000
-August 16, 2007 ($0.40 per unit)			1,712,500				1,713				683,287				-				685,000
-August 31, 2007 ($0.40 per unit)			1,000,000				1,000				399,000				-				400,000
Issuance of warrants for services in private placement			-				-				13,138				-				13,138
Deemed dividends on purchase of oil and gas properties from related parties			-				-				(3,817,432	)			-				(3,817,432	)
Issuance of common shares for services
-May 10, 2007 ($0.72 per share)			500,000				500				359,500				-				360,000
-August 1, 2007 ($0.31 per share)			100,000				100				30,400				-				30,500
Issuance of common shares under terms of and extension of notes payable
-May 10, 2007 ($1.00 per share)			200,000				200				199,800				-				200,000
-August 31, 2007 ($1.00 per share)			100,000				100				99,900				-				100,000
Amortization of stock options			-				-				738,599				-				738,599
Fair value of warrants issued in conjunction with loans			-				-				53,249				-				53,249
Net loss															(3,232,124	)			(3,232,124	)
Balance, August 31, 2007			53,489,662			$	53,490			$	7,093,980			$	(3,817,250	)		$	3,330,220

 

The accompanying notes are an integral part of these consolidated financial statements.

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GULF WESTERN PETROLEUM CORPORATION

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Years Ended August 31, 2007 and 2006

and the Period from Inception (January 20, 2005) through August 31, 2007

		Year Ended August 31, 2007				Year E nded August 31, 2006				Inception through August 31, 2007
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss		$	(3,232,124	)		$	(356,382	)		$	(3,817,250	)
Adjustments to reconcile net loss to cash provided (used) by operating activities:
Depreciation			5,157				1,350				6,507
Foreign currency exchange loss			1,336				10,792				12,128
Amortization of debt discount			99,813				-				99,813
Amortization of deferred financing costs			7,015				-				7,015
Bonus shares on notes payable			400,000				-				400,000
Issuance of shares for services			390,500				-				390,500
Amortization of stock option expense			738,599				-				738,599
Net change in:
Accounts receivable – joint interest partners			(198,106	)			-				(198,106	)
Accounts receivable – related parties			(11,488	)			-				(11,488	)
Accounts payable			352,780				508,576				1,059,136
Accounts payable - related parties			376,852				3,296				380,148
Accrued interest			10,276				4,765				15,041
Accrued interest – related parties			116,712				-				116,712
CASH FLOWS PROVIDED (USED) BY OPERATING ACTIVITIES			(942,678	)			172,397				(801,245	)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment			(12,320	)			(7,372	)			(19,692	)
Investment in oil and gas properties			(4,732,925	)			(329,085	)			(5,181,697	)
CASH FLOWS USED IN INVESTING ACTIVITIES			(4,745,245	)			(336,457	)			(5,201,389	)
CASH FLOWS FROM FINANCING ACTIVITIES
Advances from stockholder			174,509				92,094				417,254
Proceeds from private placement unit sales			4,815,000				-				4,815,000
Proceeds from convertible notes payable			700,000				72,047				772,047
Proceeds from notes payable			540,776				312,500				853,276
Repayment of notes payable			(853,018	)			-				(853,018	)
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES			5,377,267				476,641				6,004,559
NET INCREASE(DECREASE) IN CASH			(310,656	)			312,581				1,925
Cash, beginning of period			312,581				-				-
Cash, end of period		$	1,925			$	312,581			$	1,925
Cash paid for:
Interest		$	22,929			$	-			$	22,929
Income taxes		$	-			$	-			$	-
Supplemental Schedule of Non-cash Investing and Financing Activities:
Issuance of founders shares		$	-			$	-			$	1,000
Assignment and rescission of oil and gas properties  from parent			(460,231	)			460,231				-
Convertible note to related party for acquisition of oil and gas interests			2,000,000				-				2,000,000
Common shares issued to acquire oil and gas properties			4,499,549				-				4,499,549
Issuance of common shares for convertible debentures			78,477				-				78,477
Asset retirement obligation incurred			50,949				-				50,949
Fair value of warrants issued with debt			66,387				-				66,387
Discount on debt for beneficial conversion feature of debentures			75,390				-				75,390
Deemed dividends on purchase of oil and gas properties from related parties		$	3,817,432			$	-			$	3,817,432

The accompanying notes are an integral part of these consolidated financial statements

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GULF WESTERN PETROLEUM CORPORATION

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – ORGANIZATION AND BUSINESS OPERATIONS

 

Gulf Western Petroleum Corporation (“Gulf Western”) was incorporated on February 21, 2006 in the State of Nevada.   Gulf Western (formerly Georgia Exploration, Inc.) is engaged in the acquisition, exploration and development of oil and natural gas reserves in the United States.  Gulf Western holds oil and gas lease interests in Texas, Kansas and Kentucky.  Gulf Western is actively engaged in the drilling of Frio formation wells in Dewitt and Lavaca County, Texas; it holds proved undeveloped reserves in Wharton County, Texas; and it is engaged in a supply and infrastructure development program in Southeast Kansas. Gulf Western’s oil and gas lease interests in Kentucky are exploration in nature.

 

On January 3, 2007, Gulf Western and Wharton Resources Corp. (“Wharton” or “Wharton Corp.”) consummated a merger that was effected through a reverse merger with the oil and gas lease interests and reserves held by Wharton becoming the primary core assets of Gulf Western.   Concurrent with the merger, Wharton’s executive management and directors assumed control and responsibility for Gulf Western’s activities and its strategic direction.   The merger effected a change in control of Gulf Western and immediately following the merger, Wharton’s former stockholders held approximately 71.4% of Gulf Western’s issued and outstanding common shares.   On March 8, 2007, Georgia Exploration, Inc.’s name was changed to Gulf Western Petroleum Corporation, and the stock symbol was changed to OTCBB: GWPC.

 

For Securities and Exchange Commission (“SEC”) reporting purposes, the merger between Gulf Western and Wharton was treated as a reverse merger with Wharton being the “accounting acquirer” and, accordingly, it assumed Gulf Western’s reporting obligations with the SEC.  In accordance with SEC requirements, the historical financial statements and related disclosures presented herein for the period prior to the date of merger (i.e.,    January 3, 2007 ) are those of Wharton since its inception on January 20, 2005 .   In conjunction with the merger, each outstanding share of Wharton was converted into 25,000 common shares in Gulf Western with a total of 30,000,000 common shares issued to the former Wharton stockholders. Of the 27,645,000 shares of Gulf Western outstanding at the time of the merger  15,645,000 shares of Gulf Western’s outstanding common stock were cancelled concurrent with the closing of the merger.   Immediately following the merger, a total of 42,000,000 shares of common stock were issued and outstanding.

 

Since its inception, Gulf Western has funded its oil and gas activities through a combination of equity and debt securities, and the contribution of funds and services by its principal shareholders and Gulf Western’s management.   Gulf Western has raised initial financing from external sources through a series of private equity placements with units consisting of common shares and warrants; the issuance of convertible securities in the form of secured notes; and through various bridge and short term notes.

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of presentation

 

Gulf Western’s consolidated balance sheets and related consolidated statements of operations, stockholders’ equity (deficit) and cash flows for the periods from inception through August 31, 2007 are presented in U.S. dollars and have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the rules of the Securities and Exchange Commission.

 

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The accompanying consolidated financial statements are prepared in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 7, Accounting and Reporting by Development Stage Enterprises.

 

Use of estimates

 

The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods.  Actual results could materially differ from those estimates.

 

Management believes that it is reasonably possible the following material estimates affecting the financial statements could significantly change in the coming year:  (1) estimates of proved oil and gas reserves, and (2) forecast forward price curves for natural gas and crude oil.   The oil and gas industry in the United States has historically experienced substantial commodity price volatility, and such volatility is expected to continue in the future.   Commodity prices affect the level of reserves that are considered commercially recoverable; significantly influence Gulf Western’s current and future expected cash flows; and impact the PV10 derivation of proved reserves presented in Gulf Western’s supplemental oil and gas reserve disclosures made herein.

 

Reclassification

 

Certain amounts in prior periods have been reclassified to conform to current period presentation.

 

Principles of consolidation

 

The consolidated balance sheets include the accounts of Gulf Western Petroleum Corporation and its 100% owned subsidiary Wharton Resources Corp., a Delaware corporation; its 100% member interest in Wharton Resources LLC, a Delaware limited liability company; and its direct and indirect interests in Gulf Western Petroleum, LP, a Texas limited partnership (“Gulf Western LP”).   Gulf Western LP is Gulf Western’s primary operating entity and Wharton Resources LLC holds a 1.0% general partner interest in Gulf Western LP while the remaining 99.0% is held by Gulf Western through limited partner interests.

 

Cash and cash equivalents

 

Cash and cash equivalents include cash in banks and certificates of deposit which mature within three months of the date of purchase.  Gulf Western may, in the normal course of operations, maintain cash balances in excess of federally insured limits.

 

Accounts receivable

 

Gulf Western routinely assesses the recoverability of all material trade, joint interest and other receivables. Gulf Western accrues a reserve on a receivable when, based on the judgment of management, it is probable that a receivable will not be collected and the amount of any reserve may be reasonably estimated.  Actual write-offs may exceed the recorded allowance.  No allowance for doubtful accounts was considered necessary at August 31, 2007 and 2006.

 

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Oil and gas properties

 

Gulf Western follows the full cost method of accounting for its oil and natural gas properties, whereby all costs incurred in connection with the acquisition, exploration for and development of petroleum and natural gas reserves are capitalized.  Such costs include lease acquisition, geological and geophysical activities, rentals on non-producing leases, drilling, completing and equipping of oil and gas wells and administrative costs directly attributable to those activities and asset retirement costs. Disposition of oil and gas properties are accounted for as a reduction of capitalized costs, with no gain or loss recognized unless such adjustment would significantly alter the relationship between capital costs and proved reserves of oil and gas, in which case the gain or loss is recognized to income.

 

Depletion and depreciation of proved oil and gas properties is calculated on the units-of-production method based upon estimates of proved reserves.  Such calculations include the estimated future costs to developed proved reserves.  Oil and gas reserves are converted to a common unit of measure based on the energy content of 6,000 cubic feet of gas to one barrel of oil. Costs of undeveloped properties are not included in the costs subject to depletion. These costs are assessed periodically for impairment.

 

Ceiling test

 

In applying the full cost method, Gulf Western performs an impairment test (ceiling test) at each reporting date, whereby the carrying value of property and equipment is compared to the “estimated present value,” of its proved reserves discounted at a 10-percent interest rate of future net revenues, based on current economic and operating conditions, plus the cost of properties not being amortized, plus the lower of cost or fair market value of unproved properties included in costs being amortized, less the income tax effects related to book and tax basis differences of the properties.  As of August 31, 2007 and 2006, no impairment of oil and gas properties was recorded.

 

Oil and gas properties, not subject to amortization

 

Gulf Western holds oil and gas interests in Texas, Kansas and Kentucky pursuant to lease agreements.  Gulf Western is currently drilling Frio formation wells in Dewitt and Lavaca County, Texas.  Upon completion of drilling and initial well production from the Frio formation wells, Gulf Western will commence amortization (on a unit-of-production basis) of the acquisition, geological and geophysical, drilling and development costs incurred and included in oil and gas properties.

 

The amortization of the oil and gas properties not classified as proved begins when the oil and gas properties become proved, or their values become impaired.   Gulf Western assesses the realizability of its properties not characterized as proved on at least an annual basis or when there is or has been an indication that an impairment in value may have occurred.  The impairment of properties not classified as proved is assessed based on management’s intention with regard to future exploration and development of individually significant properties, and Gulf Western’s ability to secure capital funding to finance such exploration and development.   If the result of an assessment indicates that a property is impaired, the amount of the impairment is added to the capitalized costs in its full cost pool and they are amortized over production from proved reserves.

 

Furniture and office equipment

 

Furniture and office equipment is stated at cost. Depreciation is computed on a straight-line basis over the estimated useful lives of three to five years.

 

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Debt

 

Gulf Western accounts for debt at fair value and recognizes interest expense for accrued interest payable under the terms of the debt. Principal and interest payments due within one year are classified as current, whereas principal and interest payments for periods beyond one year are classified as long term. Beneficial conversion features of debt are valued and the related amounts recorded as discounts on the debt.  Discounts are amortized to interest expense using the effective interest method over the term of the debt.  Any unamortized discount upon settlement or conversion of debt is recognized immediately as interest expense.

 

Asset retirement obligations

 

In accordance with SFAS No. 143, “Accounting for Asset Retirement Obligations” Gulf Western records the fair value of a liability for asset retirement obligations (“ARO”) in the period in which an obligation is incurred and a corresponding increase in the carrying amount of the related long-lived asset. The present value of the estimated asset retirement cost is capitalized as part of the carrying amount of the long-lived asset and is depreciated over the useful life of the asset.  The settlement date fair value is discounted at Gulf Western’s credit adjusted risk-free rate in determining the abandonment liability.  The abandonment liability is accreted with the passage of time to its expected settlement fair value. At August 31, 2007 Gulf Western has recorded an estimated asset retirement obligation of $50,949.  No liabilities were settled during the period and no accretion expense has been recognized.

 

Foreign exchange

 

Balance sheet items are translated into U.S. dollars at exchange rates prevailing at the balance sheet date for monetary items and at exchange rates in effect at the transaction date for non-monetary items. Operating statement items are translated at average rates prevailing during the period. Gains and losses on translation of current monetary assets and liabilities are included in income.

 

Future income taxes

 

Income taxes are accounted for using the asset/liability method of income tax allocation. Future income taxes are recognized for the future income tax consequences attributable to differences between the carrying values of assets and liabilities and their respective income tax bases. Future income tax assets and liabilities are measured using income tax rates expected to apply to taxable income in the years in which temporary differences are expected to be recovered or settled. The effect on future income tax assets and liabilities of a change in income tax rates is included in earnings in the period that such change in income tax rates is enacted. Future income tax assets are recorded in the financial statements if realization is considered more likely than not.

 

Revenue and cost recognition

 

Gulf Western uses the sales method to account for sales of crude oil and natural gas. Under this method, revenues are recognized based on actual volumes of oil and gas sold to purchasers. The volumes sold may differ from the volumes to which Gulf Western is entitled based on our interest in the properties.  These differences create imbalances which are recognized as a liability only when the imbalance exceeds the estimate of remaining reserves.  Gulf Western had no production, revenue or imbalances as of August 31, 2007 and August 31, 2006 .  Costs associated with production are expensed in the period incurred.

 

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Stock-based compensation

 

The Financial Accounting Standards Board issued SFAS No. 123(R), “Share-Based Payment” which establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services.    Gulf Western utilizes SFAS No. 123R and related Interpretations for fair value determination and recognition for share based compensation granted to directors, officers, and employees.   Under SFAS 123R, compensation cost for all share based payments granted are based on the grant date fair value estimated in accordance with the provisions of SFAS no. 123R.

