UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K/A AMENDMENT NUMBER 2 [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended September 30, 2003 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______ to ________ Commission file number 0 - 24012 DEEP WELL OIL & GAS, INC. (formerly ALLIED DEVICES CORPORATION) (Exact name of registrant as specified in its charter) Nevada 13 - 3087510 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) Suite 3175 246 Stewart Green SW Calgary, Alberta, Canada T3H 3C8 (Address of principal executive offices - Zip code) (403) 686-6104 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No[ ] Indicate by a check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ___ APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes [X] No [ ] The aggregate market value of the voting stock held by non-affiliates of the Registrant (based upon the closing price of the Registrant's common stock on December 31, 2003 of $0.55 per share) was approximately $90,878. Shares of common stock held by each executive officer and director of the outstanding common stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. As of December 31, 2003, the Registrant had approximately 2,165,233 shares of Common Stock, $.001 par value per share outstanding. This figure accounts for, or takes into consideration, a reverse split of the Company's common stock that occurred and became effective on November 21, 2003. For financial statement purposes, the Company has shown 6,165,233 shares of common stock issued and outstanding. This incorporates an additional 4 million shares that are to be issued by the Company as ordered by the Bankruptcy Court. EXPLANATORY NOTE This Form 10-K/A for the fiscal year ended September 30, 2003 is being filed in conjunction with the review of the financial statements and notes contained herein (Part II, Item 8) by our independent accountants, Madsen & Associates, CPA's Inc. All of Parts I, III, and IV, as well as Items 5, 6, and 7A of Part II, of Form 10-K for the fiscal year ended September 30, 2003 filed on January 5, 2004 and amended on January 28, 2004, are incorporated by reference to this Form 10-K/A.DEEP WELL OIL & GAS, INC. INDEX PART II Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations ...........................................3 Item 8. Financial Statements and Supplementary Data ........................18 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure .............................26 Item 9A. Controls and Procedures ............................................26 PART IV Item 15. Exhibits and Reports on Form 8-K ...................................27 SIGNATURES .................................................................29 PART II Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Deep Well Oil & Gas, Inc. (formerly Allied Devices Corporation) (Development Stage Company) Consolidated Balance Sheets Successor Predecessor Predecessor Company Company Company Sep. 30 Sep. 9 Sep. 30 2003 2003 2002 (Audited) (Unaudited) (Audited) - ----------------------------------------------------------------------------------------------------------- Assets Current Cash $ -- $ -- $ 1,536,299 Accounts receivable, net of allowance for doubtful accounts of $nil, $nil and $58,000, respectively -- -- 2,291,625 Inventories -- -- 5,620,833 Prepaid expenses and other assets -- -- 299,511 Income tax refund receivable -- -- 294,000 - ----------------------------------------------------------------------------------------------------------- Total current assets -- -- 10,042,268 - ----------------------------------------------------------------------------------------------------------- Property, plant and equipment, at cost, net of accumulated depreciation and amortization -- -- 9,368,554 Goodwill and other intangibles, net of accumulated amortization -- of $nil, $nil and $1,686,160, respectively -- -- 5,280,653 Other assets -- -- 63,768 - ----------------------------------------------------------------------------------------------------------- Total assets $ -- $ -- $ 24,755,243 - ----------------------------------------------------------------------------------------------------------- Liabilities and Stockholders' (Deficit) Equity Current Accounts payable $ -- $ -- $ 2,017,381 Accrued expenses and other current liabilities -- -- 1,184,787 Current portion of long-term debt and capital lease obligations -- -- 16,478,259 - ----------------------------------------------------------------------------------------------------------- Total current liabilities -- -- 19,680,427 - ----------------------------------------------------------------------------------------------------------- Long-term debt and accrued interest -- -- 5,911,033 Other liabilities -- -- 435,980 - ----------------------------------------------------------------------------------------------------------- Total liabilities -- -- 26,027,440 - ----------------------------------------------------------------------------------------------------------- Stockholders' (Deficit) Equity Common stock, $.001 par value, authorized 50,000,000 shares, issued and outstanding 6,165,233 shares 6,165 5,049 5,049 Additional paid-in capital 43,835 3,520,970 3,520,970 Retained deficit (50,000) (3,396,848) (4,669,045) - ----------------------------------------------------------------------------------------------------------- Subtotal -- 129,171 (1,143,026) Treasury stock, at cost -- (129,171) (129,171) - ----------------------------------------------------------------------------------------------------------- Total stockholders' deficit -- -- (1,272,197) - ----------------------------------------------------------------------------------------------------------- Total liabilities and stockholders' deficit $ -- $ -- $ 24,755,243 - ----------------------------------------------------------------------------------------------------------- -3- Deep Well Oil & Gas, Inc. (formerly Allied Devices Corporation) (Development Stage Company) Consolidated Statements of Operations Predecessor Predecessor Predecessor Successor Company Company Company Company Period Year Year Period Sep. 10 - Oct. 1, 2002 - ended ended Sep. 30 Sep. 9 Sep. 30 Sep. 30 2003 2003 2002 2001 (Audited) (Unaudited) (Audited) (Audited) - ------------------------------------------------------------------------------------------------------------ Net sales $ -- $ 9,244,193 $ 18,246,189 $ 29,868,056 Cost of sales -- 8,126,212 14,897,237 22,191,192 Inventory write-downs -- -- 2,503,560 2,718,859 - ------------------------------------------------------------------------------------------------------------ Gross profit -- 1,117,981 845,392 4,958,005 Selling, general and administrative expenses -- 3,255,696 6,175,483 8,031,342 Write-downs 50,000 -- 2,323,765 -- Restructuring expense -- -- -- 914,785 - ------------------------------------------------------------------------------------------------------------ Income (loss) from operations (50,000) (2,137,715) (7,653,856) (3,988,122) -------------------------------------------------------------------------------------------------------- Other (income) expense -- -- (173,458) (7,536) Interest expense (net) -- 527,986 1,809,372 1,706,338 - ------------------------------------------------------------------------------------------------------------ Income (loss) before reorganization items and income taxes (50,000) (2,665,701) (9,289,770) (5,686,924) - ------------------------------------------------------------------------------------------------------------ Reorganization items Inventory write-downs -- 4,231,528 -- -- Write-downs (recoveries) -- (8,169,426) -- -- - ------------------------------------------------------------------------------------------------------------ -- (3,937,898) -- -- Income taxes -- -- (820,714) (2,030,813) - ------------------------------------------------------------------------------------------------------------ Net income (loss) $ (50,000) $ 1,272,197 $ (8,469,056) $ (3,656,111) - ------------------------------------------------------------------------------------------------------------ Net income (loss) per share - basic $ (0.01) $ 0.26 $ (1.71) $ (0.74) - ------------------------------------------------------------------------------------------------------------ Basic weighted average number of shares of common stock outstanding 6,165,233 4,948,392 4,948,392 4,935,965 - ------------------------------------------------------------------------------------------------------------ Net income (loss) per share - diluted $ (0.01) $ 0.26 $ (1.71) $ (0.74) - ------------------------------------------------------------------------------------------------------------ Diluted weighted average number of shares of common stock outstanding 6,165,233 4,948,392 4,948,392 4,935,965 - ------------------------------------------------------------------------------------------------------------ -4- Deep Well Oil & Gas, Inc. (formerly Allied Devices Corporation) (Development Stage Company) Consolidated Statements of Stockholders' (Deficit) Equity Common stock $0.001 par value Total --------------------- Additional Retained Stockholders' Number Paid-in Treasury (Deficit) (Deficit) of Shares Amount Capital Stock Earnings Equity - ---------------------------------------------------------------------------------------------------------------------- PREDECESSOR COMPANY Balance, September 30, 2000 4,947,942 $ 4,948 $ 3,624,721 $(129,171) $ 7,456,122 $ 10,956,620 Net loss (3,656,111) (3,656,111) Sale of common stock 800 1 2,599 -- -- 2,600 Shares issued for acquisition 100,000 100 399,900 -- -- 400,000 Stock price guarantee related to acquisition -- -- (506,250) -- -- (506,250) - ---------------------------------------------------------------------------------------------------------------------- Balance, September 30, 2001 5,048,742 5,049 3,520,970 (129,171) 3,800,011 7,196,859 Net loss (8,469,056) (8,469,056) - ---------------------------------------------------------------------------------------------------------------------- Balance, September 30, 2002 5,048,742 5,049 3,520,970 (129,171) (4,669,045) (1,272,197) UNAUDITED Net income, Oct. 1, 2002 - Sep. 9, 2003 -- -- -- -- 1,272,197 1,272,197 - ---------------------------------------------------------------------------------------------------------------------- Balance, September 9, 2003 5,048,742 5,049 3,520,970 (129,171) (3,396,848) -- SUCCESSOR COMPANY (UNAUDITED) Reverse stock split (4,883,509) (4,884) -- -- -- (4,884) Acquisition of corporate entity -- -- 43,835 -- -- 43,835 Adoption of fresh start accounting -- -- (3,520,970) 129,171 3,396,848 5,049 Issuance of common stock 6,000,000 6,000 -- -- 6,000 Net loss, Sep. 12, 2003 - Sep. 30, 2003 -- -- -- -- (50,000) (50,000) - ---------------------------------------------------------------------------------------------------------------------- Balance, September 30, 2003 6,165,233 $ 6,165 $ 43,835 $ -- $ (50,000) $ -- - ---------------------------------------------------------------------------------------------------------------------- -5- Deep Well Oil & Gas, Inc. (formerly Allied Devices Corporation) (Development Stage Company) Consolidated Statements of Cash Flows Predecessor Predecessor Predecessor Successor Company Company Company Company Period Year Year Period Sep. 10 - Oct. 1, 2002 - ended ended Sep. 30 Sep. 9 Sep. 30 Sep. 30 2003 2003 2002 2001 (Audited) (Unaudited) (Audited) (Audited) - ------------------------------------------------------------------------------------------------------------------- Cash flows from operating activities Net (loss) income (50,000) 1,272,197 (8,469,056) (3,656,111) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization -- 837,864 2,850,147 2,469,080 Allowance for doubtful accounts -- -- (2,000) (7,000) Provision (benefit) for income taxes -- -- 885,400 (1,112,400) Write-downs of assets and goodwill 50,000 11,593,671 4,827,325 2,718,859 Recoveries of liabilities -- (4,411,031) -- -- Loss (gain) on sale of equipment -- 2,717,630 (189,903) (7,536) Recoveries of debt and capital lease obligations -- (13,838,168) -- -- Unrealized loss (gain) on interest rate collar -- (16,003) 47,248 200,000 Changes in assets and liabilities, net of effects from acquisitions: Decrease (increase) in: Accounts receivable -- 2,291,625 (158,352) 2,814,891 Inventories -- 1,389,305 298,297 (833,626) Prepaid expenses and other current assets -- (89,650) 249,921 (393,263) Income tax refund receivable -- 294,000 311,503 (605,503) Other assets -- 1,185 (80) 141,047 (Decrease) increase in: Accounts payable and accrued expenses -- 773,261 715,649 (1,583,237) Other liabilities -- -- 47,102 50,411 Income taxes payable -- -- -- (881,801) - ------------------------------------------------------------------------------------------------------------------ Total adjustments 50,000 1,543,689 9,882,257 2,969,922 - ------------------------------------------------------------------------------------------------------------------ Net cash provided by (used in) operating activities -- 2,815,886 1,413,201 (686,189) - ------------------------------------------------------------------------------------------------------------------ Cash flows from investing activities Capital expenditures -- (9,640) (66,936) (515,648) Business acquisitions, net of cash acquired -- -- -- (682,975) Proceeds from sale of equipment -- 4,260,911 -- 180,000 - ------------------------------------------------------------------------------------------------------------------ Net cash provided by (used in) investing activities -- 4,251,271 (66,936) (1,018,623) - ------------------------------------------------------------------------------------------------------------------ Financing Activities Increase (decrease) in bank borrowings -- -- 200,000 3,900,000 Principal payments on long-term debt and capital lease obligations -- (8,603,456) (64,688) (2,777,363) Proceeds from equipment financing -- -- -- 224,111 Deferred financing costs -- -- -- 2,600 - ------------------------------------------------------------------------------------------------------------------ Net cash provided by (used in) financing activities -- (8,603,456) 135,312 1,349,348 - ------------------------------------------------------------------------------------------------------------------ Net increase (decrease) in cash -- (1,536,299) 1,481,577 (355,464) Cash, beginning of period -- 1,536,299 54,722 410,186 - ------------------------------------------------------------------------------------------------------------------ Cash, end of period -- -- 1,536,299 54,722 - ------------------------------------------------------------------------------------------------------------------ Supplemental disclosure of cash flow information: Cash paid (received) during the year: Interest $ -- $ 527,986 $ 1,312,161 $ 1,332,334 Income taxes $ -- $ -- $(2,511,770) $ 691,480 Supplemental schedule of non-cash investing and financing: Equipment (returned) acquired under capital leases $ -- $ -- $(1,891,889) $ 4,153,000 Debt change from equipment returned and acquired $ -- $ -- $ 2,081,791 $ -- Consideration in connection with acquisition paid with debt $ -- $ -- $ 60,000 $ 3,816,000 -6- DEEP WELL OIL & GAS, INC. (FORMERLY ALLIED DEVICES CORPORATION) (DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. UNAUDITED FINANCIAL STATEMENTS The Company is filing unaudited financial statements for the period October 1, 2002 to September 9, 2003 (at which point the Company was issued the Bankruptcy Order) but audited financial statements for the period September 10, 2003 to September 30,2003. 2. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Deep Well Oil & Gas, Inc. (formerly Allied Devices Corporation) (the "Company") is a development stage company that intends to engage in the oil and gas exploration business. At this time, the Company is in discussions to acquire properties or projects involving "heavy oil" projects. Prior to September 10, 2003, the Predecessor Company, known as Allied Devices Corporation, was engaged primarily in the manufacture and distribution of standard and custom precision mechanical assemblies and components throughout the United States. The Predecessor Company was comprised of Allied Devices Corporation ("ADCO"), and its wholly owned subsidiaries, Empire - Tyler Corporation ("Empire") and APPI, Inc. ("APPI"), (collectively the "Predecessor Company"). REORGANIZATION On February 19, 2003, the Company filed a Petition for Relief under Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court in and for the Eastern District of New York titled In re: Allied Devices Corporation, et al., Chapter 11, Case No. 03-80962-511 ("the Bankruptcy Action"). On July 23, 2003, a Liquidating Plan of Reorganization ("Plan") was filed and submitted to the Bankruptcy Court for the Court's approval. See Form 8-K/A filed by the Company on November 25, 2003 for additional information. On September 10, 2003, after notice to all creditors and a formal hearing, U.S. Bankruptcy Judge Melanie L. Cyganowski issued an "Order Confirming Liquidating Plan of Reorganization" in the Bankruptcy Action (hereinafter "Bankruptcy Order"). In conjunction with that Bankruptcy Order, the Company's liabilities, among other things, were paid off and extinguished. The Bankruptcy Order, among other things, implements a change of control whereby Champion Equities, a Utah limited liability company ("Champion"), a Mr. David Roff, of Toronto, Canada ("Roff"), and a group of new investors, took control of the Company. The principal provisions of the Plan, which are authorized and implemented by the Bankruptcy Order, are the following, which is not an exhaustive list thereof: a) the termination of present management and the present Board of Directors and appointment of Mr. David Roff in their place and stead; b) giving a Utah entity known as Champion Industries ("Champion"), the power and authority to appoint such other directors, in addition to Mr. Roff, as Champion, in its sole discretion deems appropriate; c) the reverse split of the Company's common capital stock 1-for-30 on the basis of 5,048,782 shares issued and outstanding immediately prior to the Bankruptcy Order; d) authorizing Champion to amend the Company's Articles of Incorporation and Bylaws to (i) effect a quasi-reorganization for accounting purposes, (ii) provide the maximum indemnification or other protections to the Company's officers and directors that is allowed under applicable law, (iii) conform to the provisions of the Plan and the corollary Confirmation Order, (iv) set the authorized stock of the Company, post-reverse split, at fifty million (50,000,000) common capital shares; and (v) take all action necessary and appropriate to carry out the terms of the Plan; -7- e) authorizing Champion, without solicitation of or notice to shareholders, to issue (i) 2,000,000 post-reverse split shares of the Company's common stock to the Company's new management, and (ii) 4,000,000 post-reverse split shares, legend free, in the sole and unfettered discretion of Champion; f) the Company's Board of Directors, was authorized, without seeking or obtaining shareholder approval to take any and all actions necessary or appropriate to effectuate amendments to the Company's Certificate of Incorporation and/or Bylaws called for under the Plan and the Company's Board of Directors and officers was authorized to execute, verify, acknowledge, file and publish any and all instruments or documents that may be required to accomplish the same; and g) the Company's charter is to be amended in conformance with applicable bankruptcy rules and the amended charter or bylaws shall, among other provisions, authorize the issuance of any new shares while simultaneously prohibiting the issuance of nonvoting equity securities to the extent required by section 1123(a)(6) of the United States Bankruptcy Code. After the entry of the Bankruptcy Order, the Company drafted and submitted a form of Restated and Amended Articles of Incorporation to the Secretary of State of Nevada implementing the foregoing, including but not limited to other provisions required of the Company under the Bankruptcy Order. FRESH START REPORTING Upon emergence from Chapter 11 proceedings, the Company adopted fresh-start reporting in accordance with the American Institute of Certified Public Accountants Statement of Position 90-7, Financial Reporting By Entities in Reorganization Under the Bankruptcy Code (SOP 90-7). In connection with the adoption of fresh-start reporting, a new entity has been deemed created for financial reporting purposes. For financial reporting purposes, the Company adopted the provisions of fresh-start reporting effective September 10, 2003. All periods presented prior to September 10, 2003, including the financial information contained in this quarterly report, have been designated Predecessor Company. In adopting the requirements of fresh-start reporting as of September 10, 2003, the Company was required to value its assets and liabilities at fair value and eliminate its accumulated deficit as of September 10, 2003. The Company emerged from Chapter 11 proceedings with no assets and liabilities pursuant to the Bankruptcy Order and its balance sheet at that time is stated as such. PRINCIPLES OF CONSOLIDATION The Successor Company has no subsidiaries. The consolidated financial statements include the accounts of the Predecessor Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. INVENTORIES During the first quarter of fiscal 2002, the Predecessor Company changed its method of inventory costing from last-in first-out (LIFO) to first-in first-out (FIFO). Prior periods have been restated to reflect this change. Inventories are valued at the lower of cost (first-in, first-out (FIFO) method) or market in the Predecessor Company. -8- DEPRECIATION AND AMORTIZATION Property, plant and equipment are stated at cost in the Predecessor Company. Depreciation and amortization of property, plant and equipment was computed using the straight-line method over the estimated useful lives of the assets. The estimated lives were as follows: Machinery and equipment 3 - 10 years Tools, molds and dies 8 years Furniture, fixtures and office equipment 5 - 7 years Buildings and improvements 30 years Leasehold improvements Shorter of the lease term or the estimated useful life of the improvement INCOME TAXES Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and tax loss and credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rate is recognized in income in the period that includes the enactment date. On September 30, 2003, the Successor Company had an available net operating loss carry forward of $50,000. The tax benefit of $15,000 from the carry forwards has been fully offset by a valuation reserve because the use of the future tax benefit is undeterminable since the Company has no operations. The loss carryover will expire in 2023. BASIC AND DILUTED NET INCOME (LOSS) PER SHARE Basic net income (loss) per share amounts are computed based on the weighted average number of shares actually outstanding. Diluted net income (loss) per share amounts are computed using the weighted average number of common shares and common equivalent shares outstanding unless the exercise becomes antidilutive and then only the basic per share amounts are shown in the report. GOODWILL The Successor Company has adopted Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets". On September 10, 2003, the Successor Company assigned the $50,000 purchase price for the corporate entity as goodwill to its sole reporting unit. At the same time, the Successor Company conducted an impairment test and determined that the goodwill balance was fully impaired due to uncertainty with regard to future cash flows and a general lack of financial resources. In accordance with this impairment, the Successor Company wrote off the entire goodwill balance against earnings. The Predecessor Company implemented FAS No. 142 on October 1, 2002. During the first quarter of the Predecessor Company's fiscal 2003, the entire balance of $5,230,653 of goodwill was written off as the amount was impaired. As of September 30, 2002, the net carrying value of goodwill was $5,230,653, which is net of a write off in fiscal 2002 of $2,323,765 related to an impairment. Amortization expense during the year ended September 30, 2002, was approximately $696,000. LONG-LIVED ASSETS The Predecessor Company reviewed the carrying