UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
| ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2018
| ☐ 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 000-30563
DELTA INTERNATIONAL OIL & GAS INC.
(Exact Name of Registrant as Specified in Its Charter)
| Delaware | 14-1818394 | |
| (State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) |
| HC1 Box 360, 107355 Nipton Rd., Nipton, CA | 92364 | |
| (Address of principal executive offices) | (Zip Code) |
(720) 573-0102
(Registrant's Telephone Number, Including Area Code)
7272 E Indian School Rd., STE 540, Scottsdale, AZ 85251
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
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 of 1934 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 ☐ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☐ No ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ | |
| Non-accelerated filer ☐ | Smaller reporting company ☒ | |
| Emerging growth company ☒ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The number of shares outstanding of the issuer's common stock, $0.0001 par value per share, was 34,838,826 as of May 18, 2018.
DELTA INTERNATIONAL OIL & GAS INC.
INDEX
| Page | |
| Part I. Financial Information | 1 |
| Item 1. Financial Statements. | 1 |
| Consolidated Balance Sheets as of March 31, 2018 (unaudited) and December 31, 2017 | 2 |
| Consolidated Statements of Operations for the three months ended March 31, 2018 and 2017 (unaudited) | 3 |
| Consolidated Statements of Cash Flows for the three months ended March 31, 2018 and 2017 (unaudited) | 4 |
| Notes to Unaudited Consolidated Financial Statements | 5 |
| Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. | 9 |
| Item 3. Quantitative and Qualitative Disclosures About Market Risk. | 12 |
| Item 4. Controls and Procedures. | 12 |
| Part II. Other Information | 13 |
| Item 6. Exhibits. | 13 |
| Signatures | 14 |
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Certain information and footnote disclosures required under accounting principles generally accepted in the United States of America have been condensed or omitted from the following consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, all material adjustments that are necessary for a fair presentation for the periods presented have been reflected. It is suggested that the following consolidated financial statements be read in conjunction with the year-end consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.
The results of operations for the three ended March 31, 2018 and 2017 are not necessarily indicative of the results for the entire fiscal year or for any other period.
1
DELTA INTERNATIONAL OIL & GAS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
| March 31, | December 31, | |||||||
| 2018 | 2017 | |||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash | $ | 1,292 | $ | 2,374 | ||||
| Advances and other receivables | - | 3,000 | ||||||
| Total current assets | 1,292 | 5,374 | ||||||
| Notes receivables, net | 275,490 | 268,162 | ||||||
| Unproved oil and gas properties | 44,703 | 44,703 | ||||||
| TOTAL ASSETS | $ | 321,485 | $ | 318,239 | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable | $ | 40,610 | $ | 37,323 | ||||
| Accrued expenses | 39,474 | 22,807 | ||||||
| Notes payable | 15,000 | 15,000 | ||||||
| Deposit toward T&M Sale | 500,000 | 500,000 | ||||||
| Total current liabilities | 595,084 | 575,130 | ||||||
| Long-term convertible notes | 30,000 | - | ||||||
| Total liabilities | 625,084 | 575,130 | ||||||
| Commitments and Contingencies | ||||||||
| Stockholders' Equity: | ||||||||
| Preferred stock $0.0001 par value-authorized, not designated 9,840,000 shares; no shares issued and outstanding at March 31, 2018 and December 31, 2017, respectively | - | - | ||||||
| Preferred stock Series A $.0001 par value-authorized 160,000 shares; no shares issued and outstanding at March 31, 2018 and December 31, 2017, respectively | - | - | ||||||
| Common stock $0.0001 par value - authorized 250,000,000 shares; 34,838,826 shares and 34,838,826 shares, issued and outstanding at March 31, 2018 and December 31, 2017, respectively | 3,483 | 3,483 | ||||||