 

Compensation cost is recognized on a straight line basis over the requisite service period for the entire award in accordance with the provisions of SFAS 123R.  If at any date the portion of the grant-date fair value of the award that is vested is greater than that amount recognized on a straight line basis, the amount of the vested grant date fair value is recognized.  Gulf Western also accounts for transactions in which we issue equity instruments to acquire goods or services from non-employees in accordance with the provisions of SFAS No. 123R (as amended).  These transactions are accounted for based on the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable.

 

Earnings per share

 

Basic net earnings (loss) per common share are computed by dividing net earnings (loss) available to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted net earnings (loss) per common share is determined using the weighted-average number of common shares outstanding during the period, adjusted for the dilutive effect of common stock equivalents. In periods when losses are reported, the weighted-average number of common shares outstanding excludes common stock equivalents, because their inclusion would be anti-dilutive.

 

The dilutive effect of outstanding stock options and warrants is reflected in diluted earnings per share by application of the treasury stock method. The dilutive effect of outstanding convertible securities is reflected in diluted earnings per share by application of the if-converted method.  For the years ended August 31, 2007 and 2006, fully diluted earnings per share excludes common stock equivalents, because their inclusion would be anti-dilutive.

 

Fair value of financial instruments

 

The carrying value of cash and cash equivalents, accounts payable and accrued expenses and other liabilities approximates fair value due to the short term maturity of these instruments. The carrying value of the notes payable, convertible notes and convertible debentures approximate their fair value as August 31, 2007 and August 31, 2006.

 

New Accounting Pronouncements

 

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”), which clarifies the definition of fair value, establishes guidelines for measuring fair value, and expands disclosures regarding fair value measurements.  SFAS 157 does not require any new fair value measurements and eliminates inconsistencies in guidance found in various prior accounting pronouncements.  SFAS 157 will be effective for Gulf Western on September 1, 2008. Gulf Western is currently evaluating the impact of adopting SFAS 157 on its financial position, cash flows, and results of operations

 

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NOTE 3 – GOING CONCERN

 

Gulf Western is in its development stage and, accordingly, has limited operations and no revenues.  Gulf Western has raised limited financing and has incurred operating losses since its inception in January 2005.  These factors raise substantial doubt about Gulf Western’s ability to continue as a going concern.   Gulf Western’s ability to achieve and maintain profitability and positive cash flow is dependent on its ability to secure sufficient financing to fund the acquisition, drilling and development of profitable oil and gas properties.  Management is seeking financing that it believes would allow Gulf Western to establish and sustain commercial production.   There are no assurances that Gulf Western will be able to obtain additional financing from investors or private lenders and, if available, such financing may not be on commercial terms acceptable to Gulf Western or its stockholders. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

NOTE 4 - RELATED PARTY TRANSACTIONS

 

During Gulf Western’s formation and development to date, it has had transactions with the current directors, executive officers and shareholders holding interests in excess of 10.0%. These transactions are as follows:

 

Oakcrest Prospect, Wharton County, Texas

 

In connection with the reverse merger of Gulf Western and Wharton Corp., Gulf Western acquired oil and gas lease interests located in Wharton County, Texas.  The Oakcrest oil and gas lease interests were originally acquired by CodeAmerica Investments LLC (“CodeAmerica”), a company controlled by Wm. Milton Cox, the current Chairman and CEO of Gulf Western.   When Wharton Corp. acquired the Oakcrest oil and gas lease interests from CodeAmerica on October 16, 2006, Wm. Milton Cox was the Chairman and CEO of Wharton Corp.  CodeAmerica received 5,000,000 shares of common stock in Gulf Western for its Oakcrest oil and gas lease interests.

 

Consistent with SEC requirements for entities under common control, the acquisition of the Oakcrest oil and gas lease interests from CodeAmerica has been recorded on Gulf Western’s records at its historical cost basis in the interests which totaled approximately $460,500.  When the Oakcrest lease interests were acquired by Wharton Corp., Wharton Corp. shares of common stock were not publicly traded.  The fair value of the shares issued to CodeAmerica for the lease interests was equal to its historical cost basis in the lease interests.

 

Mound Branch Project, Elk County, Kansas

 

On January 30, 2007, Gulf Western purchased Orbit Energy, LLC’s (“Orbit”) working and net revenue interests in approximately 8,800 gross acres located in Elk County, Kansas together with its interests in drilled wells and associated equipment (the “Mound Branch Project”).   Gulf Western’s purchase price totaled $6.8 million, and consideration paid to Orbit was comprised of: a) $760,947 of funds advanced by Gulf Western to Orbit for testing and evaluation of the existing well bores, reservoir formations and associated lease acreage; b) a thirty-six month $2.0 million 10% convertible note with principal due at maturity; and c) 4,039,053 common shares of Gulf Western with a fair value of $1.00 per common share at the time of issuance.

 

The Gulf Western shares issued to Orbit for the purchase were placed in escrow (“Orbit Escrow Shares”) to be released upon Orbit’s delivery to the escrow agent of an independent report assessing the fair value of the purchased assets at no less than the purchase price of $6.8 million.  Should the valuation be less than the $6.8 million purchase price, then the number of shares to be released from escrow will be ratably reduced for the lower valuation.  Gulf Western shares remaining in escrow at the end of the twelve month period ending January 30, 2008 are to be cancelled and returned to Gulf Western’s treasury.   To date no shares have been released from escrow.

 

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In accordance with SEC requirements and for financial reporting purposes, the acquisition of the Mound Branch Project from Orbit was treated as a transaction between entities under common control and recorded on Gulf Western’s records at Orbit’s historical cost in acquired assets of $3,227,568.    The difference between the $6.8 million purchase price and Orbit’s historical cost in the assets was recorded by Gulf Western as a deemed dividend which totaled $3,572,432.

 

Orbit is controlled by entities owned and managed by significant shareholders of Gulf Western, who are also directors and senior officers of Gulf Western. Wm.   Milton Cox and Bassam   Nastat collectively own 100% of Orbit through Mr.   Cox ’s ownership of CodeAmerica Investments LLC (“CodeAmerica”), and Mr.   Nastat ’s management of Paragon Capital, LLC (“Paragon”).  Mr. Cox’s, Gulf Western’s Chairman and CEO , and Mr. Nastat’s, Gulf Western’s President and Director, direct and indirect holdings in Gulf Western total approximately 26.5 million shares or 46.8% of the current issued and outstanding common stock as of January 31, 2008.    Messrs.   Cox and Nastat through their director and senior officer positions in Gulf Western and their holdings in Gulf Western collectively exercise substantive control over Gulf Western.

 

Immediately prior to the acquisition of Mound Branch from Orbit on January 30, 2007 , Messrs.   Cox and Nastat held a combined 22.5 million common shares, or 49.6% of the then issued and outstanding common shares of Gulf Western. The 4,039,053 common shares issued to Orbit increased their direct and indirect holdings in Gulf Western to 53.7% of the then issued and outstanding common shares. Should the independent fair market appraisal of the assets acquired be less than the purchase price, the shares of common stock released to Orbit will be ratably reduced for the lower valuation, and Messrs. Cox’s and Nastat’s direct and indirect combined holdings in Gulf Western will be reduced.

 

Orbit serves as operator of the Mound Branch Project.   In conjunction with the terms of the Mound Branch Project purchase and sale agreement, Gulf Western has been funding 100% of the costs incurred by Orbit for the testing and evaluation of the existing well bores, reservoir formations and associated lease acreage.  The share of costs not attributable to Gulf Western’s working interest ownership in the property is recorded as a receivable from joint interest partners in the amount of $198,006.  Gulf Western expects to collect this amount from its partners in the Mound Branch Project.

 

In addition to the $760,747 paid by Gulf Western and applied as consideration against the purchase price from Orbit, Orbit has billed $636,684 to Gulf Western associated with the testing and evaluation of the Mound Branch Project since Gulf Western’s acquisition.  A balance of $248,171 is recorded as payable to related party as at August 31, 2007.  In the aggregate through August 31, 2007 Gulf Western has incurred costs totaling $1,397,631 on the testing and evaluation of the Mound Branch Project of which $1,149,460 has been paid to Orbit.   The testing and evaluation procedures for the Mound Branch Project were completed in early October 2007.  Gulf Western is continuing with its Mound Branch Project reserve and infrastructure development program, and is actively pursuing financing that would provide for the initiation of the next phase of the project.

 

Baxter Bledsoe Prospect, Clay County, Kentucky

 

On February 1, 2006, Gulf Western purchased the Baxter Bledsoe Prospect oil and gas lease acreage from CodeAmerica for a cash purchase price of $330,000. The prospect has approximately 2,200 acres located in Clay County, Kentucky. This acquisition from CodeAmerica was treated as a transaction between entities under common control and recorded at the seller’s historical cost basis of approximately $170,000.  The difference between the $330,000 purchase price and CodeAmerica’s historical cost in the assets was recorded by Gulf Western as a deemed dividend which totaled $160,000.

 

Bell Prospect, Bell County, Kentucky

 

On October 1, 2006, Gulf Western purchased CodeAmerica’s oil and gas lease interests located in Bell County, Kentucky. The Bell Prospect is comprised of approximately 3,400 acres. The cash purchase price was $314,475, which included $59,475 for land, legal and title services expended by CodeAmerica on the prospect.  This acquisition from CodeAmerica was treated as a transaction between entities under common control and recorded at the seller’s historical cost basis of approximately $229,475.  The difference between the $314,475 purchase price and CodeAmerica’s historical cost in the assets was recorded by Gulf Western as a deemed dividend which totaled $85,000.

 

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Advances from Stockholder

 

During the months of April and May 2007, CodeAmerica made cash advances to Gulf Western totaling $120,000 for general working capital requirements.    The advances were due on demand, did not bear interest and were outstanding at August 31, 2007.   The advances were fully repaid in November 2007.

 

Office Rent

 

Gulf Western shares office space in Houston, Texas with Orbit under a month-to-month lease.  The office space was leased by Orbit and during the years ended August 31, 2007 and 2006 Gulf Western paid rent totaling $42,994 and $38,210, respectively.

 

NOTE 5 – OIL AND GAS PROPERTIES

 

All of the Gulf Western’s oil and gas properties are located in the United States.  No amortization of expense was recorded in 2007 or 2006 as no production or sales occurred.

 

Costs excluded from amortization at August 31, 2007 are as follows:

 

Fiscal Year Incurred		Acquisition Costs				Exploration Costs				Total
2006		$	12,000			$	-			$	12,000
2007			1,981,288				4,831,487				6,812,775
Total		$	1,993,288			$	4,831,487			$	6,824,775

Gulf Western holds oil and gas lease interests in Texas, Kentucky and Kansas.  The leases are classified as “Properties not subject to amortization” in Gulf Western’s financial statements.  Gulf Western expects that these costs will be included in oil and gas properties subject to amortization upon evaluation of proved reserves in fiscal 2008.

 

NOTE 6 – INCOME TAXES

 

Deferred income taxes are recorded at the expected tax rate of 35%.  SFAS No. 109 “Accounting for Income Taxes” requires that deferred tax assets be reduced by a valuation allowance if it is more or likely than not that some portion or all of the deferred tax asset will not be realized.

 

Reconciliation between actual tax expense (benefit) and income taxes computed by applying the combined U.S. federal income tax rate and state income tax rate to income from continuing operations before income taxes and deemed dividends is as follows:

 

		August 31, 2007				August 31, 2006
Computed at U.S. and State statutory rates		$	(1,131,200	)		$	(121,000	)
Permanent differences			885,200				-
Changes in valuation allowance			246,000				121,000
Total		$	-			$	-
		August 31, 2007				August 31, 2006
Deferred tax asset attributable to:
Net operating loss		$	445,000			$	199,000
Less: valuation allowance			(445,000	)			(199,000	)
Total		$	-			$	-

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The components giving rise to the deferred tax assets described above have been included in the accompanying consolidated balance sheet as noncurrent assets.  As of August 31, 2007 and 2006, the deferred tax assets are net of a full valuation allowance of $445,000 and $199,000, respectively based on the amount that management believes will ultimately be realized.  Realization of deferred tax assets is dependent upon sufficient future taxable income during the period that deductible temporary differences and carryforwards are expected to be available to reduce taxable income. At August 31, 2007, Gulf Western had loss carryforwards of approximately $1.3 million for tax purposes which will begin to expire in 2025. The valuation allowance increased by approximately $246,000 and $121,000 for the years ended August, 31, 2007 and 2006, respectively. Section 382 of the Internal Revenue Code will limit the amounts historical net operating losses available for tax purposes prior to the reverse merger.

 

The income tax provision differs from the amount of income determined by applying the U.S. federal income tax rate to pretax income for the years ended August 31, 2007 and 2006 primarily due to the valuation allowance.  The above estimates are based upon management’s decisions concerning certain elections which could change the relationship between net income and taxable income.   Management decisions are made annually and could cause the estimates to vary significantly.

 

NOTE 7 – NOTES PAYABLE AND CONVERTIBLE UNSECURED DEBENTURES

 

Convertible Secured Note

 

On July 3, 2007, Gulf Western borrowed $500,000 under an eighteen-month convertible secured note from a private investor with a maturity date of January 3, 2009.    Principal repayments were due beginning October 2007 at $33,333 per month.   The loan bore interest at a rate of 12.0% per annum, payable quarterly, and could be repaid in portion or in full at any time at 105% of the then outstanding principal and accrued interest.  The note provided the lender the right to convert any or all of the outstanding balance to Gulf Western shares of common stock at a conversion rate of $0.45 per common share during the loan term.   Attached to the note were three-year warrants for 125,000 common shares of Gulf Western at $0.30 per common share.

 

Gulf Western evaluated the terms of the convertible note and attached warrants in accordance with EITF 98-5 and EITF 00-27 and concluded that there was no beneficial conversion feature.  The relative fair value of the warrants under the Black-Scholes option pricing model was $21,196, which was recorded as debt discount on the convertible note and amortized using the effective interest method over the eighteen-month term of the note.  The parameters used in the Black-Scholes valuation model were: a risk-free interest rate of 4.90%; the current stock price on the date of issuance of $0.27 per common share; the exercise price of the warrants of $0.30 per share of common stock; an expected term of three years; volatility of 107.61%; and a dividend yield of 0.0%.   For the year ending August 31, 2007, $3,660 was charged to interest expense associated with the amortization of the debt discount, and $17,536 debt discount was unamortized at August 31, 2007.

 

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This note was refinanced subsequent to year end in connection with the $3.7 million Senior Secured Convertible Notes.   As a result, the current portion of the Convertible Secured Note was excluded from current liabilities as of August 31, 2007.

