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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[ x ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended May 31, 2008
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number:000-52750
CROWN OIL AND GAS INC.
(Exact name of small business issuer as specified in its charter)
| Nevada | 98-0495144 |
| (State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) |
800 – 5th Avenue, Suite 4100, Seattle, Washington 98104
(Address of principal executive offices)
(206) 224-7975
(Issuer’s telephone number)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ x ] No [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the issuer has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date:113,050,000 shares of our common stock issued and outstanding as of July 15, 2008
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [ x ]
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PART I. FINANCIAL INFORMATION
| ITEM 1. | FINANCIAL STATEMENTS |
Crown Oil and Gas Inc.
(formerly Onelife Health Products Inc.)
(A Development Stage Company)
Financial Statements
May 31, 2008
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| Crown Oil and Gas Inc. |
| (formerly Onelife Health Products Inc.) |
| (An Exploration Stage Company) |
| Condensed Balance Sheets |
| May 31, 2008 |
| May 31, | November 30, | |||||
| 2008 | 2007 | |||||
| (unaudited) | (audited) | |||||
| Assets | ||||||
| Current: | ||||||
| Cash | $ | 84,013 | $ | 3,724 | ||
| Deposits | 350 | 350 | ||||
| Total current assets | 84,363 | 4,074 | ||||
| Non-current: | ||||||
| Interest receivable | 135,981 | - | ||||
| Loan receivable | 4,919,872 | - | ||||
| Total non-current assets | 5,055,853 | 350 | ||||
| Total assets | $ | 5,140,216 | $ | 4,074 | ||
| Liabilities | ||||||
| Accounts payable | $ | 14,356 | $ | 244 | ||
| Due to stockholder | 33,351 | 16,763 | ||||
| Total liabilities | 47,707 | 17,007 | ||||
| Stockholders` Equity | ||||||
| Capital stock authorized – | ||||||
| 900,000,000 common shares with a par value of $0.001 | ||||||
| Capital stock issued and outstanding – | ||||||
| 113,050,000 and 108,000,000 common shares respectively | 113,050 | 108,000 | ||||
| Additional paid in capital | 4,991,950 | ( 53,000 | ) | |||
| Deficit accumulated during the exploration stage | (12,491 | ) | ( 67,933 | ) | ||
| Total Stockholders’ Equity | 5,092,509 | ( 12,933 | ) | |||
| Total Liabilities and Stockholders’ Equity | $ | 5,140,216 | $ | 4.074 |
The accompanying notes are an integral part of these financial statements
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| Crown Oil and Gas Inc. |
| (formerly Onelife Health Products Inc.) |
| (An Exploration Stage Company) |
| Condensed Statements of Operations |
| For the three and six months ended May 31, 2008 and 2007 and |
| the period from inception (February 17, 2006) to May 31, 2008 |
| Three | Three | Six | Six | Period from | |||||||||||
| Months | Months | Months | Months | Inception | |||||||||||
| Ended | Ended | Ended | Ended | (February 17, 2006) | |||||||||||
| May 31, | May 31, | May31, | May 31, | to | |||||||||||
| 2008 | 2007 | 2008 | 2007 | May 31, 2008 | |||||||||||
| Net sales | $ | - | $ | 578 | - | $ | 745 | $ | 882 | ||||||
| Cost of sales | - | 122 | - | 170 | 190 | ||||||||||
| Gross profit | - | 456 | - | 575 | 692 | ||||||||||
| Amortization | - | 1,248 | - | 2,496 | 5,408 | ||||||||||
| Investor relations | - | 2,200 | - | 2,200 | |||||||||||
| Management fees | - | 12,500 | - | 12,500 | |||||||||||
| Office and miscellaneous | 3,568 | 12,159 | 8,945 | 19,611 | 32,479 | ||||||||||
| Organization | - | - | - | - | 1,475 | ||||||||||
| Professional fees | 24,365 | - | 56,894 | - | 77,069 | ||||||||||
| Marketing and selling | - | 319 | - | 1,520 | 3,088 | ||||||||||
| 27,933 | 13,726 | 80,539 | 23,627 | 134,219 | |||||||||||
| Loss from operations | (27,933 | ) | (13,270 | ) | (80,539 | ) | (23,052 | ) | (133,527 | ) | |||||
| Write-down of inventory | - | - | - | - | 5,497 | ||||||||||
| Write-down of website | - | - | - | - | 9,576 | ||||||||||
| Interest income | 135,981 | - | 135,981 | - | 136,109 | ||||||||||