values of its long-lived and identifiable intangible assets for possible impairment whenever events or changes in circumstances indicated that the carrying amount of the assets may not be recoverable. Any long-lived assets held for disposal were reported at the lower of their carrying amounts or fair value less cost to sell. The Predecessor Company recorded an asset impairment loss of $2,323,765 for the year ended September 30, 2002. -9- REVENUE RECOGNITION The Predecessor Company recognized sales upon shipment of products. All sales were shipped F.O.B. shipping point and were not sold subject to a right of return unless the products are defective. The Predecessor Company's level of returns arising from defective products had historically been immaterial. SHIPPING AND HANDLING COSTS The Predecessor Company recorded its shipping and handling fee costs as required under EITF No. 00-10, "Accounting for Shipping and Handling Fee Costs." Accordingly, shipping and handling fee costs were recorded in Sales and Cost of Sales. ADVERTISING EXPENSES Advertising expenses are expensed as incurred in the Predecessor Company. STOCK BASED COMPENSATION The Successor Company has no stock based compensation plans. The Predecessor Company accounted for stock based compensation using the intrinsic value method as permitted by SFAS No. 123 and accounted for such transactions in accordance with Accounting Principles Board ("APB") No. 25 and, as required by SFAS No. 123, provided pro forma information regarding net income (loss) as if compensation costs for the Predecessor Company's stock plan had been determined in accordance with the fair value method presented by SFAS No. 123. USE OF ESTIMATES In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amounts of the Predecessor Company's financial instruments, including cash, receivables, payables and short-term debt, approximated fair value as of September 30, 2002. The carrying value of the Predecessor Company's long-term debt, approximated fair value as of September 30, 2002 based upon the borrowing rates available to the Predecessor Company for bank loans with similar terms and average maturities. CONCENTRATIONS OF RISK The Predecessor Company extended credit based on an evaluation of its customer's financial condition, generally without requiring collateral. Exposure to losses on receivables was principally dependent on each customer's financial condition. The Predecessor Company monitored its exposure for credit losses and maintained allowances for anticipated losses. No individual customer was considered to be a significant risk. RECENT ACCOUNTING PRONOUNCEMENTS The Company does not expect that the adoption of other recent accounting pronouncements will have a material impact on its financial statements. -10- 3. REORGANIZATION ITEMS As a result of the Bankruptcy Action, the Predecessor Company recognized reorganization charges for asset write-downs during the period October 1, 2002 to September 9, 2003 as follows: Period October 1, 2002 - September 9, 2003 - ---------------------------------------------------------------- Write downs: Inventory $4,231,528 Prepaid expenses and other assets 479,139 Property, plant and equipment 1,602,351 Goodwill and other intangibles 5,280,653 --------- $11,593,671 =========== During the period October 1, 2002 to June 30, 2003, the Predecessor Company sold property, plant and equipment for proceeds of $4,260,911 and recognized a loss on sale of property, plant and equipment of $2,717,630. The loss on sale of property, plant and equipment was offset by a waiver of certain prepetition long term debt owed to a creditor (see below). As a result of the Bankruptcy Action, the Predecessor Company recognized recoveries of certain liabilities for the period October 1, 2002 to September 9, 2003 as follows: Period October 1, 2002 - September 9, 2003 - ----------------------------------------------------------------------------- Recoveries: Accounts payable $2,874,206 Accrued expenses and other current liabilities 1,048,891 Other liabilities 487,934 ---------- $4,411,031 ========== During the period October 1, 2002 to September 9, 2003, the Predecessor Company paid $8,603,456 in principal to its secured lenders and capital leaseholders from proceeds of equipment sales and working capital. As a result of the Bankruptcy Action, the Predecessor Company recognized recoveries of $8,195,138 of long term debt and capital lease obligations. The Predecessor Company also sold certain assets to an unsecured creditor, and as part of the sale, received a waiver of $5,643,030 in prepetition long term debt owed to the creditor. 4. CAPITAL STOCK The outstanding common capital stock on February 19, 2003 (the date the Company filed for bankruptcy) was 5,048,742 shares. As part of the settlement from the bankruptcy the Company completed a reverse stock split, reducing the outstanding shares to 165,233, and the rights to issue 6,000,000 post split common shares, in exchange for $50,000, resulting in total outstanding shares of 6,165,233. On the report date the 6,000,000 shares were in the process of being issued, and for reporting purposes the shares are shown as outstanding on September 30, 2003. 5. ASSET IMPAIRMENT LOSS In accordance with FAS No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of", the Predecessor Company recorded an impairment loss of $2,323,765 on the goodwill of APPI (including goodwill from its Martin Machine, Inc. acquisition). Business trends of APPI indicated that the undiscounted future cash flows for this business were less than the carrying value of the long-lived assets related to that business. The loss recognized was the difference between the carrying value of APPI's net assets and the estimated fair value of those assets based on discounted estimated future cash flows. -11- 6. PREDECESSOR COMPANY RESTRUCTURING In the third quarter of fiscal 2001, the Predecessor Company developed and began to implement a cost savings initiative to increase long-term profitability. The Predecessor Company closed three manufacturing facilities and consolidated these operations into a new facility in Sanford, Maine, following an orderly transition of production to the new facility. Other restructuring costs associated with downsizing included severance for layoffs throughout the Predecessor Company and professional fees incurred in restructuring and forbearance negotiations. The Predecessor Company estimated the costs associated with the restructuring to be approximately $915,000 and recorded this expense for the year ended September 30, 2001. The restructuring expense consisted of $243,000 in moving costs paid and $672,000 in accrued expenses and liabilities. The accrual in fiscal 2001 included approximately $392,000 ($142,000 in severance, $50,000 in moving costs, and $200,000 in professional fees with approximately $86,000 remaining at the end of fiscal 2002), and $280,000 in lease abandonment costs (approximately $138,000 remaining at the end of fiscal 2002). 