 

In connection with the July 3, 2007 convertible secured note, Gulf Western issued warrants to purchase 100,000 shares of common stock to a placement agent, and paid the placement agent a fee totaling $50,000.   The warrants have an exercise price of $0.40 per share and a term of two years.  The placement agent warrants were valued using the Black-Scholes option pricing model.   The assumptions used in the Black-Scholes valuation model were: a risk-free interest rate of 4.89%; the current stock price at date of issuance of $0.27 per common share; the exercise price of the warrants of $0.40 per share of common stock; an expected term of two years; volatility of 107.6%; and dividend yield of 0.0%.   The estimated fair value of the warrants was $13,138.  The fair value of the warrants and the $50,000 fee was recorded as deferred financing cost and is being amortized using the effective interest method over the life of the debt.

 

Short-Term Convertible Note

 

On June 28, 2007, Gulf Western borrowed $250,000 under a short term convertible note payable with a private investor.   The note bore interest at 12.0% per annum; was convertible at $0.45 per share of common stock; and provided for a payment on maturity or upon the occurrence of certain events; but no later than September 28, 2007.   This note and accrued interest was repaid on September 14, 2007.   In connection with this loan Gulf Western issued to the lender warrants to purchase 200,000 common shares of Gulf Western at an exercise price of $0.32 per share with a three year term.

 

Gulf Western evaluated the terms of the convertible note and attached warrants in accordance with EITF 98-5 and EITF 00-27 and concluded that there was no beneficial conversion feature.   The relative fair value of the warrants attached to the loan that was derived through use of the Black-Scholes option pricing model was $32,053, which was recorded as a discount on the note and amortized over the life of the note.   The parameters used in the Black-Scholes valuation model were: a risk-free interest rate of 4.98%; the current stock price on the date of issuance of $0.28 per common share; the exercise price of the warrants of $0.32 per share; an expected term of three years; volatility of 108.79%; and a dividend yield of 0.0%.    At August 31, 2007, $20,763 of the loan discount was charged to interest expense.  Upon repayment of the loan on September 14, 2007 the remaining unamortized loan discount totaling $11,290 was charged to interest expense.

 

Orbit Energy, LLC Mound Branch Convertible Note

 

As consideration to Orbit Energy, LLC for Gulf Western’s purchase of its interests in the Mound Branch Project, Gulf Western issued a thirty-six month $2.0 million unsecured convertible note dated January 30, 2007 with principal due at maturity, bearing interest at 10.0% per annum due quarterly in arrears.   Pursuant to the terms of the convertible note, after the initial twelve months: a) Orbit has the ability to convert the outstanding principal and interest balance into common shares at a conversion price of $1.00 per common share, and b) Gulf Western may prepay all or a portion of the convertible loan without penalty.  Under the terms of the convertible note, the maturity of the note is accelerated upon a change in control of Gulf Western.  On July 3, 2007 the note was amended to provide that interest payable for the first two quarters to be due on October 30, 2007.  As of October 30, 2007, no interest has been paid and no new arrangements have been made for an extension.  There are no penalty provisions in the note for non-payment.  At August 31, 2007 the outstanding principal under the note is $2.0 million and accrued interest totals $116,712.

 

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Gulf Western evaluated the terms of the convertible note in accordance with EITF 98-5 and EITF 00-27 and concluded that the note contained no beneficial conversion features.

 

Wharton Notes Payable

 

Wharton entered into three short term loan agreements dated August 21, 2006 that provided for total borrowings of $500,000 for general working capital purposes.  The loans had a 90-day maturity; bore interest at 10.0% per annum with principal and interest due upon maturity; and were secured by all existing and after acquired assets of Wharton.  The loan agreements provided for the issuance of 150,000 shares of common stock (“Bonus Shares”) to the lenders in the event that Wharton completed a public transaction.   The loans also provided that Wharton could extend the loans for 90-days under the same terms and conditions for an additional 150,000 Bonus Shares.  Wharton elected to extend the loan maturities.  At August 31, 2006, $312,500 had been funded to Wharton under the loan agreements with the remaining funds received during the month of September 2006.   During the year ending August 31, 2007 the loans were fully repaid to the lenders.  During the fiscal quarter ending February 28, 2007, the triggering event occurred and the notes were extended to effect the issuance of the Bonus Shares, and Gulf Western recorded a non-cash interest charge totaling $300,000 for the fair value of the Bonus Share commitment to the lenders.  As of August 31, 2007, 200,000 Bonus Shares have been issued to the lenders, and 100,000 Bonus Shares remain unissued and are recorded as stock payable.

 

On October 17, 2006, Wharton entered into a short term loan agreement for $350,000 with a private lender.  The loan had a 90-day maturity; bore interest at 18.0% per annum with principal and interest due upon maturity; and was secured by all existing and after acquired assets of Gulf Western.   The loan provided for 100,000 shares of common stock (“Bonus Shares”) to be issued to the lender in the event that Wharton completed a public transaction. The loan agreement provided for Gulf Western to use its best efforts to register the Bonus Shares issuable under the loan agreement within a 12-month period from the date of their issuance.  During the second fiscal quarter ending February 28, 2007, the triggering event occurred to issue the Bonus Shares, and Gulf Western recorded a non-cash charge of $100,000 to interest expense for the fair value of the 100,000 Bonus Shares committed to the lender.    The loan was fully repaid to the lender during the year ending August 31, 2007, and the 100,000 Bonus Shares were issued to the lender on May 21, 2007.

 

Convertible Unsecured Debentures

 

On March 13, 2006 Wharton Resources Limited (“Wharton Limited”), a corporation organized in New Brunswick, Canada, issued three unsecured convertible debentures denominated in Canadian dollars with total principal balance of CAD$85,000 (US$76,883 at August 31, 2006).  In the event that Wharton Limited common shares began trading on a public market, the debentures provided that they would be automatically converted into common shares at a conversion rate of 85% of the initial publicly traded share price.   If not converted by the maturity date, the outstanding principal balance together with interest accrued since the debenture issuances would be due and payable to the debenture holders.

 

Wharton Limited was the original sole stockholder of Wharton Corp. and as of August 30, 2006, Wharton Corp. assumed the obligations for the convertible debentures of Wharton Limited.     Pursuant to the merger agreement between Wharton Corp. and Gulf Western on January 3, 2007, the date the merger was consummated, Gulf Western assumed the obligation to issue common shares to the three debenture holders and issued a total of 108,109 shares of common stock to them for the then outstanding principal and interest amounts under the debentures.    The debentures also provided that warrants to purchase common shares would be issued to the debenture holders, and in conjunction with the merger Gulf Western issued to the three debenture holders warrants to purchase 85,000 shares of common stock of Gulf Western at an exercise price of $1.25 per share, with a twelve month expiry.

 

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The fair value of the warrants attached to the convertible debentures totaling $75,390 was derived through use of the Black-Scholes option pricing model.   The parameters used in the model were: a risk-free interest rate of 4.98%; the current stock price at date of issuance of $1.00 per share; the exercise price of the warrants of $1.25; the expected term of one year; expected volatility of 183%; and dividend yield of 0%.  The estimated fair value of the warrants was recorded as a debt discount with a corresponding increase to additional paid-in capital of $75,390.   Upon the conversion of the debentures into common shares on January 3, 2007, the debt discount of $75,390 was charged to interest expense.

 

NOTE 8 – INTEREST EXPENSE

 

The following table is a detail of the components of interest expense for the years ended August 31, 2007 and 2006:

 

		2007				2006
Interest expense on convertible debentures		$	24,726			$	4,765
Interest expense on note payable			5,342				-
Interest expense on convertible note – related party			116,712				-
Interest expense on convertible note			9,698				-
Bonus shares on notes payable			400,000				-
Amortization of debt discount			99,813				-
Amortization of deferred financing cost			7,015				-
Total interest expense		$	663,306			$	4,765

There was no interest expense for the period from inception (January 20, 2005) to August 31, 2005.

 

Gulf Western incurred $389,095 of costs associated with financing activities for the period from inception through August 31, 2007 for transactions that were not consummated and, accordingly, have been charged to expense in the consolidated statements of operations.

 

NOTE 9 – STOCKHOLDERS’ EQUITY

 

Gulf Western has authorized 1.2 billion shares of $0.001 par value share of common voting stock.   At August 31, 2007 and 2006, Gulf Western had issued and outstanding shares of common stock of 53,489,662 and 25,000,000, respectively.

 

Issuance of Common Shares and Warrants In Private Placement Offerings

 

During the year ended August 31, 2007, Gulf Western sold units in private placement offerings.  Each unit consisted of one share of common stock, one Class A Warrant and one Class B Warrant.  Each Class A Warrant is exercisable at a price of $2.00 per common share for a period of three years.  Each Class B Warrant is exercisable at a price of $3.00 per common share for a period of three years.  The Class A and Class B Warrants’ relative fair values on the date cash was received from the investor was estimated through use of the Black-Scholes option pricing model.  The parameters used in the calculation of the Black-Scholes fair values for the Warrants are provided in the following table:

 

Issue Date		Volatility				Risk-Free Interest Rate				Common Share Price				Term (years)
January 22, 2007			120	%			4.85	%		$	1.00				3
May 10, 2007			115	%			4.66%-4.79	%		$	0.68 - $0.88				3
August 16, 2007			108	%			4.57%-4.92	%		$	0.45 - $0.68				3
August 31, 2007			108	%			4.66%-4.79	%		$	0.22 - $0.80				3

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Summarized in the following table are Gulf Western’s sales of units during the year ended August 31, 2007 and the associated estimated relative fair values of the shares of common stock and the Class A and Class B warrants that comprised the units sold:

 

Date		Number of Units				Price Per Unit				Total Proceeds				Common Stock				Class A Warrant				Class B Warrant
January 22, 2007			3,205,000			$	1.00			$	3,205,000			$	1,487,834			$	910,336			$	806,831
May 10, 2007			525,000				1.00				525,000				257,224				143,323				124,253
August 16, 2007			1,712,500				0.40				685,000				369,960				171,819				143,221
August 31, 2007			1,000,000				0.40			$	400,000			$	240,877			$	87,902			$	71,221

Common Shares Issued to Acquire Oil and Gas Properties

 

On January 30, 2007, Gulf Western purchased Orbit’s interest in the Mound Branch Project for $6.8 million, which included consideration of 4,039,053 shares of common stock with a fair value of $1.00 per share or $4,039,053 in total.

 

On October 16, 2006, 5,000,000 shares of common stock of Gulf Western were issued to CodeAmerica in exchange for its Oakcrest Prospect oil and gas interests located in Wharton County, Texas.

 

Consummation of Reverse Merger

 

On January 3, 2007 the reverse merger between Georgia Exploration Inc. and Wharton Corp. was consummated.   As a result of the reverse merger, each share of common stock held by the Wharton Corp. shareholders was exchanged into 25,000 common shares in Gulf Western with a total aggregate share issuance of 30,000,000 shares of common stock to the former Wharton Corp. shareholders.

 

Of the 27,645,000 shares of Gulf Western outstanding at the time of the merger, a total of 15,645,000 outstanding shares of Gulf Western common stock were purchased and cancelled

 

Immediately following the closing of the merger transaction, Gulf Western had 42,000,000 shares of common stock issued and outstanding with former Wharton Corp. shareholders holding 71.43% of the total issued and outstanding shares of common stock.

 

. Unsecured Debenture Conversion

 

On January 3, 2007, the provisions of the Wharton Corp. debentures resulted in the automatic conversion of the debentures into common stock of Gulf Western.   The then outstanding principal and interest due to the three debenture holders was converted into 108,109 common shares. Additionally, Gulf Western issued 85,000 warrants for shares of common stock to the debenture holders with an exercise price of $1.25 and a 12-month term.

 

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Shares Issued for Services

 

During the year ended August 31, 2007, Gulf Western issued 600,000 common shares to consultants for their services to Gulf Western.  The shares issued for services were valued at $390,500, which was determined based on the share price on the date that Gulf Western became obligated to issue the shares to the consultants.

 

Bonus Shares on Notes Payable

 

During the year ended August 31, 2007, Gulf Western issued 300,000 shares of common stock at $1.00 per share for additional consideration to various lenders under the terms of notes payable (“Bonus Shares”).  At August 31, 2007, 100,000 shares of unissued common stock is recorded as stock payable.

 

NOTE 10 – WARRANTS

 

As of August 31, 2006, there were no warrants outstanding.

 

Warrants outstanding and exercisable as of August 31, 2007, are summarized below:

 

		Exercise				Weighted Average Remaining				Number of Warrants
Description		Price				Life (years)				Outstanding				Exercisable
Series A – Convertible unsecured debentures		$	1.25				0.35				85,000				85,000
Class A Warrants issued in private placements		$	2.00				2.61				5,442,500				5,442,500
Class B Warrants issued in private placements		$	3.00				2.61				5,442,500				5,442,500
Convertible Secured Note		$	0.30				2.84				125,000				125,000
Short Term Note		$	0.32				2.83				200,000				200,000
Placement agent warrants		$	0.40				1.80				100,000				100,000
Total											11,395,000				11,395,000

No warrants were exercised, cancelled or expired during the year ended August 31, 2007.  The intrinsic value of warrants outstanding as of August 31, 2007 was zero.

 

NOTE 11 – STOCK OPTION PLAN

 

On March 9, 2007 Gulf Western adopted the 2007 Non Qualified Stock Option Plan (“2007 Option Plan”) for its directors, officers, employees and consultants, which reserved 9,000,000 shares of common stock for issuance under the plan.  On May 10, 2007, Gulf Western granted stock options under the plan to officers, directors and an advisor for common shares totaling 3,000,000 at an exercise price of $0.79 per share.  The 3,000,000 options vest quarterly over twelve-months with the first quarter vesting on the date of grant.   The fair value for options granted was estimated at the date of grant using the Black-Scholes option-pricing model assuming an expected life of 2.0 years, a risk-free rate of 4.70%, a share price volatility of 115.33%, share price of $0.79, and dividend yield of 0.0%.  The Black-Scholes option-pricing model resulted in a fair value on the date the options were granted of $1,432,321.

 

On June 14, 2007 Gulf Western granted options under the 2007 Option Plan to non-management directors and consultants of Gulf Western for common shares totaling 625,000 at an exercise price of $0.50 per share.  The 625,000 options vest in four equal installments over twenty months with the first vesting on August 15, 2007 and the final vesting on February 15, 2009.  The fair value of the options granted was estimated to be $149,593 under the Black-Scholes option-pricing model, assuming an expected life of 2.0 years, a risk-free rate of 5.1%, a share price volatility of 115.33%, share price of $0.42, and dividend yield of 0.0%.  The Black-Scholes option-pricing model resulted in a total fair value on the date the options were granted of $0.24 per share option.