| Income (Loss) before income taxes | 108,048 | (13,270 | ) | 55,442 | (23,052 | ) | (12,491 | ) | |||||||
| Income taxes | - | - | - | - | - | ||||||||||
| Net income (loss) for the period | $ | 108,048 | $ | (13,270 | ) | $ | 55,442 | $ | (23,052 | ) | $ | (12,491 | ) | ||
| Weighted average shares outstanding | 112,116,848 | 108,000,000 | 110,081,044 | 108,000,000 | |||||||||||
| Loss per share | $ | (a) | $ | (a) | $ | (a) | $ | (a) |
(a) = Less than $0.01 per share
The accompanying notes are an integral part of these financial statements
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| Crown Oil and Gas Inc. |
| (formerly Onelife Health Products Inc.) |
| (An Exploration Stage Company) |
| Condensed Statements of Cash Flows |
| For the six months ended May 31, 2008 and 2007 and |
| the period February 17, 2006 (Date of inception) to May 31, 2008 |
| Period from | |||||||||
| Six | Six | Inception | |||||||
| Months | Months | (February 17, 2006) | |||||||
| May 31, | May 31, | to | |||||||
| 2008 | 2007 | May 31, 2008 | |||||||
| Operating Activities | |||||||||
| Net loss | $ | 55,442 | $ | ( 23,052 | ) | $ | (12,491 | ) | |
| Amortization expense | - | 2,496 | 5,408 | ||||||
| Write down of inventory | - | - | 5,497 | ||||||
| Write down of website | - | - | 9,576 | ||||||
| Decrease in inventory | - | 75 | (5,497 | ) | |||||
| Increase in accounts receivable | - | (42 | ) | - | |||||
| Increase in deposit | - | - | (350 | ) | |||||
| Increase in accounts payable | 14,112 | 1,629 | 14,356 | ||||||
| Increase in amount due to stockholder | 16,588 | (1,139 | ) | 33,351 | |||||
| Cash from operating activities | 86,142 | (20,033 | ) | 49,850 | |||||
| Investing Activity | |||||||||
| Website | - | - | (14,984 | ) | |||||
| Financing Activities | |||||||||
| Cash from sale of stock | 5,050,000 | - | 5,105,000 | ||||||
| Increase in loan receivable | (5,055,853 | ) | - | (5,055,853 | ) | ||||
| Subscriptions receivable | - | - | - | ||||||
| Cash from financing activity | (5,853 | ) | - | 49,147 | |||||
| Increase in cash | 80,289 | (20,033 | ) | 84,013 | |||||
| Cash, opening | 3,724 | 27,763 | - | ||||||
| Cash, closing | $ | 84,013 | $ | 7,730 | $ | 84,013 |
The accompanying notes are an integral part of these financial statements
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| Crown Oil and Gas Inc. |
| (formerly Onelife Health Products Inc.) |
| (An Exploration Stage Company) |
| Condensed Statements of Stockholders’ Equity |
| May 31, 2008 |
| Common Shares | Additional | ||||||||||||||
| Issued | Paid In | Deficit | Total | ||||||||||||
| Shares | Amount | Capital | |||||||||||||
| Balance, February 17, 2006 (date of inception) | - | $ | - | $ | - | $ | - | $ | - | ||||||
| Shares issued to founder on February 17, 2006 | 90,000,000 | 90,000 | (85,000 | ) | - | 5,000 | |||||||||
| Private placement on July 31, 2006 @ $0.0027/share | 18,000,000 | 18,000 | 32,000 | - | 50,000 | ||||||||||
| Net loss | - | - | - | (11,369 | ) | ( 11,369 | ) | ||||||||
| Balance, November 30, 2006 | 108,000,000 | 108,000 | (53,000 | ) | (11,369 | ) | 43,631 | ||||||||
| Net loss | - | - | - | (56,564 | ) | ( 56,564 | ) | ||||||||
| Balance, November 30, 2007 | 108,000,000 | 108,000 | (53,000 | ) | (67,933 | ) | ( 12.933 | ) | |||||||
| Private placement on March 17, 2008 @ $1/share | 5,050,000 | 5,050 | 5,044,950 | - | 5,050,000 | ||||||||||
| Net income | - | - | - | 55,442 | 55,442 | ||||||||||
| Balance, May 31, 2008 | 113,050,000 | $ | 113,050 | $ | 4,991,950 | $ | (12,491 | ) | $ | 5,092,509 | |||||
The accompanying notes are an integral part of these financial statements
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| Crown Oil and Gas Inc. |
| (formerly Onelife Health Products Inc.) |
| (An Exploration Stage Company) |
| Notes to Financial Statements |
| May 31, 2008 |
Note 1 – Nature of Operations
The Company was originally incorporated under the laws of the state of Nevada on February 17, 2006. The Company has limited operations and, in accordance with SFAS #7, is considered a development stage company, and has limited operations to date.