| Additional paid-in capital | 7,289,678 | 7,289,678 | ||||||
| Accumulated deficit | (7,596,760 | ) | (7,550,052 | ) | ||||
| Total stockholders' (deficit) | (303,599 | ) | (256,891 | ) | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 321,485 | $ | 318,239 | ||||
The accompanying notes are an integral part of the unaudited consolidated financial statements
2
DELTA INTERNATIONAL OIL & GAS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| Three months ending March 31, | ||||||||
| 2018 | 2017 | |||||||
| Costs and Expenses: | ||||||||
| General and administrative | 58,240 | 79,536 | ||||||
| Loss from operations | $ | (58,240 | ) | $ | (79,536 | ) | ||
| Other Income (Expense): | ||||||||
| Other income | 11,532 | 65 | ||||||
| Other Income (expense) | 11,532 | 65 | ||||||
| Loss before income taxes | (46,708 | ) | (79,471 | ) | ||||
| Provision (benefit) for income taxes | - | - | ||||||
| Net Loss from Continuing Operations | $ | (46,708 | ) | $ | (79,471 | ) | ||
| Discontinued Operations, net of tax | - | (10,615 | ) | |||||
| NET LOSS | $ | (46,708 | ) | $ | (90,086 | ) | ||
| Basic and Diluted Net Loss per common share: | ||||||||
| Continuing Operations | $ | (0.00 | ) | $ | (0.00 | ) | ||
| Discontinued Operations | $ | (0.00 | ) | $ | (0.00 | ) | ||
| Basic and Diluted Net Loss per common share | $ | (0.00 | ) | $ | (0.00 | ) | ||
| Weighted average common shares - Basic and Diluted | 34,838,826 | 32,338,826 | ||||||
The accompanying notes are an integral part of the unaudited consolidated financial statements
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DELTA INTERNATIONAL OIL & GAS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Three Months Ending March 31, | ||||||||
| 2018 | 2017 | |||||||
| Cash flows from Operating Activities: | ||||||||
| Net loss | $ | (46,708 | ) | $ | (90,086 | ) | ||
| Adjustments to reconcile net earnings (loss) to net cash used in operating activities: | ||||||||
| Amortization of discount on note receivable | (7,328 | ) | - | |||||
| Changes in operating assets and liabilities: | ||||||||
| Increase in accounts payable and accrued expenses | 22,954 | 11,110 | ||||||
| Net cash used in operating activities | (31,082 | ) | (78,976 | ) | ||||
| Cash flows from investing activities: | ||||||||
| Net cash used in investing activities | - | - | ||||||
| Cash flows from financing activities: | ||||||||
| Proceeds from convertible notes | 30,000 | - | ||||||
| Net cash provided by financing activities | 30,000 | - | ||||||
| Net increase (decrease) in cash | (1,082 | ) | (78,976 | ) | ||||
| Cash - Beginning of period | 2,374 | 239,627 | ||||||
| Cash - End of period | $ | 1,292 | $ | 160,651 | ||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for interest | $ | - | $ | - | ||||
| Cash paid for income taxes | $ | - | $ | - | ||||
The accompanying notes are an integral part of the unaudited consolidated financial statements.
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DELTA INTERNATIONAL OIL & GAS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited interim consolidated financial statements of Delta International Oil & Gas Inc. (“we”, “our”, “Delta” or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission, and should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017. 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 financial statements which would substantially duplicate the disclosure contained in the audited financial statements for the most recent fiscal year end December 31, 2017 as reported on Form 10-K, have been omitted.
2. GOING CONCERN
Financial Condition
The Company’s financial statements for the three months ended March 31, 2018 have been prepared on a going concern basis, which contemplates the realization of assets and settlement of liabilities in the normal course of business. The Company has incurred net losses and as of March 31, 2018 has an accumulated deficit of $7,596,760 which raises substantial doubt about the Company’s ability to continue as a going concern.