 

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For the year ended August 31, 2007, Gulf Western recorded stock option expense reflecting the non-cash fair value amortization of $738,599.  A summary of Gulf Western’s stock option activity for the year ended August 31, 2007 is as follows:

 

		Number of Options				Weighted Average Exercise Price
Balance, August 31, 2006			-			$	-
Options granted			3,625,000				0.74
Cancelled/forfeited			-				-
Expired			-				-
Exercised			-				-
Balance, August 31, 2007			3,625,000			$	0.74
Vested at August 31, 2007			1,656,250			$	0.76
Unvested at August 31, 2007			1,968,750			$	0.72

The weighted average remaining life of outstanding stock options at August 31, 2007 was 9.75 years.

 

At August 31, 2007, there is $843,315 of total unrecognized compensation cost related to fair value of the unvested share-based compensation granted under the 2007 Stock Option Plan that will be amortized over the remaining vesting period.    The intrinsic value of the options outstanding as of August 31, 2007 is zero.

 

NOTE 12 - SUBSEQUENT EVENTS

 

Issuance of Common Shares and Warrants in Private Placements

 

On September 20, 2007, Gulf Western completed a private placement transaction for 1,250,000 units at a price of $0.40 for aggregate proceeds of $500,000.  Each unit consisted of one common share, one Class C Warrant and one Class D Warrant.  Each Class C Warrant may be exercised at a price of $0.65 for a period of 3 years to acquire one additional share of common stock of Gulf Western.   Each Class D Warrant may be exercised at a price of $2.00 for a period of three years to acquire one additional share of common stock.

 

The relative fair value of the common shares and the Class C and Class D Warrants for the private placement transactions closed on September 20, 2007, was as follows:

 

		September 20, 2007 Placement
Common Shares (1,250,000 shares)		$	265,918
Class C Warrants (1,250,000 shares)			145,384
Class D Warrants (1,250,000 shares)			88,698
Total placement		$	500,000

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The relative fair value of the Class C and Class D Warrants issued in connection with the units sold were estimated using the Black-Scholes valuation model.   The parameters used in the Black-Scholes valuation model were: a risk-free interest rate of 4.19%; the current stock price on the date of issuance of $0.33 per common share; the exercise price of the warrants of $0.65 and $2.00 per share, respectively; expected terms of three years; volatility of 108%; and a dividend yield of 0.0%.

 

Senior Secured Convertible Notes Payable

 

On September 10, 2007 , Gulf Western entered into a Security Purchase Agreement (the “ SPA ”) with two lenders under which Gulf Western borrowed a total of $3,700,000 under Senior Secured Convertible Notes (the “Convertible Notes”) with Metage Funds Limited (“Metage”) and NCIM Limited (“NCIM”). Gulf Western borrowed $3,200,000 from Metage and $500,000 from NCIM.  Pursuant to the SPA , Gulf Western issued 1,500,000 common shares and issued 3,461,538 warrants to purchase shares of common stock in Gulf Western at an exercise price of $0.26 per share for a period of five years. The Convertible Notes and related interest are convertible into common shares of Gulf Western at a price of $0.39 per common share at or before maturity. The Convertible Notes bear interest at 15% per annum, and mature on September 10, 2008 . Interest for the first six months is due on March 10, 2008 and is payable monthly thereafter; with the total principal balance due at maturity. The total $3,700,000 Convertible Notes may be prepaid at any time after the six month anniversary of the Convertible Notes with a 2.5% prepayment penalty. Gulf Western received net proceeds of $2,944,000 (after $256,000 of placement fees) and the exchange of the $500,000 NCIM Convertible Secured Note issued on July 3, 2007 for $500,000 of the Convertible Notes.

 

In conjunction with the SPA , Gulf Western entered into a registration rights agreement (the “Registration Rights Agreement”) with the lenders pursuant to which Gulf Western was required to: (i) file a registration statement with the Securities and Exchange Commission with respect to the common stock issued under the SPA and the common stock issuable upon exercise of the Warrants and conversion of the Convertible Notes within 60 days after September 12, 2007; and to: (ii) cause such registration statement to be declared effective under the Securities Act of 1933, as amended, and the rules promulgated there under, not later than 150 days after September 12, 2007.  If such registration statement is not filed by the 60th day after September 12, 2007, (November 12, 2007), or the registration statement is not declared effective on or prior to the 150th day after September 12, 2007, liquidated damages in the form of registration rights penalties, calculated based on a prescribed formula in the SPA , in the maximum amount of $150,000 will be due to the lenders.  Gulf Western evaluated the terms and the filing and effectiveness time requirements provided for in the Registration Rights Agreement and determined that the incurrence of the registration rights penalties was probable and that the financial obligation could be estimated at the time the SPA , Registration Rights Agreement and other transaction documents were executed. Gulf Western estimates that the maximum registration rights penalties of $150,000 is probable, and the registration rights penalties were accounted for in accordance with FASB Staff Position No. EITF 00-19-2 whereby the contingent liability of $150,000 was accrued as a current liability in the consolidated balance sheet in September 2007 and included in the allocation of the proceeds from the financing transaction. This resulted in an increase to the debt discount on the issuance of the Convertible Notes by $150,000 which will be amortized using the effective interest method over the twelve month term of the Convertible Notes.

 

Gulf Western evaluated the terms of the Convertible Notes, the issuance of common stock and attached warrants in accordance with EITF 98-5 and EITF 00-27, and concluded that the intrinsic value of the conversion feature of the Convertible Notes represented a beneficial conversion feature in the amount of $426,137.  The relative fair value of the warrants and common shares issued were $646,791 and $326,782, respectively as derived through the Black-Scholes option pricing model.  The total discount of $1,399,710 associated with the intrinsic value of the beneficial conversion feature, and the relative fair value of the warrants and stock is being amortized to interest expense using the effective interest method over the twelve month term of the Convertible Notes. The total debt discount, including the registration rights penalties, on the issuance of the Convertible Notes was $1,549,710.

 

The principal assumptions used in the Black-Scholes valuation model to determine the intrinsic value of the conversion feature of the Convertible Notes and the relative fair value of the warrants and common shares issued were: a risk-free interest rate of 4.0%; the current stock price on the date of issuance of $0.32 per common share; the exercise price of the warrants of $0.26 per share; expected warrant term of five years; conversion price of $0.39 per common share, volatility of 121.16%; and a dividend yield of 0.0%.

 

The Convertible Notes are secured by a lien on substantially all of the assets of the Gulf Western, including all of the equity interests of the Gulf Western’s subsidiaries and the Gulf Western’s rights in certain real property, pursuant to the terms of a Security Agreement and Pledge Agreement entered into in connection with the closing of transactions under the SPA .  In addition, Gulf Western Petroleum, LP, Wharton Resources Corp. and Wharton Resources LLC, each a wholly-owned subsidiary of Gulf  Western, entered into a Guaranty with the Buyers, whereby each of the subsidiaries guaranteed the payment and performance of all obligations of Gulf Western under the Convertible Notes and terms of the SPA . Gulf Western Petroleum, LP also entered into a Mortgage, Deed of Trust, Assignment of Production, Security Agreement, Fixture Filing and Financing Statement with respect to certain properties in Texas and Kansas to secure the obligations of Gulf Western under the SPA and the Convertible Notes.

 

In conjunction with the Convertible Notes, Gulf Western issued 300,000 shares of common stock to a placement agent valued at $96,000 ($0.32 per share) and cash fees totaling $256,000. A total of $352,000 was recorded as deferred financing costs, and are being amortized using the effective interest method over the one year life of the debt.  If the Convertible Notes are converted or repaid prior to the maturity date, any unamortized cost at the time of conversion or repayment will be immediately recognized and charged to net income.

 

NOTE 13 – RESTATEMENT

 

Gulf Western concluded that it was necessary to restate its financial results for the fiscal year ended August 31, 2007 to reflect the elimination of the deemed dividend on oil and gas related transactions from presentation on the Consolidated Statement of Operations as the deemed dividend of $3,817,432 did not pertain to a separate class of stock.  As a result of the restatement, “Net loss per share – basic and diluted” decreased from ($0.18) per share to ($0.08) per share, a decrease in the net loss of $0.10 per share.

 

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 SUPPLEMENTAL INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)

The following supplemental unaudited information regarding Gulf Western’s oil and gas activities is presented pursuant to the disclosure requirements of SFAS No. 69.  The standardized measure of discounted future net cash flows is computed by applying fiscal year-end prices of oil and gas to the estimated future production of proved oil and gas reserves, less estimated future expenditures (based on fiscal year-end cost estimates assuming continuation of existing economic conditions ) to be incurred in developing and producing the proved reserves, less estimated future income tax expenses (based on fiscal year-end statutory tax rates) to be incurred on pre-tax net cash flows less tax basis of the properties and available credits, and assuming continuation of existing economic conditions.  The estimated future net cash flows are then discounted using a rate of 10 percent per year to reflect the estimated timing of the future cash flows.

 

Capitalized Costs Relating to Oil and Gas Producing Activities as of August 31, 2007 and 2006:

 

		2007				2006
Proved properties
Mineral interests		$	966,001			$	773,016
Wells, equipment and facilities			-				-
Total proved properties			966,001				773,016
Unproved properties
Mineral interests		$	2,118,275			$	136,987
Uncompleted wells, equipment and facilities			4,831,487				-
Total unproved properties			6,949,762				136,987
Less: accumulated depreciation, depletion and amortization
Net capitalized costs		$	7,915,763			$	910,003

Costs Incurred in Oil and Gas Producing Activities for the Years Ended August 31, 2007 and 2006:

 

		2007				2006
Acquisition of proved properties		$	192,985			$	773,016
Acquisition of unproved properties			1,981,288				136,987
Development costs			-				-
Exploration costs			4,831,487				-
Total costs incurred		$	7,005,760			$	910,003

Results of Operations for Oil and Gas Producing Activities for the Years Ended August 31, 2007 and 2006:

 

Gulf Western generated no revenues and incurred no expenses related to oil and gas producing activities for the years ended August 31, 2007 and 2006.

 

Proved Reserves:

 

Gulf Western’s proved oil and natural gas reserves have been estimated by independent petroleum engineers. Proved reserves are the estimated quantities that geologic and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Proved developed reserves are the quantities expected to be recovered through existing wells with existing equipment and operating methods. Due to the inherent uncertainties and the limited nature of reservoir data, such estimates are subject to change as additional information becomes available. The reserves actually recovered and the timing of production of these reserves may be substantially different from the original estimate. Revisions result primarily from new information obtained from development drilling and production history; acquisitions of oil and natural gas properties; and changes in economic factors. Proved reserves as of August 31, 2007 and 2006 are summarized in the table below:

 

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Proved Developed and Undeveloped Natural Gas and Oil Reserves at August 31, 2007 and 2006 (Mcfe):

 

		2007				2006
Proved undeveloped reserves - beginning of period			4,220,394				-
Petroleum and natural gas lease acreage acquired			-				4,220,394
Extensions, discoveries and improved recovery			-				-
Production			-				-
Revisions of previous estimates			(272,611	)			-
Proved undeveloped reserves - end of period			3,947,783				4,220,394
Proved developed reserves - end of period			-				-

Standardized Measure of Discounted Future Net Cash Flows at August 31, 2007 and 2006:

		2007				2006
Future cash inflows		$	28,609,680			$	29,959,342
Future production costs			(3,255,451	)			(4,104,540	)
Future development costs			(8,692,702	)			(6,730,459	)
Future income taxes			(2,604,004	)			(3,926,340	)
Future net cash flows			14,057,523				15,198,003
10% annual discount for estimated timing of cash flows			(2,889,053	)			(3,778,299	)
Standardized measure of discounted future net cash flows:		$	11,168,470			$	11,419,704

Changes in Standardized Measure of Discounted Future Net Cash Flows for the Years Ended August 31, 2007 and 2006:

 

		2007				2006
Beginning of period		$	11,419,704			$	-
Petroleum and natural gas lease acreage acquired			-				11,419,704
Revisions of quantity estimates			(570,380	)			-
Changes in prices and production costs			705,169				-
Changes in estimated future development costs			(1,762,243	)			-
Net change in income taxes			881,394				-
Timing and other			494,826				-
End of period		$	11,168,470			$	11,419,704

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GULF WESTERN PETROLEUM CORPORATION

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

		November 30, 2007				August 31, 2007
ASSETS
Current assets
Cash		$	82,665			$	1,925
Accounts receivable – joint interest			198,073				198,106
Accounts receivable – related party			-				11,488
Deferred financing costs, net of amortization of $78,115, and $0, respectively			273,885				-
Other current assets			44,138				-
Total current assets			598,761				211,519
Deferred financing costs, net of amortization of $63,138 and $7,015, respectively			-				56,123
Office equipment, net of depreciation of $7,654 and $6,507, respectively			12,038				13,185
Oil and gas properties, full cost method:
Properties subject to amortization, net of amortization of $0 and $0, respectively			2,821,994				1,090,988
Properties not subject to amortization			5,801,178				6,824,775
Total assets		$	9,233,971			$	8,196,590
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable		$	163,892			$	1,065,092
Accounts payable – related parties			40,337				380,148
Advances from stockholder			191,041				417,254
Accrued interest			112,578				15,041
Accrued interest – convertible note related party			16,438				116,712
Convertible notes payable, net of unamortized debt discount of $1,205,330 and $11,290, respectively			2,494,670				238,710
Registration rights penalties			150,000				-
Stock payable			150,000				100,000
Total current liabilities			3,318,956				2,332,957
Convertible note – related party			2,000,000				2,000,000
Convertible notes payable, net of unamortized debt discount of $-0- and $17,536, respectively			25,000				482,464
Asset retirement obligation			51,473				50,949
Total liabilities			5,395,429				4,866,370
STOCKHOLDERS’ EQUITY
Common shares, $0.001 par value, 1.2 billion shares authorized, 56,603,107 and 53,489,662 shares issued and outstanding, respectively			56,603				53,490
Additional paid-in capital			9,487,976				7,093,980
Deficit accumulated during the development stage			(5,706,037)				(3,817,250)
Total stockholders’ equity			3,838,542				3,330,220
Total liabilities and stockholders’ equity		$	9,233,971			$	8,196,590

The accompanying notes are an integral part of these consolidated financial statements.

 

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GULF WESTERN PETROLEUM CORPORATION

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF OPERATIONS

For the Three Months Ended November 31, 2007 and 2006, and

the Period from Inception (January 20, 2005) through November 30, 2007

(Unaudited)

		Three Months Ended   November 30, 2007				Three Months Ended   November 30, 2006				Inception through November 30, 2007
Revenue		$	-			$	-			$	-
Operating expenses
General and administrative			1,222,353				119,845				3,963,802
Depreciation			1,147				675				7,654
Total operating expenses			1,223,500				120,520				3,971,456
Operating loss			(1,223,500	)			(120,520	)			(3,971,456	)
Other (income) expense
Interest income			(736	)			-				(736	)
Interest expense			666,023				21,661				1,334,094
Financing costs			-				-				389,095
Currency exchange (gain) loss			-				(9,994	)			12,128
Total other expense			665,287				11,667				1,734,581
Net loss		$	(1,888,787	)		$	(132,187	)		$	(5,706,037	)

Net loss per share:
Basic and diluted		$	(0.03	)		$	(0.00	)
Weighted average shares outstanding:
Basic and diluted			56,121,956				27,500,000

 

The accompanying notes are an integral part of these consolidated financial statements.