7. PREDECESSOR COMPANY ACQUISITIONS On July 8, 1998, with an effective date of July 1, 1998, the Predecessor Company acquired the assets and business of APPI from Atlantic Precision Products, Inc., a manufacturer of high precision, machined components for original equipment manufacturers with advanced engineering requirements. The price of net assets acquired (including assumption of specified liabilities) was made up of cash, stock, and performance consideration. The consideration was $7,237,500 in cash and 250,000 shares of the Predecessor Company's common stock. The common stock portion of the consideration was recorded at $4 per share, the value guaranteed by the Predecessor Company. On July 9, 2001, the Predecessor Company settled the stock price guarantee portion of the APPI acquisition by issuing a note to the seller in the amount of $506,250 with interest thereon at 7% per annum. The note represented the difference between the guaranteed stock price of $4 per share and the average stock price from July 6 to July 9, 2001 for 250,000 shares of stock. The Predecessor Company had recorded this as a long term note payable and reduction of stockholders' equity. The note was subject to a subordination agreement between the seller and the Predecessor Company's lending institution. The performance consideration was a stipulated percentage of the future earnings (as defined) for APPI for three years. The Predecessor Company's policy with respect to any such contingent consideration was to record a liability for such amounts as the defined earnings were achieved. After September 30, 2001 no further contingent consideration was accrued. As of that date, contingent consideration of $5,981,061 was recorded as additional goodwill, of which $1,521,998 was paid in cash and $4,459,063 was delivered in the form of five year notes, subordinated to the bank credit facility, due through September 30, 2006 bearing interest at 7% per annum, in accordance with the terms of the asset purchase agreement. The total amount of goodwill amounted to $8,827,797. On November 15, 2000, the Predecessor Company acquired Martin Machine, Inc., ("Martin Machine") located in Raymond, Maine. The acquisition was accounted for using the purchase method of accounting, and results of operations of this company have been included in the Predecessor Company's consolidated financial statements from the date of acquisition. Original purchase consideration amounted to $1,031,000, including the value of 100,000 shares of common stock (issued immediately following closing), $400,000 in cash, and a $300,000 five year note payable subordinated to the bank credit facility (Notes 8 and 10), due through September 30, 2006, bearing interest at 7% per annum. Subsequent to the closing the Predecessor Company paid an additional $18,912 in cash, which was recognized as additional goodwill. The total excess of cost over the fair value of assets acquired amounted to $448,374, which has been recorded as goodwill. -12- The Predecessor Company recorded an impairment loss of $2,323,765 on the goodwill of APPI (including goodwill from its Martin Machine, Inc. acquisition) during fiscal 2002. The Predecessor Company wrote off all goodwill during the first quarter of 2003 as a result of impairment. See note 2 for additional detail. 8. PREDECESSOR COMPANY INVENTORIES Inventories are summarized as: September 30, September 30, 2003 2002 --------------------------------------------------------------------------- Raw materials - $634,604 Work-in-process - 1,043,629 Finished goods - 3,942,600 ---- --------- - $5,620,833 ==== ========== The Predecessor Company wrote off $4,231,528 and $2,503,560 for the period October 1, 2002 to September 9, 2003 and the year ended September 30, 2002, respectively, of inactive, slow moving and excess inventories. 9. PREDECESSOR COMPANY PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consists of: September 30, September 30, 2003 2002 ------------------------------------------------------------------------------ Machinery and equipment - $17,201,771 Tools, molds and dies - 1,317,591 Furniture, fixtures and office equipment - 675,933 Leasehold improvements - 266,144 Building and improvements - 94,520 Land - 5,000 --- ---------- - 19,560,959 Less: accumulated depreciation and amortization - 10,192,405 --- ---------- Property, plant and equipment (net) - 9,368,554 === ========== Included in machinery and equipment and office equipment at September 30, 2002 is approximately $8,931,000 of equipment under capital lease agreements. At September 30, 2002, the related accumulated depreciation amounts were approximately $3,174,000. During fiscal 2002, property, plant and equipment decreased approximately $2,184,000 and accumulated depreciation decreased approximately $261,000 as a result of returning to a lessor certain under-utilized equipment on a capitalized lease in exchange for retirement of the full amount of related debt outstanding. The Predecessor Company recorded a related gain of approximately $173,000, net of disposition costs. During the period October 1, 2002 to September 9, 2003, the Predecessor Company wrote off $1,602,351 of property, plant and equipment as a result of the Bankruptcy Action, sold property, plant and equipment for proceeds of $4,260,911 and recognized a loss on sale of property, plant and equipment of $2,717,630. The loss on sale of property, plant and equipment was offset by a waiver of certain prepetition long term debt owed to a creditor (see note 2 for additional information). Depreciation and amortization expense totaled $837,864, $1,989,000 and $1,906,000 for the period October 1, 2002 to September 9, 2003 and the years ended September 30, 2002 and 2001, respectively. -13- 10. PREDECESSOR COMPANY CREDIT FACILITIES In July 1998, the Predecessor Company entered into a new credit agreement with its existing lender and repaid all amounts due with respect to its previous credit facility. The new credit agreement provided for a revolving credit loan and a term note. During fiscal 1999, the revolving credit facility was amended. Beginning in October 2001, the Predecessor Company and its lenders undertook to negotiate a Forbearance Agreement, prompted by the Predecessor Company's default on certain financial covenants contained in its lending agreements. Borrowings under the revolving credit loan were $7,000,000 at September 30, 2002. Under the terms of the five and one-half year (66 months) term note, the Predecessor Company originally borrowed $6,250,000. Interest thereon is computed at the higher of the bank's prime rate plus 1/2% or a LIBOR rate plus 2.50%. The weighted average interest rate for fiscal 2002 was 5.17%. The term note was payable in twenty quarterly installments of principal, which began in March 1999. The quarterly principal installments increased ratably from $150,000 per quarter during the first year to $400,000 per quarter for the last year plus a final installment of $950,000 on December 31, 2003. The Predecessor Company had not made any principal payments since September 30, 2001. The proceeds of the term note and a portion of the funds drawn against the revolving credit loan were used to finance the APPI acquisition. In conjunction with the issuance of the term note, the Predecessor Company issued the lender warrants to purchase 125,000 shares of its common stock. The value of the warrants totaled $97,000 and was accounted for as deferred financing costs (included in other assets) that was being amortized over the term of the credit agreement. During the period October 1, 2002 to September 9, 2003, the Predecessor Company paid $8,603,456 in principal to its secured lenders and capital leaseholders from proceeds of equipment sales and working capital. As a result of the Bankruptcy Action, the Predecessor Company recognized recoveries of $8,195,138 of long term debt and capital lease obligations. The Predecessor Company also sold certain assets to an unsecured creditor, and as part of the sale, received a waiver of $5,643,030 in prepetition long term debt owed to the creditor. (See note 2 for additional information.) The Successor Company emerged from the Chapter 11 proceedings with no assets and no liabilities and has no credit facility or debt obligations. 11. PREDECESSOR COMPANY LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS Long-term debt consisted of: September 30, September 30, 2003 2002 ---------------------------------------------------------------------------------- Revolving credit loan - $7,000,000 Term note - 3,712,500 Acquisition notes plus accrued interest - 5,890,697 Capital lease obligations with varying monthly payments and interest rates ranging from 7.2% to 9.9% per annum maturing 2003 through 2006; secured by an interest in specific machinery and equipment - 5,786,095 --- ---------- Subtotal - 22,389,292 Less: current maturities - 16,478,259 --- ---------- Long-term debt and capital lease obligations - 5,911,033 === ========= Deferred financing costs (gross) included in other assets amounted to $297,223 at September 30, 2002. Accumulated amortization amounted to $226,701 at September 30, 2002. -14- The Predecessor Company was in default on certain of its debt agreements at September 30, 2002, the outstanding amount of which had all been classified as current. The Successor Company emerged from the Chapter 11 proceedings with no assets and no liabilities and has no credit facility or debt obligations. (See notes 2 and 9 for additional information.) 