Management Plans to Continue as a Going Concern
Delta closed a reverse merger in April 2018. In the first quarter of 2018, Delta has received $30,000 from two investors via convertible notes. Additionally, the two investors have demonstrated interest in funding Delta’s operations up to $500,000 throughout 2018. The Company’s continued existence is dependent upon management’s ability to develop profitable operations and its ability to obtain additional funding sources to provide capital and other resources for the further development of the Company’s business. The Company’s financial statements as of March 31, 2018 do not include any adjustments that might result from the outcome of this uncertainty.
3. DISCONTINUED OPERATIONS
Disposal of Tartagal and Morillo Concessions
On January 3, 2017, the Company received the acceptance of its offer for the sale of SAHF’s interest in the Tartagal and Morillo concessions from High Luck Group (“High Luck”). The consideration for 18% of Tartagal and Morillo will be $2,000,000 upon the transfer of the concessions, and 3% of gross revenues from the production of oil or gas of either concession up to an additional $2,000,000. Once the transfer occurs, the companies will sign a mutual release. The release of funds is also contingent on other external factors detailed on a Consulting Agreement signed between a third party (Consultant”) and High Luck. After speaking with the Consultant to High Luck on various occasions, Delta has taken the position that most of the Consultant’s duties have been fulfilled and the ones that have not require High Luck to present paperwork to the province and fulfill its commitments to the Province. On February 10, 2017, High Luck Group deposited the initial $2,000,000 in an Escrow account. On April 4, 2017, the Escrow Agent released $500,000 to Delta as a deposit towards the initial $2,000,000 payment which is reported as a “Deposit related to discontinued operations” in the consolidated balance sheet as of March 31, 2018 pending closing of the sale. Management does not expect to collect the balance of the purchase price.
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On April 21, 2017, the official government decree for the transfer of Tartagal and Morillo was issued, but High Luck refused to meet with the SAHF representative to finalize the transfer despite extensive efforts from SAHF.
As of the date of this filing, High Luck still had failed to meet with SAHF to close the contract, and we have taken the position that High Luck is in breach of multiple clauses in the contract. The companies are attempting to solve the outstanding issues in this transaction.
Sale of SAHF
In July 2017, Delta closed the agreement with Enrique Vidal for the transfer of SAHF. As the buyer, he will receive 25% of the Tartagal and Morillo (T&M) Asset Sale in exchange for the buyer’s assumptions of all potential liabilities related to Valle de Lerma concession.
In connection with the deposit received from the sale of the T&M concessions and SAHF, the Company paid commissions and bonuses totaling to $175,000 during the three months ended March 31, 2018 which are included in “Discontinued operations, net” in the consolidated statement of operations. Out of the remaining $1,500,000 that Delta is to be paid for the sale of T&M, SAHF is to receive $375,000. SAHF has already received $125,000 from the initial $500,000 that was transferred to Delta.
The following table presents the amounts of the major line items that are included in “Discontinued operations, net” in our consolidated statements of operations.
| Three Months Ended March 31, | ||||||||
| 2018 | 2017 | |||||||
| General and Administrative | $ | - | $ | (10,615 | ) | |||
| Impairment Expense | $ | - | $ | - | ||||
| Gain on sale of SAHF | $ | - | $ | - | ||||
| Discontinued operations, net of income tax | $ | - | $ | (10,615 | ) | |||
4. NOTES RECEIVABLE
On May 25, 2017, the Company loaned $250,000 to SCO for the development of a gas field in northern California. SCO is using the funds provided to work over 2 wells and puncture in different pay zones, expecting close to virgin pressures.
The note carries a 9% interest, an 18-month maturity, and has an equity kicker of 3.5% in SCO which we determined to have a value of zero. The note will also be prepaid from 25% of the production in the new wells.