 

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GULF WESTERN PETROLEUM CORPORATION

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF CASH FLOW

For the Three Months Ended November 30, 2007 and 2006 and

the Period from Inception (January 20, 2005) through November 30, 2007

(Unaudited)

		Three Months Ended November 30, 2007				Three Months Ended November 30, 2006				Inception through November 30, 2007
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss		$	(1,888,787	)		$	(132,187	)		$	(5,706,037	)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation			1,147				675				7,654
Foreign currency exchange (gain) loss			-				(9,994	)			12,128
Amortization of debt discount			373,206				-				473,019
Amortization of deferred financing costs			134,238				-				141,253
Bonus shares on notes payable			-				-				400,000
Issuance of shares for services and notes payable			20,887				-				411,387
Amortization of stock option expense			380,512				-				1,119,111
Accretion expense			524				-				524
Net change in:
Accounts receivable – joint interest			33				-				(198,073	)
Accounts receivable – related parties			11,488				-				-
Other assets			(44,138	)			-				(44,138	)
Accounts payable			(901,200	)			(165,762	)			157,936
Accounts payable - related parties			(339,811	)			(3,296	)			40,337
Bank overdraft			-				42,206				-
Accrued interest			97,537				20,359				112,578
Accrued interest – related parties			(100,274	)			-				16,438
Registration rights penalties			150,000				-				150,000
CASH FLOWS USED IN OPERATING ACTIVITIES			(2,104,638	)			(247,999	)			(2,905,883	)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment			-				-				(19,692	)
Investment in oil and gas properties			(707,409	)			(556,493	)			(5,889,106	)
CASH FLOWS USED IN INVESTING ACTIVITIES			(707,409	)			(556,493	)			(5,908,798	)
CASH FLOWS FROM FINANCING ACTIVITIES
Stock subscription advances, net			50,000				-				50,000
Advances from stockholder			(226,213	)			14,156				191,041
Proceeds from private placement unit sales			500,000				-				5,315,000
Proceeds from notes payable			-				540,255				853,276
Proceeds from convertible notes payable			2,819,000				-				3,591,047
Repayment of notes payable			-				(62,500	)			(853,018	)
Repayment of convertible notes payable			(250,000	)			-				(250,000	)
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES			2,892,787				491,911				8,897,346
NET INCREASE (DECREASE) IN CASH			80,740				(312,581	)			82,665
Cash, beginning of period			1,925				312,581				-
Cash, end of period		$	82,665			$	-			$	82,665

Cash paid for:
Interest		$	6,329			$	1,302			$	29,258
Interest – related parties		$	156,466			$	-			$	156,466
Income taxes		$	-			$	-			$	-
Supplemental Schedule of Non-cash Investing and Financing Activities:
Issuance of founders shares		$	-			$	-			$	1,000
Assignment and rescission of oil and gas properties  from parent			-				(460,496	)			-
Common shares issued to acquire oil and gas properties			-				460,496				4,499,549
Convertible note to related party for acquisition of oil and gas interests			-				-				2,000,000
Discount on senior secured convertible notes for beneficial conversion feature of notes, and relative fair value of stock and warrants issued in connection with notes			1,399,710				-				1,399,710
Issuance of common shares to placement agent in connection with senior secured convertible notes			96,000				-				96,000
Issuance of common shares for convertible debentures			-				-				78,477
Asset retirement obligation incurred			-				-				50,949
Fair value of warrants issued with debt			-				-				66,387
Discount on debt for beneficial conversion feature of debentures			-				-				75,390
Deemed dividends on purchase of oil and gas properties from related parties		$	-			$	-			$	3,817,432

 

The accompanying notes are an integral part of these consolidated financial statements.

 

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GULF WESTERN PETROLEUM CORPORATION

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

For the Period from Inception (January 20, 2005)

Through November 30, 2007

(Unaudited)

		Common Shares				Par Amount				Additional Paid-In-Capital				Accumulated Deficit				Total
Issuance of common shares at inception			25,000,000			$	25,000			$	(24,000	)		$	-			$	1,000
Net loss, inception through August 31, 2005			-				-				-				(228,744	)			(228,744	)
Balance, August 31, 2005			25,000,000			$	25,000				(24,000	)		$	(228,744	)		$	(227,744	)
Net loss			-				-				-				(356,382	)			(356,382	)
Balance, August 31, 2006			25,000,000			$	25,000			$	(24,000	)		$	(585,126	)		$	(584,126	)
Issuance of common shares to related party for oil and gas properties
-   October 16, 2006 ($0.09 per share)			5,000,000				5,000				455,496				-				460,496
Balance, January 3, 2007 (prior to reverse merger)			30,000,000			$	30,000			$	431,496			$	(585,126	)		$	(123,630	)
Common shares issued for reverse merger - January 3, 2007 ($0.001 per share)			27,645,000				27,645				(27,645	)			-				-
Cancellation of shares on reverse merger - January 3, 2007 ($0.001 per share)			(15,645,000	)			(15,645	)			15,645				-				-
Balance, January 3, 2007 (after reverse merger)			42,000,000			$	42,000			$	419,496			$	(585,126	)		$	(123,630	)
Issuance of common shares for debenture - January 3, 2007 ($0.73 per share)			108,109				108				78,369				-				78,477
Beneficial conversion feature of debentures			-				-				75,390				-				75,390
Issuance of common shares to related party for oil and gas properties
-   January 30, 2007 ($1.00 per share)			4,039,053				4,039				4,035,014				-				4,039,053
Issuance of units for cash in private placement
-   January 22, 2007 ($1.00 per unit)			3,205,000				3,205				3,201,795				-				3,205,000
-   May 10, 2007 ($1.00 per unit)			525,000				525				524,475				-				525,000
-   August 16, 2007 ($0.40 per unit)			1,712,500				1,713				683,287				-				685,000
-   August 31, 2007 ($0.40 per unit)			1,000,000				1,000				399,000				-				400,000
Issuance of warrants for services in private placement			-				-				13,138				-				13,138

 

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GULF WESTERN PETROLEUM CORPORATION

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY, continued

For the Period from Inception (January 20, 2005)

Through November 30, 2007

(Unaudited)

Deemed dividends on purchase of oil and gas properties from related parties			-				-				(3,817,432	)			-			(3,817,432	)
Issuance of common shares for services
-   May 10, 2007 ($0.72 per share)			500,000				500				359,500				-			360,000
-   August 1, 2007 ($0.31 per share)			100,000				100				30,400				-			30,500
Issuance of common shares under terms of and extension of notes payable
-   May 10, 2007 ($1.00 per share)			200,000				200				199,800				-			200,000
-   August 31, 2007 ($1.00 per share)			100,000				100				99,900				-			100,000
Amortization of stock options			-				-				738,599				-			738,599
Fair value of warrants issued in conjunction with loans			-				-				53,249				-			53,249
Net loss															(3,232,124	)		(3,232,124	)
Balance, August 31, 2007			53,489,662			$	53,490			$	7,093,980			$	(3,817,250	)	$	3,330,220
Intrinsic value of beneficial conversion feature of, and relative fair value of common shares and warrants issued in conjunction with convertible secured notes issued on September 10, 2007			1,500,000				1,500				1,398,210				-			1,399,710
Issuance of common shares for services
- September 10, 2007 ($0.32 per share)			300,000				300				95,700				-			96,000
- September 12, 2007 ($0.32 per share)			51,725				52				16,500				-			16,552
Issuance of common shares under terms of note payable, September 14, 2007 ($0.37 per share)			11,720				11				4,324				-			4,335
Issuance of units for cash in private placement, September 20, 2007 ($0.40 per unit)			1,250,000				1,250				498,750				-			500,000
Amortization of stock options			-				-				380,512				-			380,512
Net loss			-				-				-				(1,888,787	)		(1,888,787	)
Balance, November 30, 2007			56,603,107			$	56,603			$	9,487,976			$	(5,706,037	)	$	3,838,542

The accompanying notes are an integral part of these consolidated financial statements.

 

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GULF WESTERN PETROLEUM CORPORATION

 

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 1 – ORGANIZATION AND BUSINESS OPERATIONS

 

Gulf Western Petroleum Corporation (“Gulf Western”) was incorporated on February 21, 2006 in the State of Nevada as “Georgia Exploration, Inc.”.   The name was changed to Gulf Western on March 8, 2007 .  Gulf Western is engaged in the acquisition, exploration and development of oil and natural gas reserves in the United States .  Gulf Western holds oil and gas lease interests in Texas , Kansas and Kentucky .  Gulf Western is actively engaged in the drilling and development of Frio formation wells located in Dewitt and Lavaca County , Texas ; it holds proved undeveloped reserves in Wharton County , Texas ; and it is engaged in a supply and infrastructure development program in Southeast Kansas .   Gulf Western also holds oil and gas lease interests in the State of Kentucky that are exploratory in nature.

 

On January 3, 2007 , Gulf Western and Wharton Resources Corp. (“ Wharton ” or “Wharton Corp.”) consummated a merger that was effected through a reverse merger with the oil and gas lease interests and reserves held by Wharton becoming the primary core assets of Gulf Western.   Concurrent with the merger, Wharton ’s executive management and directors assumed control and responsibility for Gulf Western’s activities and its strategic direction.   The merger effected a change in control of Gulf Western and immediately following the merger, Wharton’s former stockholders held approximately 71.4% of Gulf Western’s issued and outstanding common shares.

 

For SEC reporting purposes, the merger between Gulf Western and Wharton was treated as a reverse merger with Wharton being the “accounting acquirer” and, accordingly, it assumed Gulf Western’s reporting obligations with the SEC.  In accordance with Securities and Exchange Commission (“SEC”) requirements, the historical consolidated financial statements and related disclosures presented herein for the period prior to the date of merger (i.e., January 3, 2007 ) are those of Wharton since its inception on January 20, 2005 .   In conjunction with the merger, each outstanding share of Wharton was converted into 25,000 common shares in Gulf Western with a total of 30,000,000 common shares issued to the former Wharton stockholders.  Of the 27,645,000 shares of Gulf Western outstanding at the time of the merger, 15,645,000 shares of Gulf Western’s outstanding common stock were cancelled concurrent with the closing of the merger.   Immediately following the merger, a total of 42,000,000 shares of common stock were issued and outstanding.

 

The accompanying unaudited interim consolidated financial statements of Gulf Western have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the SEC, and should be read in conjunction with the audited consolidated financial statements and notes thereto contained in Gulf Western’s Annual Report on Form 10-KSB filed with the SEC on November 29, 2007.  In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the consolidated financial statements which would substantially duplicate the disclosures contained in the audited consolidated financial statements for the most recent fiscal year ending August 31, 2007 as reported in its Form 10-KSB have been omitted.

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NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of presentation

 

Gulf Western’s consolidated balance sheets and related consolidated statements of operations, stockholders’ equity and cash flows for the periods from inception through November 30, 2007 are presented in U.S. dollars and have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the rules of the Securities and Exchange Commission.

 

The accompanying consolidated financial statements are prepared in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 7, Accounting and Reporting by Development Stage Enterprises.

 

Use of estimates

 

The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods.  Actual results could materially differ from those estimates.

 

Management believes that it is reasonably possible the following material estimates affecting the consolidated financial statements could significantly change in the coming year:  (1) estimates of proved oil and gas reserves, and (2) forecast forward price curves for natural gas and crude oil.   The oil and gas industry in the United States has historically experienced substantial commodity price volatility, and such volatility is expected to continue in the future.   Commodity prices affect the level of reserves that are considered commercially recoverable; significantly influence Gulf Western’s current and future expected cash flows; and impact the valuation  of proved reserves.

 

Accounts receivable

 

Gulf Western routinely assesses the recoverability of all material trade, joint interest and other receivables. Gulf Western accrues a reserve on a receivable when, based on the judgment of management, it is probable that a receivable will not be collected and the amount of any reserve may be reasonably estimated. Actual write-offs may exceed the recorded allowance. No allowance for doubtful accounts was considered necessary at November 30, 2007 and August 31, 2007 .

 

Oil and gas properties

 

Gulf Western follows the full cost method of accounting for its oil and natural gas properties, whereby all costs incurred in connection with the acquisition, exploration for and development of petroleum and natural gas reserves are capitalized.  Such costs include lease acquisition, geological and geophysical activities, rentals on non-producing leases, drilling, completing and equipping of oil and gas wells and administrative costs directly attributable to those activities and asset retirement costs.  Disposition of oil and gas properties are accounted for as a reduction of capitalized costs, with no gain or loss recognized unless such adjustment would significantly alter the relationship between capital costs and proved reserves of oil and gas, in which case the gain or loss is recognized to income.

 

Depletion and depreciation of proved oil and gas properties is calculated on the units-of-production method based upon estimates of proved reserves.  Such calculations include the estimated future costs to developed proved reserves.  Oil and gas reserves are converted to a common unit of measure based on the energy content of 6 Mcf of gas to one barrel of oil. Costs of undeveloped properties are not included in the costs subject to amortization. These costs are assessed periodically for impairment.

 

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Ceiling test

 

In applying the full cost method, Gulf Western performs an impairment test (ceiling test) at each reporting date, whereby the carrying value of property and equipment is compared to the estimated present value of its proved reserves discounted at a 10-percent interest rate of future net revenues, based on current economic and operating conditions, plus the cost of properties not being amortized, plus the lower of cost or fair market value of unproved properties included in costs being amortized, less the income tax effects related to book and tax basis differences of the properties.  As of November 30, 2007 , no impairment of oil and gas properties was recorded.

 

Oil and gas properties, not subject to amortization

 

Gulf Western holds oil and gas interests in Texas , Kansas and Kentucky pursuant to lease agreements.  Gulf Western is currently drilling and interconnecting Frio formation wells located in Dewitt and Lavaca County , Texas .  Upon interconnection and commencement of commercial production from the Frio formation wells, Gulf Western will amortize (on a unit-of-production basis) capital costs incurred in the acquisition, geological and geophysical, drilling, development and interconnection of the Frio oil and gas interests that were incurred and that are included in oil and gas properties.   Such amortization will be applied to actual sales of production realized by Gulf Western from its interests in the wells, and will be based on initial estimated proved recoverable reserves.  Estimated proved reserves used in the derivation of the oil and gas properties amortization rate will be further refined by Gulf Western as specific production and decline rates are ascertained,  and ultimate economically recoverable proved reserve quantities are developed by Gulf Western’s petroleum reservoir engineers.