12. LEASES The Predecessor Company rented facilities in Hicksville, New York and in Sanford, Maine under various operating lease agreements expiring through April 2011. In addition, the Predecessor Company was also obligated for two leases in buildings it no longer occupied in Maine. As part of a restructuring in 2001, the Predecessor Company expensed $280,000, representing the full amount due under the remaining lease obligations. Rent expense amounted to approximately $632,000, $983,000 and $1,003,000 for the period October 1, 2002 to September 9, 2003 and the years ended September 30, 2002 and 2001, respectively. The Successor Company has no leases. 13. STOCK BASED COMPENSATION The Successor Company does not have a stock based incentive compensation plan. All outstanding options, warrants and other instruments that were convertible into the Predecessor Company's common stock were cancelled pursuant to the Bankruptcy Order. In October 1993, the Board of Directors of the Predecessor Company adopted an incentive stock option plan. The Plan, as amended in December 1995, January 1998, and February 2001, allowed the Board of Directors to issue options to purchase an aggregate of 2,000,000 shares of the Predecessor Company's common stock to key employees. As of September 30, 2002, the Predecessor Company had issued options to purchase an aggregate of 1,746,750 shares of the Predecessor Company's common stock to employees and members of the Predecessor Company's Board of Directors. The Predecessor Company estimated the fair value of each stock option at the grant date by using the Black-Scholes option-pricing model with the following weighted average assumptions used for grants in 2002 and 2001: no dividend yield, expected volatility of approximately 80.00% to 46.00%, risk free interest rates of 4.72% to 6.29%, with an expected life of 7.5 to 10 years. If compensation cost for the Predecessor Company's Stock Option Plan had been determined in accordance with SFAS No. 123, net income would have been reduced in 2002 and 2001 by approximately $76,000 and $86,000, respectively, and net (loss) income per diluted share would have been $(1.73) and $(.76) for each year, respectively. The following table summarizes information about stock options outstanding at September 30, 2002: Options Outstanding Options Exercisable Weighted Average Weighted Weighted Remaining Average Average Number Contractual Life Exercise Number Exercise Exercise Price Outstanding (years) Price Exercisable Price - -------------------------------------------------------------------------------------------- $0.35 4,600 2.5 $ 0.35 4,600 $ 0.35 $0.35-2.44 55,400 4.6 1.55 55,400 1.55 $1.88-2.19 44,500 5.3 1.91 44,500 1.91 $1.06-1.31 210,500 6.6 1.15 208,400 1.16 $1.03-2.03 944,400 2.4 1.08 944,400 1.08 $1.00 130,000 9.0 1.00 108,000 1.00 $0.55-0.91 303,750 9.5 0.67 260,417 0.64 1,693,150 4.9 $ 1.05 1,625,717 $ 1.05 -15- Changes in qualified and non-qualified options and warrants outstanding are summarized as follows: Warrants Options Weighted average Exercise Option price Exercise Shares Price Shares per share price - ---------------------------------------------------------------------------------------------- Outstanding September 30, 2000 125,000 $ 2.00 1,437,900 $0.35 - $3.00 $ 1.34 Granted -- -- 130,000 $ 1.00 $ 1.00 Cancelled -- -- (112,500) $1.06 - $2.88 $ 2.76 Outstanding September 30, 2001 125,000 $ 2.00 1,455,400 $0.35 - $3.00 $ 1.20 Granted -- -- 303,750 $0.55 - $0.91 $ .67 Cancelled -- -- (66,000) $1.03 - $3.00 $ 2.60 Outstanding September 30, 2002 125,000 $ 2.00 1,693,150 $0.35 - $2.44 $ 1.05 At September 30, 2002, there were 1,625,717 options exercisable at a weighted average exercise price of $1.05. The weighted average fair value of options granted during fiscal 2002 and 2001 was $ .25 and $ .82, respectively. 14. COMMITMENTS The Predecessor Company had a discretionary 401(k) plan. For the years ended September 30, 2002 and 2001, the Predecessor Company contributed $73,153 and $110,835, respectively. 15. TAXES (BENEFIT) ON LOSS Provisions for income taxes (benefit) on loss in the consolidated statement of operations consist of the following: Period October 1, 2002 - September 30, September 30, September 9, 2003 2002 2001 -------------------------------------------------------------------------------------------------- Current: Federal - $(1,686,714) $(854,496) State - (19,000) (64,317) --- ----------- --------- Total current: - (1,705,714) (918,813) --- ----------- --------- Deferred: Federal - 823,000 (1,034,000) State - 62,000 (78,000) --- ----------- --------- Total deferred - 885,000 (1,112,000) --- ----------- --------- Total taxes (benefit) on income (loss) - $(820,714) $(2,030,813) === ========== ============ Deferred tax (assets) liabilities consist of the following: September 30, September 30, 2003 2002 ------------------------------------------------------------------------------------------------ Tax depreciation in excess of book - $1,226,000 Impairment of goodwill (15,000) (871,000) Investment tax credit carryforward - (36,000) Restructuring - (46,000) Provision for accounts receivable - (22,000) Inventory capitalization - (68,000) Other temporary differences -- net - (134,000) Accrued expenses - (190,000) Net operating loss carryforward - (2,484,000) Less valuation allowance 15,000 2,625,000 ========= ---------- Net deferred tax (assets) $ - $ - ========= ========== The Successor and Predecessor Companies provided a 100% valuation allowance against the net deferred tax assets. -16- 16. GOING CONCERN The Company intends to seek business opportunities that will provide a profit, however, the Company does not have the working capital necessary to be successful in this effort, which raises substantial doubt about its ability to continue as a going concern. Continuation of the Company as a going concern is dependent upon obtaining additional working capital and the management of the Company has developed a strategy, which it believes will accomplish this objective through short term related party loans, and equity funding, which will enable the Company to operate for the coming year. -17- ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA MADSEN & ASSOCIATES. CPA's INC. 684 East Vine St. #3 Certified Public Accountants and Business Consultants Murray, Utah 84107 Member SEC Practice Section of the AICPA Telephone 801-268-2632 Fax 801-262-3978 Board of Directors Deep Well Oil & Gas, Inc. Toronto, Ontario, Canada REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We have audited the accompanying balance sheet of Deep Well Oil & Gas, Inc. (development stage company) at September 30, 2003 and the statements of operations, stockholders' equity, and cash flows for the period September 10, 2003 to September 30, 2003. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the over all financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Deep Well Oil & Gas, Inc. at September 30, 2003 and the statements of operations, and cash flows for the period September 10, 2003 to September 30, 2003 in conformity with accounting principles generally accepted in the United States of America. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company will need additional working capital for its planned activity, which raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are described in the notes to the financial statements. These financial statements do not include any adjustments that might result from the outcome of this uncertainty. Salt Lake City, Utah February 10, 2004 s\Madsen & Associates, CPA,s Inc. -18- DEEP WELL OIL & GAS, INC. (Development Stage Company) BALANCE SHEET September 30, 2003 ASSETS CURRENT ASSETS Cash $ - ------- Total Current Assets $ - ======= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ - ------- Total Current Liabilities - ------- STOCKHOLDERS' EQUITY Common stock 50,000,000 shares authorized at $0.001 par value; 6,165,233 shares issued and outstanding 6,165 Capital in excess of par value 43,835 Deficit accumulated during development stage - dated September 10, 2003 - note 1 (50,000) ------- Total Stockholders' Equity (Deficiency) - ------- $ - ======= The accompanying notes are an integral part of these financial statements -19- DEEP WELL OIL & GAS, INC. (Development Stage Company) STATEMENT OF OPERATIONS For the Period September 10, 2003 to September 30, 2003 REVENUES $ - EXPENSES 50,000 ---------- NET LOSS $ 50,000 ========== NET LOSS PER COMMON SHARE Basic and diluted $ (.01) ---------- WEIGHTED AVERAGE OUTSTANDING SHARES Basic 6,165,233 ---------- The accompanying notes are an integral part of these financial statements. -20- DEEP WELL OIL & GAS, INC. (Development Stage Company) STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY For the Period September 10, 2003 to September 30, 2003 Capital Common Stock Deficiency -------------------- in Excess Accumulated Shares Amount of Par Value Deficit --------- ------- ------------ ----------- Balance September 10, 2003 - note 1 165,233 $ 165 $ (165) $ - Issuance of common stock pursuant to bankruptcy agreement September 10, 2003 - notes 1&4 6,000,000 6,000 44,000 - Net operating loss for the period September 10 to September 30, 2003 - - - (50,000) Balance September 30, 2003 6,165,233 $ 6,165 $ 43,835 $ ( 50,000) ========= ======= ============ =========== The accompanying notes are an integral part of these financial statements. -21- DEEP WELL OIL & GAS, INC. (Development Stage Company) STATEMENT OF CASH FLOWS For the Period September 10, 2003 to September 30, 2003 CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ (50,000) Adjustments to reconcile net loss to net cash provided by operating activities Issuance of common capital stock for expenses - note 1 50,000 Net Change in Cash from Operations - ---------- CASH FLOWS FROM INVESTING ACTIVITIES - ---------- CASH FLOWS FROM FINANCING ACTIVITIES - ---------- Net Increase (Decrease) in Cash - Cash at Beginning of Period - ---------- Cash at End of Period $ - ========== SCHEDULE OF NONCASH OPERATING ACTIVITIES Issuance of 6,000,000 common shares pursuant to bankruptcy agreement - expenses $ 50,000 ---------- The accompanying notes are an integral part of these financial statements -22- DEEP WELL OIL & GAS, INC. (Development Stage Company) NOTES TO FINANCIAL STATEMENTS September 30, 2003 1. ORGANIZATION The Company, and its former subsidiaries, were engaged in the manufacture and distribution of standard and custom precision mechanical assemblies and components throughout the United States. On February 19, 2003 the Company filed a petition for bankruptcy in the United States Bankruptcy Court under Chapter 11 in the Eastern District of New York titled "Allied Devices Corporation, Case No. 03-80962-511". The Company emerged from bankruptcy pursuant to a Bankruptcy Court Order entered on September 10, 2003 with no remaining assets or liabilities. The terms of the bankruptcy settlement included (1) a reverse common stock split of 30 shares of outstanding stock for one share (2) increasing the authorized common capital stock from 25,000,000 to 50,000,000 shares with a par value of $.001 (3) a change in the name of the Company from "Allied Devices Corporation" to "Deep Well Oil & Gas, Inc." (4) and the authorization for the issuance of 2,000,000 post split restricted common shares and 4,000,000 post split common shares in exchange for $50,000, which was paid into the bankruptcy court by the recipients of the shares. Restated and amended articles of incorporation completing the terms of the bankruptcy have been filed in the state of Nevada. This report has been prepared showing the name "Deep Well Oil & Gas, Inc." and the post split common stock, with $.001 par value, from inception. The accumulated deficit has been restated to zero and dated September 10, 2003 with the statement of operations to begin on that date. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Accounting Methods - ------------------ The Company recognizes income and expenses based on the accrual method of accounting. Dividend Policy - --------------- The Company has not yet adopted a policy regarding payment of dividends. Financial and Concentrations Risk - --------------------------------- The Company does not have any concentration or related financial credit risk. -23- DEEP WELL OIL & GAS, INC. NOTES TO FINANCIAL STATEMENTS September 30, 2003 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Income Taxes - ------------ The Company utilizes the liability method of accounting for income taxes. Under the liability method deferred tax assets and liabilities are determined based on the differences between financial reporting and the tax bases of the assets and liabilities and are measured using the enacted tax rates and laws that will be in effect, when the differences are expected to reverse. An allowance against deferred tax assets is recorded, when it is more likely than not, that such tax benefits will not be realized. On September 30, 2003, the Company had a net operating loss available for carry forward of $50,000. The income tax benefit of approximately $15,000 from the loss carry forward has been fully offset by a valuation reserve because the use of the future tax benefit is undeterminable since the Company has no operations. The loss carryover will expire in 2023. Revenue Recognition - ------------------- Revenue is recognized on the sale and delivery of a product or the completion of a service provided. Advertising and Market Development - ---------------------------------- The company expenses advertising and market development costs as incurred. Basic and Diluted Net Income (Loss) Per Share - --------------------------------------------- Basic net income (loss) per share amounts are computed based on the weighted average number of shares actually outstanding. Diluted net income (loss) per share amounts are computed using the weighted average number of common shares and common equivalent shares outstanding as if shares had been issued on the exercise of the preferred share rights unless the exercise becomes antidilutive and then only the basic per share amounts are shown in the report. Financial Instruments - --------------------- The carrying amounts of financial instruments are considered by management to be their estimated fair values. -24- DEEP WELL OIL & GAS, INC. NOTES TO FINANCIAL STATEMENTS September 30, 2003 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Estimates and Assumptions - ------------------------- Management uses estimates and assumptions in preparing financial statements in accordance with generally accepted accounting principles. Those estimates and assumptions affect the reported amounts of the assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could vary from the estimates that were assumed in preparing these financial statements. Recent Accounting Pronouncements - -------------------------------- The Company does not expect that the adoption of other recent accounting pronouncements will have a material impact on its financial statements. 3. SIGNIFICANT TRANSACTIONS WITH RELATED PARTIES An officer-director, or his controlled entity, has acquired 32% of the Company's outstanding common capital stock. 4. COMMON CAPITAL STOCK The outstanding common capital stock on February 19, 2003 (the date the Company filed for bankruptcy) was 5,048,742 shares. As part of the settlement from the bankruptcy the Company completed a reverse stock split, reducing the outstanding shares to 165,233, and the rights to issue 6,000,000 post split common shares, in exchange for $50,000, resulting in total outstanding shares of 6,165,233. (note 1) On the report date the 6,000,000 shares were in the process of being issued, and for reporting purposes the shares are shown as outstanding on September 30, 2003. 