On July 26, 2017, the Company made a $50,000 loan to Landmaster for a term of 18 months and annual interest of 9% for the re-entry of two oil wells in Haskell County, Texas. The Company was also granted a 3.75% carried interest in the two wells with the option to participate at the same interest in future wells on the property. The 3.75% carried interest (3% NRI) in the two wells in the Kieke Lease with a fair value of $44,703 was recorded as an oil and gas property and a discount to the loan made to Landmaster and amortized over the term of the note. During the three months ended March 31, 2018, amortization credited to interest income was $7,328.
6
The Company has performed an analysis of the notes receivable balance under ASC 810-10, and has determined that the note receivables in SCO and Landmaster are a variable interest and that SCO and Landmaster are both variable interest entities (“VIE”) and depends on the Company, as well as additional parties, for continuing financial support in order to maintain operations. However, the Company cannot make key operating decisions considered to be most significant to the VIE, and is therefore not considered to be the primary beneficiary. The Company’s maximum exposure to loss approximates to the carrying value of the notes receivable balance at March 31, 2018.
5. UNPROVED OIL AND GAS PROPERTY
On September 22, 2017, the Company acquired a 70% NRI of the KEC lease in Polk County, Texas from Crestmont Operating, LLC (“Crestmont”) for a total consideration of $57,500 which consists of a cash payment of $5,000 and the issuance of 750,000 shares of the Company with a fair value of $52,500. The shares were valued as of the date of their assignment at $.07 per share. The property has four wells- one of the four being a salt water disposal well. Even though the Company is looking to dispose of the KEC lease, it is not considered as “held for sale” because there is not yet a concrete plan to sell it and it is not being marketed.
Crestmont Operating Agreement
On September 22, 2017, the Company signed an operating agreement with Crestmont to remain the operator of the KEC property for a total consideration of $2,500. The operator’s role in this case includes: filing all the necessary paperwork with the Railroad Commission, helping Delta file to become an operator, and formulating a workover plan for the wells. In connection with the operating agreement, the Company also agreed to pay Crestmont an additional $45,000 in the form of a note that will be issued on the earlier of (a) successful completion of the workover of one well with production of at least 13.5 barrels of oil per day for a period of 30 days or (b) a period of three months from the effective date of the agreement in case the workover has not yet started. The agreement with Crestmont was amended in the fourth quarter of 2017 to substitute the $45,000 Note for 1,000,000 common shares in Delta. The 1,000,000 common shares with a fair value of $30,000 were issued in the fourth quarter of 2017 and charged to expense.
In late 2017, BCM Energy Investments was issued 750,000 shares with a fair value of $21,750 for its consulting and evaluation services in connection with the acquisition of the KEC property.
The KEC property was fully impaired as of December 31, 2017 and has a carrying value of $0.
6. CONVERTIBLE NOTES
On March 20, 2018, two convertible promissory notes were issued to investors for $15,000. The notes are subject to annual interest of 6%, mature on March 20, 2021 and are convertible to common shares any time after 180 days from the issuance date at a price of $0.02 per share. The notes include an antidilution provision when certain conditions are met.
7. WARRANTS
There were no warrants issued in the first quarter of 2018. Below is a table with a summary of warrant activity.
| Warrants | Weighted Average Exercise Price | Weighted Average Contractual Term (years) | Aggregated Intrinsic Value | |||||||||||||
| Outstanding, December 31, 2017 | 9,700,126 | $ | 0.20 | 0.84 | $ | 0 | ||||||||||
| Granted | 0 | 0 | - | 0 | ||||||||||||
| Exercised | - | - | - | - | ||||||||||||
| Outstanding, March 31, 2018 | 9,700,126 | $ | 0.20 | 0.59 | $ | 0 | ||||||||||
| Vested, March 31, 2018 | 9,700,126 | $ | 0.20 | 0.59 | $ | 0 | ||||||||||
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8. SECURITIES EXCHANGE AGREEMENT WITH AMERICAN GREEN
On March 19, 2018, the Company entered into a Securities Exchange Agreement, dated as of March 14, 2018 (the “Agreement”) with American Green, Inc., a Wyoming corporation (“American Green”), and Nipton, Inc., a California corporation, a wholly-owned subsidiary of American Green. Pursuant to the Agreement, the Company agreed to acquire 100% of the issued and outstanding equity securities of Nipton, Inc. from American Green (the “Nipton Acquisition”) in exchange for shares of our convertible preferred stock, convertible into 160,000,000 shares of the Company’s Common Stock.