 

The amortization of the oil and gas properties not classified as proved begins when the oil and gas properties become proved, or their values become impaired. Gulf Western assesses the realizability of its properties not characterized as proved on at least an annual basis or when there is or has been an indication that an impairment in value may have occurred.  The impairment of properties not classified as proved is assessed based on management’s intention with regard to future exploration and development of individually significant properties, and Gulf Western’s ability to source capital funding required to finance such exploration and development.   If the result of an assessment indicates that a property is impaired, the amount of the impairment is added to the capitalized costs in its full cost pool and they are amortized over proved reserves.

 

Debt

 

Gulf Western accounts for debt at fair value and recognizes interest expense for accrued interest payable under the terms of the debt.  Principal and interest payments due within one year are classified as current, whereas principal and interest payments for periods beyond one year are classified as long term. Beneficial conversion features of debt are valued and the related amounts recorded as discounts on the debt. Discounts are amortized to interest expense using the effective interest method over the term of the debt. Any unamortized discount upon settlement or conversion of debt is recognized immediately as interest expense.

 

Asset retirement obligations

 

In accordance with SFAS No. 143, “Accounting for Asset Retirement Obligations” Gulf Western records the fair value of a liability for asset retirement obligations (“ ARO ”) in the period in which an obligation is incurred and a corresponding increase in the carrying amount of the related long-lived asset. The present value of the estimated asset retirement cost is capitalized as part of the carrying amount of the long-lived asset and is depreciated over the useful life of the asset.  The settlement date fair value is discounted at Gulf Western’s credit adjusted risk-free rate in determining the abandonment liability.  The abandonment liability is accreted with the passage of time to its expected settlement fair value. At November 30, 2007 Gulf Western has recorded an estimated asset retirement obligation of $51,473, and an accretion expense totaling $524 was recorded during the quarter ending November 30, 2007 .   No liabilities were settled during the period.

 

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Revenue and cost recognition

 

Gulf Western uses the sales method to account for sales of crude oil and natural gas.  Under this method, revenues are recognized based on actual volumes of oil and gas sold to purchasers. The volumes sold may differ from the volumes to which Gulf Western is entitled based on our interest in the properties. These differences create imbalances which are recognized as a liability only when the imbalance exceeds the estimate of remaining reserves.  Gulf Western had no production, revenue or imbalances as of November 30, 2007 and August 31, 2007 .  Costs associated with production are expensed in the period incurred.

 

NOTE 3 – GOING CONCERN

 

Gulf Western is in its development stage and, accordingly, has limited operations and revenues.  Gulf Western has raised a combination of secured and unsecured debt and equity financing and it has incurred operating losses since its inception.  These factors raise substantial doubt about Gulf Western’s ability to continue as a going concern.   Gulf Western’s ability to achieve and maintain profitability and sustainable positive cash flows is dependent on its ability to source sufficient financing to fund the acquisition, drilling and development of existing and future oil and gas interests.   Management is seeking financing that it believes would allow Gulf Western to establish and sustain commercial production.   There are no assurances that Gulf Western will be able to obtain additional financing from investors or private lenders and, if available, such financing may not be on commercial terms acceptable to Gulf Western or its stakeholders.  The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

NOTE 4 - RELATED PARTY TRANSACTIONS

 

During Gulf Western’s formation and development to date, it has had transactions with the current directors, executive officers and shareholders holding interests in excess of 10.0%. These transactions are as follows:

 

Mound Branch Project, Elk County , Kansas

 

On January 30, 2007 , Gulf Western purchased Orbit Energy, LLC’s (“Orbit”) working and net revenue interests in approximately 8,800 gross acres located in Elk County, Kansas together with its interests in drilled wells and associated equipment (the “Mound Branch Project”). Gulf Western’s purchase price totaled $6.8 million, and consideration paid to Orbit was comprised of: a) $760,947 of funds advanced by Gulf Western to Orbit for testing and evaluation of the existing well bores, reservoir formations and associated lease acreage; b) a thirty-six month $2.0 million 10% convertible note with principal due at maturity; and c) 4,039,053 common shares of Gulf Western with a fair value of $1.00 per common share at the time of issuance.

 

The Gulf Western shares issued to Orbit for the purchase were placed in escrow (“Orbit Escrow Shares”) to be released upon Orbit's delivery to the escrow agent of an independent report assessing the fair value of the purchased assets at no less than the purchase price of $6.8 million.  Should the valuation be less than the $6.8 million purchase price, then the number of shares to be released from escrow will be ratably reduced for the lower valuation.  Gulf Western shares remaining in escrow at the end of the twelve month period ending January 30, 2008 are to be cancelled and returned to Gulf Western’s treasury.   To date no shares have been released from escrow.

 

In accordance with SEC requirements and for financial reporting purposes, the acquisition of the Mound Branch Project from Orbit was treated as a transaction between entities under common control and recorded on Gulf Western’s records at Orbit’s historical cost in acquired assets of $3,227,568.  The difference between the $6.8 million purchase price and Orbit’s historical cost in the assets was recorded by Gulf Western as a deemed dividend which totaled $3,572,432.

 

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Orbit is controlled by entities owned and managed by significant shareholders of Gulf Western, who are also directors and senior officers of Gulf Western.  Wm. Milton Cox and Bassam Nastat collectively own 100% of Orbit through Mr. Cox’s ownership of CodeAmerica Investments LLC (“CodeAmerica”), and Mr. Nastat’ management of Paragon Capital, LLC (“Paragon”). Mr. Cox’s, Gulf Western’s Chairman and CEO , and Mr. Nastat’s, Gulf Western’s President and Director, current direct and indirect common share holdings in Gulf Western total approximately 26.5 million shares or 46.8% of the current issued and outstanding common shares.   Messrs.   Cox and Nastat through their director and senior officer positions in Gulf Western and their common share holdings in Gulf Western collectively exercise substantive control over Gulf Western.

 

Immediately prior to the acquisition of Mound Branch from Orbit on January 30, 2007 , Messrs.   Cox and Nastat held a combined 22.5 million common shares, or 49.6% of the then issued and outstanding common shares of Gulf Western.   The 4,039,053 common shares issued to Orbit increased their direct and indirect holdings in Gulf Western to 52.5% of the then issued and outstanding common shares.  Should the independent fair market appraisal of the assets acquired be less than the purchase price, the shares of common stock released to Orbit will be ratably reduced for the lower valuation, and Messrs. Cox’s and Nastat’s direct and indirect combined holdings in Gulf Western will be reduced.

 

Orbit served as operator of the Mound Branch Project at the time of Gulf Western’s acquisition of the oil and gas interests from Orbit.  Since the acquisition of the Mound Branch interests, Gulf Western has been funding 100% of the costs billed by Orbit for the testing and evaluation of the existing well bores, reservoir formations and associated lease acreage together with bearing 100% of the joint interest billings.  As of November 30, 2007 , the share of costs not attributable to Gulf Western’s working interest ownership in the properties are recorded as a receivable from the joint interest partners in the amount of $198,073.  Gulf Western expects to recover this amount from the other working interest owners in the Mound Branch Project.

 

In addition to the $760,747 paid by Gulf Western and applied as consideration against the purchase price from Orbit, Orbit has billed to Gulf Western $636,684, of which $7,909 remains outstanding and is recorded as a payable to related party as of November 30, 2007 .  In the aggregate Gulf Western has incurred costs totaling $1,397,431 on the testing and evaluation of the Mound Branch Project of which $1,389,522 has been remitted to Orbit.

 

Gulf Western is continuing with its Mound Branch Project reserve and infrastructure development program, and continues to pursue financing principally through project financing and joint interest participation to fund the next phases of the project.

 

Advances from Stockholder

 

From time to time during Gulf Western’s development, stockholders have expended amounts on behalf of Gulf Western and loaned the Company funds to meet operating and capital requirements.  During the three months ended November 30, 2007 , Gulf Western repaid CodeAmerica $120,000 for cash advances made to Gulf Western in May and April 2007, and remitted $106,213 to CodeAmerica for unpaid fees for services and expenses that were outstanding at August 31, 2007 .  Amounts totaling $191,041 for expenditures paid on behalf of Gulf Western by CodeAmerica remain outstanding at November 30, 2007 .  The cash advances are due on demand.

 

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NOTE 5 – OIL AND   GAS PROPERTIES

 

All of Gulf Western’s oil and gas properties are located in the United States .  No amortization of expense has been recorded by Gulf Western since its inception as no production or sales has occurred through the period ending November 30, 2007 .

 

Oil and gas property costs classified as “Properties subject to amortization” at November 30, 2007 total $2,821,994 and are principally associated with Gulf Western’s investment in the Oakcrest prospect located in Wharton County, Texas, and its capital investments in the Shamrock Frio formation project located in Dewitt County, Texas. Amortization of these costs will commence upon the establishment of initial production by Gulf Western.  Gulf Western holds interests in five Shamrock wells that commenced commercial production in December 2007.  The total oil and gas properties costs classified as “Properties subject to amortization” will be amortized on a unit of production basis over the estimated future recoverable proved reserves under the full cost method of accounting.

 

Oil and gas property costs excluded from amortization at November 30, 2007 , and identified on the consolidated balance sheet as “Properties not subject to amortization”, are as follows:

 

Fiscal Year Incurred		Acquisition Costs				Exploration Costs				Total
2006		$	12,000			$	-			$	12,000
2007			1,422,666				3,661,996				5,084,662
2008			70,672				633,844				704,516
Total		$	1,505,339			$	4,295,839			$	5,801,178

The above oil and gas property costs not subject to amortization are associated with Gulf Western’s investments in the Brushy Creek Frio formation project located in Lavaca County , Texas ; the Mound Branch project in Elk County , Kansas ; and the Bell and Baxter   Bledsoe prospects in the State of Kentucky . Gulf Western expects that the execution of its fiscal year 2008 capital investment program, including further technical and commercial evaluations conducted therewith, will result in the majority of the property costs currently categorized as “Properties not subject to amortization” being attributed to proved reserves, and accordingly re-classified to “Properties subject to amortization” upon such determination.

 

NOTE 6 – SECURED CONVERTIBLE NOTES PAYABLE

 

Senior Secured Convertible Notes Payable

 

On September 10, 2007 , Gulf Western entered into a Security Purchase Agreement (the “ SPA ”) with two lenders under which Gulf Western borrowed a total of $3,700,000 under Senior Secured Convertible Notes (the “Convertible Notes”) with Metage Funds Limited (“Metage”) and NCIM Limited (“NCIM”).  Gulf Western borrowed $3,200,000 from Metage and $500,000 from NCIM.  Pursuant to the SPA , Gulf Western issued 1,500,000 common shares and issued 3,461,538 warrants to purchase shares of common stock in Gulf Western at an exercise price of $0.26 per share for a period of five years.  The Convertible Notes and related interest are convertible into common shares of Gulf Western at a price of $0.39 per common share at or before maturity.   The Convertible Notes bear interest at 15% per annum, and mature on September 10, 2008 .  Interest for the first six months is due on March 10, 2008 and is payable monthly thereafter; with the total principal balance due at maturity.  The total $3,700,000 Convertible Notes may be prepaid at any time after the six month anniversary of the Convertible Notes with a 2.5% prepayment penalty.  Gulf Western received net proceeds of $2,944,000 (after $256,000 of placement fees) and the exchange of the $500,000 NCIM Convertible Secured Note issued on July 3, 2007 for $500,000 of the Convertible Notes.

 

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In conjunction with the SPA , Gulf Western entered into a registration rights agreement (the “Registration Rights Agreement”) with the lenders pursuant to which Gulf Western was required to: (i) file a registration statement with the Securities and Exchange Commission with respect to the Common Stock issued under the SPA and the Common Stock issuable upon exercise of the Warrants and conversion of the Senior Secured Convertible Notes within 60 days after September 12, 2007; and to: (ii) cause such registration statement to be declared effective under the Securities Act of 1933, as amended, and the rules promulgated there under, not later than 150 days after September 12, 2007.   If such registration statement is not filed by the 60th day after September 12, 2007, (November 12, 2007), or the registration statement is not declared effective on or prior to the 150th day after September 12, 2007, liquidated damages in the form of registration rights penalties, calculated based on a prescribed formula in the SPA , in the maximum amount of $150,000 will be due to the lenders.   Gulf Western evaluated the terms and the filing and effectiveness time requirements provided for in the Registration Rights Agreement and determined that the incurrence of the registration rights penalties was probable and that the financial obligation could be estimated at the time the SPA, Registration Rights Agreement and other transaction documents were executed.  Gulf Western estimates that the maximum registration rights penalties of $150,000 is probable, and the registration rights penalties were accounted for in accordance with FASB Staff Position No. EITF 00-19-2 whereby the contingent liability of $150,000 was accrued as a current liability in the consolidated balance sheet and included in the allocation of the proceeds from the financing transaction.  This resulted in an increase to the debt discount on the issuance of the Convertible Notes by $150,000 which will be amortized using the effective interest method over the twelve month term of the Convertible Notes.

 

Gulf Western evaluated the terms of the Convertible Notes, the issuance of common stock and attached warrants in accordance with EITF 98-5 and EITF 00-27, and concluded that the intrinsic value of the conversion feature of the Convertible Notes represented a beneficial conversion feature in the amount of $426,137.   The relative fair value of the warrants and common shares issued were $646,791 and $326,782, respectively as derived through the Black-Scholes option pricing model.   The total discount of $1,399,710 associated with the intrinsic value of the beneficial conversion feature, and the relative fair value of the warrants and stock is being amortized to interest expense using the effective interest method over the twelve month term of the Convertible Notes.  The total debt discount, including the registration rights penalties, on the issuance of the Convertible Notes was $1,549,710.

 

The principal assumptions used in the Black-Scholes valuation model to determine the intrinsic value of the conversion feature of the Convertible Notes and the relative fair value of the warrants and common shares issued were: a risk-free interest rate of 4.0%; the current stock price on the date of issuance of $0.32 per common share; the exercise price of the warrants of $0.26 per share; expected warrant term of five years; conversion price of $0.39 per common share,  volatility of 121.16%; and a dividend yield of 0.0%.

 

The Convertible Notes are secured by a lien on substantially all of the assets of the Gulf Western, including all of the equity interests of the Gulf Western’s subsidiaries and the Gulf Western’s rights in certain real property, pursuant to the terms of a Security Agreement and Pledge Agreement entered into in connection with the closing of transactions under the SPA . In addition, Gulf Western Petroleum, LP, Wharton Resources Corp. and Wharton Resources LLC, each a wholly-owned subsidiary of Gulf Western, entered into a Guaranty with the Buyers, whereby each of the subsidiaries guaranteed the payment and performance of all obligations of Gulf Western under the Convertible Notes and terms of the SPA .  Gulf Western Petroleum, LP also entered into a Mortgage, Deed of Trust, Assignment of Production, Security Agreement, Fixture Filing and Financing Statement with respect to certain properties in Texas and Kansas to secure the obligations of Gulf Western under the SPA and the Convertible Notes.