5. GOING CONCERN The Company intends to seek business opportunities that will provide a profit, however, the Company does not have the working capital necessary to be successful in this effort, which raises substantial doubt about its ability to continue as a going concern. Continuation of the Company as a going concern is dependent upon obtaining additional working capital and the management of the Company has developed a strategy, which it believes will accomplish this objective through short term related party loans, and equity funding, which will enable the Company to operate for the coming year. -25- ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE On February 9, 2004, we changed accountants from Sellers & Andersen, L.L.C. to Madsen & Associates, CPA's, Inc. We decided to dismiss Sellers & Andersen, L.L.C. as our independent accountants. Sellers & Andersen, L.L.C.'s report on the financial statements for the period from September 10, 2003 to September 30, 2003 as contained in Forms 10-K and 10-K/A, which were filed on January 5, 2004 and January 28, 2004, respectively, were not subject to an adverse or qualified opinion or a disclaimer of opinion and were not modified as to uncertainty, audit scope or accounting principles for the period from September 10, 2003 to September 30, 2003 or for either of the past two years. Sellers & Andersen, L.L.C.'s report on the financial statements for the period from September 10, 2003 to September 30, 2003 raises substantial doubt about our ability to continue as a going concern and that our continuation as a going concern is dependent upon obtaining additional working capital. The decision to change accountants was approved by our Board of Directors. During the period from our engagement of Sellers & Andersen, L.L.C. on March 20, 2003 to the date we dismissed Sellers & Andersen, L.L.C. on February 9, 2004, there were no disagreements with Sellers & Andersen, L.L.C. related to accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements if not resolved to the satisfaction of Sellers & Andersen, L.L.C. would have caused Sellers & Andersen, L.L.C. to make reference to the subject matter of the disagreement in connection with its report. Effective March 20, 2003, BDO Seidman, LLP resigned as our independent auditors. Sellers and Andersen, LLC were appointed as our new independent accountants. Our Board of Directors approved this action on November 10, 2003. During the last two fiscal years ended September 30, 2002 and 2001 and the subsequent periods to March 20, 2003 (i) there were no disagreements between us and BDO Seidman, LLP on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure which, if not resolved to the satisfaction of BDO Seidman, LLP would have caused BDO Seidman, LLP to make reference to the matter in its reports on our financial statements, and (ii) BDO Seidman, LLP's reports did not contain an adverse opinion or a disclaimer of opinion, or was qualified or modified as to uncertainty, audit scope, or accounting principles. During the last two most recent fiscal years ended September 30, 2002 and 2001 and the subsequent periods to March 20, 2003, there were no reportable events as the term described in Item 304(a)(1)(iv) of Regulation S-B. BDO Seidman, LLP's opinion in its report on our financial statements for the year ended September 30, 2002 and 2001, expressed substantial doubt with respect to our ability to continue as a going concern. We have not previously consulted with Sellers and Andersen, LLC regarding the application of accounting principles to a specific completed or contemplated transaction or the type of audit opinion that might be rendered on our financial statements. ITEM 9A. CONTROLS AND PROCEDURES As of September 30, 2003, the end of the period covered by this report, an evaluation was performed under the supervision and with the participation of our management, including our Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures to ensure that information required to be disclosed by the Company in the reports filed or submitted by it under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported as specified in the Securities and Exchange Commission's rules and forms, and include controls and procedures designed to ensure that information required to be disclosed by the Company in such reports is accumulated and communicated to the Company's management, as appropriate, to allow timely decisions regarding required disclosure. Based on that evaluation, our management, including our Principal Executive Officer and Principal Financial Officer, concluded that our disclosure controls and procedures were effective as of September 30, 2003. -26- There have been no changes in our internal control over financial reporting during the last quarter, which ended September 30, 2003, that have materially affected or are reasonably likely to materially affect, our internal control over financial reporting. Since the Company filed its Form 10-K for the year ended September 30, 2002, the Company has entered and emerged from Chapter 11 protection under the U.S. Bankruptcy Code with a new board of directors and new management. The Company contracted the past management of the Company, including its Chief Financial Officer, to assist in the preparation of the financial statements presented herein (for the Predecessor Company) and believes that the control environment that existed to prepare this financial information has not materially affected, or is not reasonably likely to materially affect, our internal control over financial reporting. PART IV ITEM 15. EXHIBITS AND REPORTS ON FORM 8-K EXHIBITS 31.1 - Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2 - Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1 - Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32.2 - Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 We hereby incorporate the following additional documents by reference: (a) our Form 10-K for the year ended September 30, 2003 which was filed on January 5, 2004 and amended on January 28, 2004; and (b) our Forms 10-Q and amendments thereto for the quarter ended December 31, 2002, which was filed on December 11, 2003; for the quarter ended March 31, 2003, which was filed on December 12, 2003; and for the quarter ended June 30, 2003, which was filed on December 15, 2003. -27- REPORTS ON FORM 8-K The Company has filed the following Form 8-K's since it filed a Form 10-K for the year ended September 30, 2002 with the SEC on January 14, 2003: o February 20, 2003 - Form 8-K filed to announce the Company's voluntary filing for relief under Chapter 11 of the U.S. Bankruptcy Code. o April 15, 2003 - Form 8-K filed with a press release announcing that the Company's auditors had declined to continue as auditors of the Company and that the Company intended at the time to wind down its operations and liquidate its assets. o November 18, 2003 - Form 8-K filed to announce the Company's emergence from Chapter 11 of the U.S. Bankruptcy Code, the change in control of the Company, the change in the Company's certifying accountant and the changes in the Company's directors. o November 25, 2003 - Form 8-K/A filed to amend the Company's discussion of the change in the Company's certifying accountant. o On February 23, 2004, we filed Form 8-K to disclose a change in auditors. o On March 5, we filed Form 8-K to report on Items 1, 3, 5, 6 and 7 regarding a change in control, a stock split, an amendment to our articles of incorporation, resignation of our director, and bankruptcy disclosure. o On April 28, 2004, we filed a Form 8-K/A regarding the change in the Company's certified accountant. o On May 7, 2004, we filed Form 8-K to report on Items 5 and 7 regarding a forward stock split, and an amendment to our articles of incorporation. -28- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. DEEP WELL OIL & GAS, INC. May 10, 2004 /s/Steven Gawne Steven Gawne, President, Chief (Principal) Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. /s/Steven Gawne Steven Gawne, President, Chief (Principal) Executive Officer May 10, 2004 /s/Curtis Sparrow Curtis Sparrow, Chief (Principal) Financial Officer, Director May 10, 2004 /s/Horst Schmid Horst Schmid, Chairman of the Board of Directors May 10, 2004 /s/Len Bolger Len Bolger, Director May 10, 2004 -29-
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10-K/A Filing
Deep Well Oil & Gas (DWOG) 10-K/A2003 FY Annual report (amended)
Filed: 13 May 04, 12:00am