9. SUBSEQUENT EVENTS
Preferred Series A Stock
In April 2018, Delta designated 160,000 shares of Series A preferred stock with a par value of $0.0001 per share. Each share is convertible 1,000 to 1 into common stock, carries a dividend rate of 5% per annum on the face value, and is secured by the Nipton Inc. properties.
Closing of Reverse Merger with American Green, Inc. and Acquisition of Nipton, Inc.
On April 5, 2018, Delta and American Green closed the Nipton Acquisition. At the closing of the Agreement, Delta issued 160,000 shares of its Series A Convertible Preferred Stock, convertible into 160,000,000 shares of its common stock, to American Green, the former stockholder of Nipton, Inc., in exchange for all the outstanding shares of capital stock of Nipton, Inc. Following the closing of the Nipton Acquisition, Nipton, Inc. became a wholly-owned subsidiary of the Company, with American Green, the former stockholder of Nipton, Inc., owning a controlling interest of approximately 82% of the outstanding shares of common stock of Delta.
8
| ITEM 2. | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The following discussion of our consolidated financial condition and results of operations should be read in conjunction with the consolidated financial statements and notes thereto and the other financial information included elsewhere in this report.
Certain statements contained in this report, including, without limitation, statements containing the words "believes," "anticipates," "expects" and words of similar import, constitute "forward looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including our ability to create, sustain, manage or forecast our growth; our ability to attract and retain key personnel; changes in our business strategy or development plans; competition; business disruptions; adverse publicity; and international, national and local general economic and market conditions.
GENERAL
Delta International Oil & Gas Inc. (“Delta” or “the Company”) was incorporated in Delaware on November 17, 1999. Our name was changed from Delta Mutual Inc. to our present name on October 29, 2013. In 2003, we established business operations focused on providing environmental and construction technologies and services. Our operations in the Far East (Indonesia) and our construction operations in Puerto Rico were discontinued in 2008.
Effective March 4, 2008, we acquired 100% of the issued and outstanding membership interests in the parent of South American Hedge Fund LLC, a Delaware limited liability company (sometimes herein referred to as “SAHF”). For accounting purposes, the transaction was treated as a recapitalization of the Company, as of March 4, 2008, with the parent of SAHF as the acquirer. We have disposed of SAHF in September 2017 and no longer maintain a branch office in Argentina. We have made oil and gas investments in the United States, in addition to an investment in a technology company.
Recent Developments
On March 19, 2018, the Company entered into a Purchase Agreement, dated as of March 14, 2018 (the “Agreement”) with American Green, Inc., a Wyoming corporation (“American Green”), and Nipton, Inc., a California corporation, a wholly-owned subsidiary of American Green. Pursuant to the Agreement, the Company agreed to acquire 100% of the issued and outstanding equity securities of Nipton, Inc. from American Green (the “Nipton Acquisition”) in exchange for shares of convertible preferred stock, convertible into 160,000,000 shares of the Company’s Common Stock.
On April 5, 2018, Delta and American Green closed the Nipton Acquisition. At the closing under the Agreement, the Company issued 160,000 shares of its Series A Convertible Preferred Stock, convertible into 160,000,000 shares of its common stock, to American Green, the former stockholder of Nipton, Inc., in exchange for all the outstanding shares of capital stock of Nipton, Inc., the assets of which are comprised of all of the real estate properties included in the unincorporated township of Nipton, California (“Nipton”). Following the closing of the Nipton Acquisition, Nipton, Inc. became a wholly-owned subsidiary of the Company, with American Green, the former stockholder of Nipton, Inc., owning a controlling voting interest of approximately 82% of the outstanding shares of common stock of Delta.