 

In conjunction with the Convertible Notes, Gulf Western issued 300,000 shares of common stock to a placement agent valued at $96,000 ($0.32 per share) and cash fees totaling $256,000.  A total of $352,000 was recorded as deferred financing costs, and are being amortized using the effective interest method over the one year life of the debt.  During the three months ended November 30, 2007 , deferred financing costs of $78,115 were charged to interest expense associated with the issuance of the Convertible Notes.  If the Convertible Notes are converted or repaid prior to the maturity date, any unamortized cost at the time of conversion or repayment will be immediately recognized and charged to net income.

 

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Convertible Secured Note

 

On July 3, 2007 , Gulf Western borrowed $500,000 under an eighteen-month convertible secured note from NCIM with a maturity date of January 3, 2009 .   Under the terms of the convertible note, principal repayments were scheduled to commence in October 2007 at $33,333 per month and the note bore interest at a rate of 12.0% per annum, payable quarterly.   The note provided the lender the right to convert all or part of the outstanding balance into shares of common stock at a conversion rate of $0.45 per share, and could be repaid by Gulf Western at any time at 105% of the then outstanding principal and accrued interest.  In conjunction with the Convertible Notes issued September 10, 2007 , this note was exchanged for the NCIM Convertible Note.

 

Short-Term Convertible Note

 

On September 14, 2007 , Gulf Western repaid in full $250,000 under a short term convertible note payable issued in June 2007 to a private investor.  Gulf Western paid $6,329 in interest in connection with the repayment of the note.

 

Orbit Energy, LLC Mound Branch Convertible Note

 

As consideration to Orbit Energy, LLC for Gulf Western’s purchase of its interests in the Mound Branch Project, Gulf Western issued a thirty-six month $2.0 million unsecured convertible note dated January 30, 2007 with principal due at maturity, bearing interest at 10.0% per annum due quarterly in arrears (the “Orbit Note”).   Pursuant to the terms of the Orbit Note, after the initial twelve months: a) Orbit has the ability to convert the outstanding principal and interest balance into common shares at a conversion price of $1.00 per common share, and b) Gulf Western may prepay all or a portion of the convertible loan without penalty.   In the event of a change in control of Gulf Western, the maturity of the unsecured Orbit Note is accelerated and $2.0 million and accrued interest becomes due.

 

On July 3, 2007 , Gulf Western and Orbit amended the Orbit Note to provide that interest payable by Gulf Western for the first quarter on the note was deferred until the interest due date for the second quarter. Accrued interest through October 31, 2007 totaling $150,137 was paid by Gulf Western to Orbit on November 20, 2007 .  At November 30, 2007 the outstanding principal under the note is $2.0 million and accrued interest totals $16,438.

 

NOTE 7 – STOCKHOLDERS’ EQUITY

 

Issuance of Common Shares and Warrants In Private Placement Offerings

 

On September 20, 2007 , Gulf Western completed a private placement transaction for 1,250,000 units at a price of $0.40 per unit for aggregate proceeds of $500,000.  Each unit consisted of one common share, one Class C Warrant and one Class D Warrant.  Each Class C Warrant may be exercised at a price of $0.65 per share for a period of 3 years to acquire one additional share of common stock of Gulf Western.   Each Class D Warrant may be exercised at a price of $2.00 per share for a period of three years to acquire one additional share of common stock.

 

The relative fair value of the common shares and the Class C and Class D Warrants for the private placement transactions closed on September 20, 2007 , was as follows:

 

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Securities Issued		Relative Fair Value
Common Shares (1,250,000 shares)		$	265,918
Class C Warrants (1,250,000 shares)			145,384
Class D Warrants (1,250,000 shares)			88,698
Total placement		$	500,000

The relative fair value of the Class C and Class D Warrants issued in connection with the units sold were estimated using the Black-Scholes valuation model.   The parameters used in the Black-Scholes valuation model were: a risk-free interest rate of 4.19%; the current stock price on the date of issuance of $0.33 per common share; the exercise price of the warrants of $0.65 and $2.00 per share, respectively; expected terms of three years; volatility of 108%; and a dividend yield of 0.0%.

 

Shares Issued for Services

 

During the three months ended November 30, 2007 , Gulf Western issued 51,725 common shares to consultants for their services to Gulf Western.  The shares issued for services were valued at $16,552, which was determined based on the share price on the date that Gulf Western became obligated to issue the shares to the consultants.

 

NOTE 8 – WARRANTS

 

Warrants outstanding and exercisable as of November 30, 2007 , are summarized below:

 

		Exercise				Weighted Average Remaining				Number of Warrants
Description		Price				Life (years)				Outstanding				Exercisable
Series A – Convertible unsecured debentures		$	1.25				0.10				85,000				85,000
Class A Warrants issued in private placements		$	2.00				2.42				6,442,500				6,442,500
Class B Warrants issued in private placements		$	3.00				2.42				6,442,500				6,442,500
Class C Warrants issued in private placements		$	0.65				2.81				1,250,000				1,250,000
Class D Warrants issued in private placements		$	2.00				2.81				1,250,000				1,250,000
Warrants issued in connection with senior secured convertible note		$	0.26				4.79				3,461,538				3,461,538
Convertible Secured Note		$	0.30				2.59				125,000				125,000
Short Term Note		$	0.32				2.58				200,000				200,000
Placement agent warrants		$	0.40				1.60				100,000				100,000
Total											19,356,538				19,356,538

No warrants were exercised, cancelled or expired during the three months ended November 30, 2007 .  On November 30, 2007 , Gulf Western ’ s common share price closed at $0.41 per share. The intrinsic value of warrants outstanding as of November 30, 2007 was $551,981.

 

NOTE 9-- Subsequent Event

 

Extension of Mound Branch Acquisition Valuation Report

 

On January 30, 2008, Gulf Western extended the due date to April 30, 2008 of the independent report assessing the fair value of the purchased assets that is required to be delivered by Orbit to obtain release of the Orbit Escrow Shares in connection with the purchase of the Mound Branch project. In exchange for the extension, Orbit agreed to defer until April 30, 2008 the quarterly interest payment of 50,000 which was initially due on January 31, 2008.

 

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Appendix A

 

GLOSSARY OF TERMS

 

The following is a description of the meanings of some of the industry terms used and not otherwise defined in this Form SB-2.

 

3-D seismic . Geophysical data that depict the subsurface strata in three dimensions. 3-D seismic typically provides a more detailed and accurate interpretation of the subsurface strata than 2-D, or two-dimensional, seismic.

 

Completion . The process of treating a drilled well followed by the installation of permanent equipment for the production of natural gas or oil, or in the case of a dry hole, the reporting of abandonment to the appropriate agency.

 

Developed acreage . The number of acres that are allocated or assignable to productive wells or wells capable of production.

 

Dry hole . A well found to be incapable of producing hydrocarbons in sufficient quantities such that proceeds from the sale of such production exceed production expenses and taxes.

 

Exploratory well .  A well drilled to find and produce natural gas or oil reserves not classified as proved, to find a new reservoir in a field previously found to be productive of natural gas or oil in another reservoir or to extend a known reservoir.

 

Field .  An area consisting of either a single reservoir or multiple reservoirs, all grouped on or related to the same individual geological structural feature and/or stratigraphic condition.

 

Gross acres . The total acres in which a working interest is owned.

 

Mcf . Thousand cubic feet of natural gas.

 

Mcfc. Thousand cubic feet equivalent

 

MMcf .  Million cubic feet of natural gas.

 

Net acres or net wells . The sum of the fractional working interest owned in gross acres or gross wells, as the case may be.

 

Proved reserves . The estimated quantities of oil, natural gas and natural gas liquids which geological and engineering data demonstrate with reasonable certainty to be commercially recoverable in future years from known reservoirs under existing economic and operating conditions.

 

Undeveloped acreage . Lease acreage on which wells have not been drilled or completed to a point that would permit the production of commercial quantities of oil and natural gas regardless of whether such acreage contains proved reserves.

 

Working interest .  The operating interest that gives the owner the right to drill, produce and conduct operating activities on the property and receive a share of production and requires the owner to pay a share of the costs of drilling and production operations.

 

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15,971,928 Shares

 

Common Stock

 

Preliminary Prospectus

 

, 2008

 

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PART II – INFORMATION NOT REQUIRED IN PROSPECTUS

Item 24.

Indemnification of Directors and Officer

 

As authorized by Section 78.751 of the Nevada Revised Statutes, we may indemnify our officers and directors against expenses incurred by such persons in connection with any threatened, pending or completed action, suit or proceedings, whether civil, criminal, administrative or investigative, involving such persons in their capacities as officers and directors, so long as such persons acted in good faith and in a manner which they reasonably believed to be in our best interests. If the legal proceeding, however, is by or in our right, the director or officer may not be indemnified in respect of any claim, issue or matter as to which he is adjudged to be liable for negligence or misconduct in the performance of his duty to us unless a court determines otherwise.

 

Under Nevada law, corporations may also purchase and maintain insurance or make other financial arrangements on behalf of any person who is or was a director or officer (or is serving at our request as a director or officer of another corporation) for any liability asserted against such person and any expenses incurred by him in his capacity as a director or officer. These financial arrangements may include trust funds, self-insurance programs, guarantees and insurance policies.

 

Our bylaws provide that our officers and directors shall be indemnified and held harmless against all losses, claims, damages, liabilities, expenses (including attorney’s fees), judgments, fines, settlements, and other amounts actually and reasonably incurred in connection with any proceeding, arising by reason of the fact that such person is or was a director or officer, or he or she was serving at our request as a director, officer, partner, trustee, employee or agent.  However, such indemnity shall not apply if the director did not (a) act in good faith and in a manner the director reasonably believed to be in or not opposed to our best interests, and (b) with respect to any criminal action or proceeding, have reasonable cause to believe the director’s conduct was lawful. We will advance expenses for such persons pursuant to the terms set forth in the bylaws, or in a separate board resolution or contract.

 

Such indemnification shall continue as to an indemnitee who has ceased to be our director or officer and shall inure to the benefit of the indemnitee’s heirs, executors and administrators.

 

The effect of these provisions is potentially to indemnify our directors and officers from all costs and expenses of liability incurred by them in connection with any action, suit or proceeding in which they are involved by reason of their affiliation with us.

 

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.

 

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Item 25.

Other Expenses of Issuance and Distribution

 

The following table sets forth the various expenses, all of which will be borne by us, in connection with the sale and distribution of the securities being registered, other than the underwriting discounts and commissions.  All amounts shown are estimates except for the SEC registration fee.

 

Securities and Exchange Commission registration fee		$	175
Accounting fees and expenses		$	30,000
Legal fees and expenses		$	65,000
Printing and engraving expenses		$	20,000
Miscellaneous		$	10,000
Total		$	125,175

 

Item 26.

Recent Sale of Unregistered Securities

 

On September 27, 2007, our board of directors confirmed and ratified the issuance of shares of our common stock, and warrants exercisable for shares of our common stock in various transactions during the period June 28, 2007 through September 27, 2007.  The first issuance related to subscriptions that we received from two investors for an aggregate of 1,250,000 Units at a price of $0.40 per Unit, with aggregate proceeds of $500,000.  Each Unit consists of one share of our common stock, one Class C Warrant and one Class D Warrant.  Each Class C Warrant may be exercised at a price of $0.65 for a period of 3 years to acquire one additional share of our common stock.  Each Class D Warrant may be exercised at a price of $2.00 for a period of three years to acquire one additional share of our common stock.    The second issuance related to a note issued effective June 28, 2007 to a private investor for an aggregate of $250,000.  The note was repaid on September 14, 2007.  In connection with the issuance of the note, we issued the investor a warrant to acquire 200,000 shares of our common stock at an exercise price of $0.32 per share.  The warrant is exercisable for three years.  The third issuance related to the issuance of 100,000 shares effective August 1, 2007 to an individual for services rendered for us in connection with our Brushy Creek prospect.  The fourth issuance related to the issuance of 11,720 shares to an individual pursuant to the terms of a convertible loan agreement between us and a privte investor.  The loan was for an aggregate of $25,000, has a term of nineteen months and accrues interest at a rate of 12.0% per year.  The fifth issuance was for 100,000 shares of our common stock as pursuant to the terms of a loan agreement between us and a lender whereby the lender advanced a total of $80,000 to one of our subsidiaries.  The final issuance was for 51,725 shares pursuant to the terms of a Joint Marketing Agreement between us and RedChip Companies, Inc. and we have an obligation to make subsequent quarterly issuances of $15,000 worth of our common stock to RedChip.  All of the shares of common stock and warrants issued were to accredited investors pursuant to exemptions under the Securities Act and the rules and regulations promulgated thereunder, including pursuant to Sections 4(2) and 4(6) and Rule 506 of Regulation D.

On September 12, 2007, we issued 1,000,000 Units at a price of $0.40 per Unit, with each Unit consisting of one share of our common stock of the Issuer, one Class A Warrant, and one Class B Warrant, for aggregate proceeds of $400,000.  Each Class A Warrant may be exercised at a price of $2.00 for a period of 3 years to acquire one additional common share of the Issuer.  Each Class B Warrant may be exercised at a price of $3.00 for a period of 3 years to acquire one additional common share of the Issuer. The securities were sold to non-US persons pursuant to Regulation S and to an accredited investor pursuant to Rule 506 of Regulation D under the Securities Act.

On September 10, 2007, we entered into a Securities Purchase Agreement with Metage Funds Limited and NCIM Limited (together, the “Buyers”), pursuant to which, among other things, we sold to the Buyers (1) 1,500,000 shares of our common stock, par value $0.001 per share, (2) senior secured convertible notes in an original aggregate principal amount of $3,700,000, and (3) a warrant  to purchase up to an aggregate of 3,461,538 shares of the Common Stock at an exercise price of $0.26 per share, subject to certain adjustments to the number of shares and the exercise price described in the warrant.  In addition, we issued 300,000 shares of our common stock and a warrant to acquire 100,000 shares of our common stock at an exercise price of $0.40 per share to Vicarage Capital Limited for services rendered to us in connection with the Securities Purchase Agreement.  The warrant is exercisable for two years.  The securities were sold pursuant to the exemption from the registration requirements of the Securities Act provided by Rule 506 of Regulation D.

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On August 16, 2007, we issued 1,712,500 Units at a price of $0.40 per Unit, with each Unit consisting of one share of our common stock, one Class A Warrant, and one Class B Warrant, for aggregate proceeds of $685,000.  Each Class A Warrant may be exercised at a price of $2.00 for a period of 3 years to acquire one additional common share of the Issuer.  Each Class B Warrant may be exercised at a price of $3.00 for a period of 3 years to acquire one additional common share of the Issuer. The securities were sold pursuant to exemptions under the Securities Act and the rules and regulations promulgated thereunder, including pursuant to Sections 4(2) and 4(6) and Rule 506 of Regulation D.

On July 3, 2007, we entered into a convertible secured loan agreement with a private lender with a principal balance of $500,000 and a maturity date of January 3, 2009.  Principal payments commence in the third month with 1/15th of the loan amount, or $33,333 per month, until repaid.  The loan bears interest at 12.0% per annum payable quarterly in arrears, and may be repaid in portion or all by us at any time at 105%.  The lender has the right to convert any or all of the outstanding balance into shares of our common stock at a conversion rate of $0.45 per common share during the loan term, and the loan agreement provides for best efforts piggy back registration.  In connection with the convertible loan, we also issued a warrant to acquire for 125,000 shares of our common stock at $0.30 per common share.  The securities were sold pursuant to exemptions under the Securities Act and the rules and regulations promulgated thereunder, including pursuant to Sections 4(2) and 4(6) and Rule 506 of Regulation D.

On May 10, 2007, we sold 525,000 units at a price of $1.00 per unit for gross cash proceeds of $525,000.  Each unit consists of a share of our common stock, one Class A warrant, and one Class B warrant, for aggregate proceeds of $525,000.  Each Class A warrant may be exercised at a price of $2.00 for a period of 3 years to acquire one additional share of our common stock.  Each Class B warrant may be exercised at a price of $3.00 for a period of 3 years to acquire one additional share of our common stock. The securities were sold pursuant to exemptions under the Securities Act and the rules and regulations promulgated thereunder, including pursuant to Sections 4(2) and 4(6) and Rule 506 of Regulation D.

On May 10, 2007, we issued 200,000 shares of our common stock as pursuant to the terms of loan agreements between us and two lenders whereby the lenders advanced an aggregate of $500,000 to one of our subsidiaries.  The securities were sold pursuant to exemptions under the Securities Act and the rules and regulations promulgated thereunder, including pursuant to Sections 4(2) and 4(6) and Rule 506 of Regulation D.

On May 10, 2007 the Registrant issued 500,000 shares of common stock to a consultant as compensation pursuant to the terms of a financing advisor consulting agreement. The securities were sold pursuant to exemptions under the Securities Act and the rules and regulations promulgated thereunder, including pursuant to Sections 4(2) and 4(6) and Rule 506 of Regulation D.

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On February 1, 2007, we issued 4,039,053 shares of our common stock and a $2,000,000 convertible debenture to Orbit as consideration for the acquisition of certain oil and gas interests. The shares were issued pursuant to Section 4(2) of the Securities Act.

On January 22, 2007, we completed and closed a private placement transaction for $3,205,000 units at a price of $1.00 per unit for aggregate net proceeds of $3,205,000. Each unit consisted of one share of our common stock, one Class A warrant and one Class B warrant.  Each Class A warrant is exercisable for shares of our common stock at a price of $2.00 per share for a period of three years.  Each Class B warrant is exercisable for shares of our common stock at a price of $3.00 per share for a period of three years.   The securities were sold pursuant to exemptions under the Securities Act and the rules and regulations promulgated thereunder, including pursuant to Sections 4(2) and 4(6) and Rule 506 of Regulation D.

In connection with the merger between us and Wharton, each outstanding share of Wharton held by its stockholders was converted into 25,000 shares of our common stock, for an aggregate issuance of 25,000,000 shares of common stock to the former Wharton stockholders. The securities were sold pursuant to exemptions under the Securities Act and the rules and regulations promulgated thereunder, including pursuant to Sections 4(2) and 4(6) and Rule 506 of Regulation D.

On January 3, 2007, the date of the merger, three unsecured convertible debentures issued on March 13, 2006, with total principal of $78,477, were converted into our common stock. On January 3, 2007 the outstanding principal and interest due under the debentures was converted into 108,109 shares of our common stock, and we issued 85,000 warrants in total to all debenture holders. The warrants have a 12-month term and an exercise price of $1.25 per common share. The securities were sold pursuant to exemptions under the Securities Act and the rules and regulations promulgated thereunder, including pursuant to Sections 4(2) and 4(6) and Rule 506 of Regulation D.

 

On October 16, 2006, we acquired oil and natural gas lease interests held in Wharton County, Texas from CodeAmerica in exchange for 5,000,000 shares of our common stock. The acquisition of the oil and natural gas lease acreage was recorded at CodeAmerica’s cost basis of approximately $460,500.  The securities were sold pursuant to exemptions under the Securities Act and the rules and regulations promulgated thereunder, including pursuant to Sections 4(2) and 4(6) and Rule 506 of Regulation D.

 

Item 27.

Index to Exhibits.

 

2.1		Agreement and Plan of Merger among Georgia Exploration, Inc., Wharton Resources Corp., Gex Acquisition Corp. and CodeAmerica Investments LLC, Bassam Nastat, Harbour Encap LLC dated as of November 21, 2006 (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on November 29, 2006).
3.1		Articles of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement (Registration No. 333-133759) on Form SB-2 filed on May 3, 2006).
3.2*		Certificate of Change to Article of Incorporation of the Company.
3.3		Certificate of Amendment to Article of Incorporation of the Company (incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement (Registration No. 333-141234) on Form S-8 filed on March 12, 2007).
3.4		Bylaws of the Company (incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement on Form 8-A filed on November 9, 2006).
4.1		Specimen Stock Certificate (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form 8-A filed on November 9, 2006).
`
4.2+		2007 Non-Qualified Stock Option  Plan (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement (Registration No. 333-141234) on Form S-8 filed on  March 12, 2007).

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5.1		Opinion of Ricesilbey Revther & Sullivan., with respect to legality of the securities, including consent.
10.1		Property Acquisition Agreement between the Company and Shaheen Jivraj-Sangara dated as March 2, 2006 (incorporated by reference to Exhibit 10.1 to the Company’s Registration Statement on Form SB-2 (Registration No. 333-133759 ) filed on May 3, 2006)
10.2		Trust Agreement between the Company and Shaheen Jivraj-Sangara dated as March 2, 2006 (incorporated by reference to Exhibit 10.2 to the Company’s Registration Statement on Form SB-2 (Registration No. 333-133759) filed on May 3, 2006)
10.3		Purchase and Sale Agreement between CodeAmerica Investments, LLC and Wharton Resources LP dated effective October 1, 2006 (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-QSB filed on January 22, 2007).
10.4		Purchase and Sale Agreement between CodeAmerica Investments, LLC and Wharton Resources LP dated effective February 1, 2006 (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-QSB filed on January 22, 2007).
10.5		Purchase and Sale Agreement between Orbit Energy, LLC and Wharton Resources LP dated effective September 1, 2006 (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-QSB filed on January 22, 2007).
10.6		Assignment of Oil and Gas Mineral Leases by and between CodeAmerica Investments, LLC and Wharton Resources LP for its oil and gas lease interests located in Wharton County, Texas dated effective April 28, 2006 (incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-QSB filed on January 22, 2007).
10.7		Purchase and Sale Agreement between Orbit Energy, LLC and Wharton Resources LP dated effective January 30, 2007 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on February 5, 2007).
10.8		Convertible Unsecured Promissory Note issued by the Company to Orbit Energy, LLC dated January 30, 2007 (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on February 5, 2007).
10.9		Assignment of Working Interest in Oil and Gas Wells Mound Branch Prospect dated January 30, 2007 (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on February 5, 2007).
10.10		Assignment of Oil and Gas Mineral Leases Elk County, Kansas dated January 30, 2007 (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on February 5, 2007).
10.11		Convertible Secured Note and Associated Warrant by and between NCIM Limited and Gulf Western Petroleum Corporation, effective July 3, 2007 (incorporated by reference to Exhibit 10.9 to the Company’s Quarterly Report on Form 10-QSB filed on July 17, 2007).
10.12		Securities Purchase Agreement dated as of September 10, 2007 between Gulf Western Petroleum Corporation and Metage Funds Limited and NCIM Limited (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on September 13, 2007).
10.13		Senior Secured Note dated September 10, 2007 issued by Gulf Western Petroleum Corporation to Metage Funds Limited (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on September 13, 2007).
10.14		Senior Secured Note dated September 10, 2007 issued by Gulf Western Petroleum Corporation to NCIM Limited (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on September 13, 2007).
10.15		Warrant to Purchase Common Stock dated September 10, 2007 issued by Gulf Western Petroleum Corporation to Metage Funds Limited and NCIM Limited (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on September 13, 2007).
10.16		Security Agreement dated September 10, 2007 between Gulf Western Petroleum Corporation, Gulf Western Petroleum, LP, Wharton Resources Corp., Wharton Resources LLC and Metage Funds Limited, in its capacity as collateral agent (incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed on September 13, 2007).

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10.17		Pledge Agreement dated September 10, 2007 between Gulf Western Petroleum Corporation, Gulf Western Petroleum, LP, Wharton Resources Corp., Wharton Resources LLC and Metage Funds Limited, in its capacity as collateral agent (incorporated by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K filed on September 13, 2007).
10.18		Guaranty dated September 10, 2007 between Gulf Western Petroleum, LP and Wharton Resources Corp., Wharton Resources LLC, for the benefit of Metage Funds Limited and NCIM Limited (incorporated by reference to Exhibit 10.7 to the Company’s Current Report on Form 8-K filed on September 13, 2007).
10.19		Form of Texas Mortgage, Deed Of Trust, Assignment Of Production, Security Agreement, Fixture Filing and Financing Statement dated September 10, 2007 by Gulf Western Petroleum, LP to Thomas J. Perich, as Trustee for the benefit of Metage Funds Limited, in its capacity as collateral agent (incorporated by reference to Exhibit 10.8 to the Company’s Current Report on Form 8-K filed on September 13, 2007).
10.20		Form of Kansas Mortgage, Deed Of Trust, Assignment Of Production, Security Agreement, Fixture Filing and Financing Statement dated September 10, 2007 by Gulf Western Petroleum, LP to Metage Funds Limited, in its capacity as collateral agent (incorporated by reference to Exhibit 10.9 to the Company’s Current Report on Form 8-K filed on September 13, 2007).
10.21		Registration Rights Agreement dated September 10, 2007 between Gulf Western Petroleum Corporation and Metage Funds Limited and NCIM Limited (incorporated by reference to Exhibit 10.10 to the Company’s Current Report on Form 8-K filed on September 13, 2007).
16.1		Letter from Dale Matheson Carr-Hilton Labonte LLP regarding change in certifying accountants (incorporated by reference to Exhibit 16.1 to the Company’s Current Report on Form 8-K/A filed on January 24, 2007).
16.2		Letter from Malone & Bailey, PC regarding change in certifying accountants (incorporated by reference to Exhibit 16.1 to the Company’s Current Report on Form 8-K filed on October 5, 2007)
21.1		Subsidiaries of the Company (incorporated by reference to Exhibit 21.1 to the Company’s Annual Report on Form 10-KSB filed on November 29, 2007).
23.1		Consent of Rice Silbey Reuther & Sullivan, LLP (Included in Exhibit 5.1)
23.2*		Consent of GBH CPAs, PC, Independent Registered Public Accounting Firm.
23.3*		Consent of MHA Petroleum Consultants, Inc.
24.1*		Power of Attorney (incorporated by reference to Exhibit 24.1 to the Company’s Registration Statement on Form SB-2 (Registration No. 333-147842 ) filed on December 5, 2007).

*	Filed herewith.

 

**	To be filed by amendment.

 

+	Management contract or compensatory plan or arrangement

 

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Item 28.

Undertakings

 

(a)            The undersigned registrant will:

 

(1)            File, during any period in which it offers or sells securities, a post-effective amendment to this registration statement to:

 

(i)            Include any prospectus required by section 10(a)(3) of the Securities Act.

 

(ii)            Reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement.  Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the SEC pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement.

 

(iii)            Include any additional or changed material information on the plan of distribution.

 

(2)            For determining any liability under the Securities Act, treat each post-effective amendment as a new registration statement of the securities offered and the offering of such securities at that time to be the initial bona fide offering.

 

(3)            File a post-effective amendment to remove from registration any of the securities that remain unsold at the end of the offering.

 

(4)            For determining liability of the undersigned small business issuer under the Securities Act to any purchaser in the initial distribution of the securities, the undersigned small business issuer undertakes that in a primary offering of securities of the undersigned small business issuer pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned small business issuer will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:

 

(i)            Any preliminary prospectus or prospectus of the undersigned small business issuer relating to the offering required to be filed pursuant to Rule 424 (§ 230.424 of this chapter);

 

(ii)            Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned small business issuer or used or referred to by the undersigned small business issuer;

 

(iii)            The portion of any other free writing prospectus relating to the offering containing material information about the undersigned small business issuer or its securities provided by or on behalf of the undersigned small business issuer; and

 

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(iv)            Any other communication that is an offer in the offering made by the undersigned small business issuer to the purchaser

 

(b)            Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable.  In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue.

 

(c)            That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser:

 

(i)            If the registrant is relying on Rule 430B:

 

(A)            Each prospectus filed by the registrant to Rule 424(b)(3) shall be deemed to be part of the registration statement as of the date the filed prospectus was deemed part of and included in the registration statement; and

 

(B)            Each prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) as part of a registration statement in reliance on Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i), (vii), or (x) for the purpose of providing the information required by section 10(a) of the Securities Act of 1933 shall be deemed to be part of and included in the registration statement as of the earlier of the date such form of prospectus is first used after effectiveness or the date such form of prospectus is first used after effectiveness or the date of the first contract of sale of securities in the offering described in the prospectus.  As provided in Rule 430B, for liability purposes of the issuer and any person that is at that date an underwriter, such date shall be deemed to be a new effective date of the registration statement relating to the securities in the registration statement to which that prospectus relates, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.  Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement will, as to a purchaser with a time of contract of sale prior to such effective date, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such effective date; or

 

(d)            If the registrant is subject to Rule 430C, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness.  Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this registration statement of Form SB-2 to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

		GULF WESTERN PETROLEUM CORPORATION
Date:  February 1, 2008	By:	/s/ Wm. Milton Cox
		Wm. Milton Cox, Chairman
		and Chief Executive Officer

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Pursuant to the requirements of the Securities Act of 1933, as amended, this registration statement has been signed by the following persons in the capacities and on the dates indicated.

 

 

Signature			Capacity In Which Signed		Date
/s/ Wm. Milton Cox			Chairman and Chief Executive Officer and Director (Principal Executive Officer)		February 1, 2008
Wm. Milton Cox
/s/ Donald L. Sytsma			Chief Financial Officer, Corporate Secretary and  Treasurer and Director (Principal Financial and Principal Accounting Officer)		February 1, 2008
Donald L. Sytsma
*			President and Director		February 1, 2008
Bassam Nastat
*			Director		February 1, 2008
Jay Timothy Altum
*			Director		February 31, 2008
T. Arden McCracken

 

* by	/s/ Donald L. Sytsma	February 31, 2008
	Donald L. Sytsma
	Attorney in Fact