Overview
As a result of the review by our management team and our board of directors of oil and gas exploration and production operations in Argentina and the United States, the Company has shifted its attention away from energy investments, and into real estate development in the western United States. In 2017, the Company disposed of its Argentine oil and gas investments and after the closing of the Nipton Acquisition, began planning the disposal of its US-based energy assets and liabilities.
The US investments include: a $250,000 Note to a gas exploration company in California, $50,000 Note to an oil production company in Texas, a 70% NRI in an oil lease, and 1,343,750 shares in a Technology company in its research and development phase. Most investments are believed to be safe, but they are expected to take longer than 1 year to return the capital investment. The investments are being disposed of to put the shareholders in a better position to receive higher returns from the real estate development projects.
9
Our Oil and Gas Investments
As of March 31, 2018, the Company retained several US-based oil and gas investments.
We hold a $250,000 note receivable from SCO and a 3.75% interest in SCO- a gas exploration company in California. SCO holds the right to rework and explore the Petersen estate which has 31 wells. SCO has drilled 2 workover wells in the Petersen ranch in 2017-2018. One of the wells was successful and it was producing around 450 mcfd as of late March 2018.
We also hold a $50,000 note receivable from Landmaster- an oil exploration and production company in Texas. The note receivable comes with a 3% NRI in the Kieke Lease. Landmaster holds the majority interest in the Swenson, Kieke and Cannon leases in Texas. Landmaster used the $50,000 to drill two re-entry wells in the Kieke lease. The wells have produced between 12 and 15 bopd, but are currently offline due to tank repairs that are needed.
We also hold a 70% NRI interest in the KEC lease in Texas. Crestmont is the current operator in the lease, but that is expected to switch to Neptune Industries, LLC in the second quarter of 2018. This investment has been impaired since Delta does not have the capital sufficient to drill the needed workover.
Sale of SAHF
In July 2017, Delta transferred SAHF to a third party along with all of the assets and liabilities related to the Argentina properties. Delta did this because there were some potential liabilities that were related to the Valle de Lerma concession that could harm Delta in the future. The buyer assumed all of these liabilities along with the liabilities related to the sale of the Tartagal and Morillo properties to High Luck Group. The buyer also assumed 25% of the purchase price related to the Tartagal and Morillo sale. At this time, there is some doubt that the agreement with High Luck will close due to High Luck’s refusal to sign the transfer of the properties.
RESULTS OF OPERATIONS
THREE MONTHS ENDED March 31, 2018 COMPARED TO THE THREE MONTHS ENDED MARCH 31, 2017
During the three months ended March 31, 2018, we incurred a net loss of approximately $47,000 compared to a net loss of approximately $90,000 for the three months ended March 31, 2017. The net loss for the three months ended March 31, 2018 compared to the net loss for three months ended March 31, 2017 is lower primarily due to higher salary and consulting expense in 2017.
LIQUIDITY AND CAPITAL REQUIREMENTS
At March 31, 2018, we had a working capital deficit of approximately $594,000 compared with a working capital deficit of approximately $570,000 at December 31, 2017.
At March 31, 2018, we had total assets of approximately $321,000 compared to total assets of approximately $318,000 at December 31, 2017. Net cash used from operating activities in the three months ended March 31, 2018 was approximately $31,000, as compared with net cash used in operating activities of $79,000 in 2017; net cash gained in investing activities was $0 in the three months ended March 31, 2017 and 2018; and net cash generated from financing activities was $30,000 in the three months ended March 31, 2018 and $0 in the three months ended March 31, 2017.
On March 20, 2018, two convertible promissory notes were issued to investors for $15,000 each.
Estimated 2018 Capital Requirements
All of the Argentine properties have been disposed of so there are no additional capital requirements.
The SCO and Landmaster investments require no additional capital, but if the company wants to retain its percentage in future wells, then the company will have to contribute its share of the exploration costs.
The KEC investment requires around $120,000 of initial capital to develop the property. The company does not have the capital sufficient to execute the development plan in the property.
The purchase of the town of Nipton, which we plan to develop so that it offers a variety of commercial and recreational attractions including: cannabidiol (CBD) and mineral baths, cannabis-product retail outposts, artists-in-residence programs, culinary events, and bed-and-breakfasts will require in excess of $5,000,000 of additional capital.
10
USE OF ESTIMATES
The preparation of the financial statements requires the Company to make estimates and judgments that affect the reported amount of assets, liabilities, and expenses, and related disclosures of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates, including those related to oil and gas properties, intangible assets, income taxes and contingencies and litigation. The Company bases its estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. In the opinion of management, all normal recurring adjustments considered necessary for a fair presentation have been included in these financial statements. Certain amounts for prior periods have been reclassified to conform to the current presentation.
NEW FINANCIAL ACCOUNTING STANDARDS
For a summary of new financial accounting standards applicable to the Company, please refer to the notes to the financial statements set forth in our Annual Report on Form 10-K for the year ended December 31, 2017, filed with the SEC on March 31, 2017.
Critical Accounting Policies and Estimates
The Securities and Exchange Commission recently issued “Financial Reporting Release No. 60 Cautionary Advice About Critical Accounting Policies” (“FRR 60”), suggesting companies provide additional disclosures, discussion and commentary on their accounting policies considered most critical to its business and financial reporting requirements. FRR 60 considers an accounting policy to be critical if it is important to the Company’s financial condition and results of operations, and requires significant judgment and estimates on the part of management in the application of the policy.
The Company assesses potential impairment of its long-lived assets, which include its oil and gas property, under the guidance of ASC 360 “Accounting for the Impairment or Disposal of Long-Lived Assets.” The Company must continually determine if a permanent impairment of its long-lived assets has occurred and write down the assets to their fair values and charge current operations for the measured impairment.
The Company accounts for stock-based compensation to non-employees under ASC 718, "Compensation-Stock Compensation" ("ASC 718"). The compensation cost of the awards is based on the grant date fair-value of these awards and recognized over the requisite service period, which is typically the vesting period. The Company uses the Black-Scholes Option Pricing Model to determine the fair-value of stock options issued for compensation.
The Company accounts for non-employee share-based awards based upon ASC 505-50, “Equity-Based Payments to Non-Employees.” ASC 505-50 requires the costs of goods and services received in exchange for an award of equity instruments to be recognized using the fair value of the goods and services or the fair value of the equity award, whichever is more reliably measurable. The fair value of the equity award is determined on the measurement date, which is the earlier of the date that a performance commitment is reached or the date that performance is complete. Generally, our awards do not entail performance commitments. When an award vests over time such that performance occurs over multiple reporting periods, we estimate the fair value of the award as of the end of each reporting period and recognize an appropriate portion of the cost based on the fair value on that date. When the award vests, we adjust the cost previously recognized so that the cost ultimately recognized is equivalent to the fair value on the date the performance is complete.
Variable Interest Entities
The Company follows ASC 810-10-15 guidance with respect to accounting for variable interest entities (each, a “VIE”). These entities do not have sufficient equity at risk to finance their activities without additional subordinated financial support from other parties or whose equity investors lack any of the characteristics of a controlling financial interest. A variable interest is an investment or other interest that will absorb portions of a VIE’s expected losses or receive portions of its expected residual returns and are contractual, ownership, or pecuniary in nature and that change with changes in the fair value of the entity’s net assets. A reporting entity is the primary beneficiary of a VIE and must consolidate it when that party has a variable interest, or combination of variable interests, that provides it with a controlling financial interest. A party is deemed to have a controlling financial interest if it meets both of the power and losses/benefits criteria. The power criterion is the ability to direct the activities of the VIE that most significantly impact its economic performance. The losses/benefits criterion is the obligation to absorb losses from, or right to receive benefits from, the VIE that could potentially be significant to the VIE. The VIE model requires an ongoing reconsideration of whether a reporting entity is the primary beneficiary of a VIE due to changes in facts and circumstances. The Company has entered into transactions with VIEs in 2017; however, the Company is not considered to be the primary beneficiary in these transactions. Footnote 4 further discloses this investment.
Discontinued Operations
We present discontinued operations in our consolidated financial statements when we believe that the disposition of assets constitutes a strategic shift that will have a major effect on our operations or financial results. The results of prior periods are reclassified to conform to the current year presentation. See Note 3.
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OFF BALANCE SHEET ARRANGEMENTS
The Company has performed an analysis of the loan balance to SCO under ASC 810-10, and has determined that the loan represents a variable interest in SCO. SCO is a variable interest entity (“VIE”) and depends on the Company, as well as additional parties, for continuing financial support in order to maintain operations. However, the Company cannot make key operating decisions considered to be most significant to the VIE, and is therefore not considered to be the primary beneficiary. Our maximum exposure to loss approximates to the carrying value of due from the SCO loan balance on the Balance Sheet at March 31, 2018.
The Company has performed an analysis of the loan balance to Landmaster under ASC 810-10, and has determined that Landmaster is a variable interest entity (“VIE”) and depends on the Company, as well as additional parties, for continuing financial support in order to maintain operations. However, the Company cannot make key operating decisions considered to be most significant to the VIE, and is therefore not considered to be the primary beneficiary. Our maximum exposure to loss approximates to the carrying value of the due from the Landmaster loan balance on the Balance Sheet at March 31, 2018.
Other than noted above, we have no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to our stockholders.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable to smaller reporting companies.
Item 4. CONTROLS AND PROCEDURES
Evaluation of Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Securities Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management, including our chief executive and financial officer, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as ours are designed to do, and management necessarily was required to apply its judgment in evaluating the cost- benefit relationship of possible controls and procedures.
As of March 31, 2018, an evaluation was performed under the supervision and with the participation of our management, including our Chief Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon that evaluation, our Chief Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were not effective.
Changes in Internal Controls
There have been no changes in the Company's internal controls over financial reporting that occurred during the Company's last fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
Limitations on the Effectiveness of Controls
A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. These inherent limitations include, but are not limited to, the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
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PART II—OTHER INFORMATION
ITEM 6. EXHIBITS.
* Filed herewith
** Furnished herewith
Copies of the following documents are included as exhibits to this report pursuant to Item 601 of Regulation S-K.
| SEC Ref. No. | Title of Document | |
| 101.INS | XBRL Instance Document | |
| 101.SCH | XBRL Taxonomy Extension Schema Document | |
| 101.CAL | XBRL Taxonomy Calculation Linkbase Document | |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB | XBRL Taxonomy Label Linkbase Document | |
| 101.PRE | XBRL Taxonomy Presentation Linkbase Document |
The XBRL related information in Exhibits 101 to this Quarterly Report on Form 10-Q shall not be deemed “filed” or a part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, and is not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of those sections.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the Company has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| DELTA INTERNATIONAL OIL & GAS INC. | ||
| Dated: May 18, 2018 | BY: | /s/ Scott Stoegbauer |
| Scott Stoegbauer | ||
| Interim President, Principal Executive Officer and Principal Financial Officer | ||
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EXHIBIT INDEX
| SEC Ref. No. | Title of Document | |
| 101.INS | XBRL Instance Document | |
| 101.SCH | XBRL Taxonomy Extension Schema Document | |
| 101.CAL | XBRL Taxonomy Calculation Linkbase Document | |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB | XBRL Taxonomy Label Linkbase Document | |
| 101.PRE | XBRL Taxonomy Presentation Linkbase Document |
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