The Company’s activities to date have been supported by equity financing. It has sustained losses in all previous reporting periods with an inception to date loss of $148,472 as of May 31, 2008. Management continues to seek funding from its shareholders and other qualified investors to pursue its business plan. In the alternative, the Company may be amenable to a sale, merger or other acquisition in the event such transaction is deemed by management to be in the best interests of the shareholders.
Note 2 – Significant Accounting Policies
Accounting Basis
These financial statements are prepared on the accrual basis of accounting in conformity with accounting principles generally accepted in the United States of America.
Financial Instrument
The Company's financial instrument consists of amount due to stockholder.
The amount due to stockholder is non interest-bearing. It is management's opinion that the Company is not exposed to significant interest, currency or credit risks arising from its other financial instruments and that their fair values approximate their carrying values except where separately disclosed.
Use of Estimates
The preparation of financial statements in conformity with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the year. The more significant areas requiring the use of estimates include asset impairment, stock-based compensation, and future income tax amounts. Management bases its estimates on historical experience and on other assumptions considered to be reasonable under the circumstances. However, actual results may differ from the estimates.
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| Crown Oil and Gas Inc. |
| (formerly Onelife Health Products Inc.) |
| (An Exploration Stage Company) |
| Notes to Financial Statements |
| May 31, 2008 |
Note 2 – Significant Accounting Policies (continued)
Dividends
The Company has not adopted any policy regarding payment of dividends. No dividends have been paid during the period shown.
Income Taxes
The Company provides for income taxes under Statement of Financial Accounting Standards NO. 109, “Accounting for Income Taxes.” SFAS No. 109 requires the use of an asset and liability approach in accounting for income taxes.
SFAS No. 109 requires the reduction of deferred tax assets by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. No provision for income taxes is included in the statement due to its immaterial amount, net of the allowance account, based on the likelihood of the Company to utilize the loss carry-forward.
Earnings (Loss) Per Common Share
Earnings (Loss) per common share is computed based on the weighted average number of common shares outstanding and common stock equivalents, if not anti-dilutive. The Company has not issued any potentially dilutive common shares.
Note 3 – Loan Receivable
The loan receivable bears interest at 12% per annum, is repayable on August 29, 2008 and is secured with assets of the borrower. During the period, the company has accrued $135,981 of interest related to this loan. The funds have been loaned a future subsidiary of the Company and have been used in exploration activities.
Note 4 – Due to stockholder
Amount due to stockholder is unsecured, non-interest bearing and has no specific terms of repayment. As of May 31, 2008 and November 30, 2007 amount due to stockholder was $33,351 and $16,763 respectively.
Note 5 – Capital stock
Common Shares - Authorized
The company has 900,000,000 common shares authorized at a par value of $0.001 per share.
Common Shares – Issued and Outstanding
During the year, the company issued 113,050,000 common shares at par value.
On January 31, 2008, we effected a stock split on an eighteen to one basis to increase our authorized capital from 50,000,000 shares of common stock with a par value of $0.01 to 900,000,000 shares of common stock with a par value of $0.01.
On January 15, 2008, we completed a merger with our wholly owned subsidiary, Crown Oil and Gas, Inc., a Nevada corporation. Pursuant to the merger, we changed our name from “OneLife Health Products Inc.” to “Crown Oil and Gas Inc.” to better reflect the anticipated future business of our Company. We do not have any subsidiaries.
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| Crown Oil and Gas Inc. |
| (formerly Onelife Health Products Inc.) |
| (An Exploration Stage Company) |
| Notes to Financial Statements |
| May 31, 2008 |
Note 6 – Income Taxes
The Company provides for income taxes under Statement of Financial Accounting Standards No. 109,Accounting for Income Taxes. SFAS No. 109 requires the use of an asset and liability approach in accounting for income taxes. Deferred tax assets and liabilities are recorded based on the differences between the financial statement and tax bases of assets and liabilities and the tax rates in effect currently.
SFAS No. 109 requires the reduction of deferred tax assets by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. In the Company’s opinion, it is uncertain whether they will generate sufficient taxable income in the future to fully utilize the net deferred tax asset. Accordingly, a valuation allowance equal to the deferred tax asset has been recorded. The total deferred tax asset is $32,664, which is calculated by multiplying a 22% estimated tax rate by the cumulative NOL of $148,472.
Note 7 – Related Party Transaction
The Company's neither owns nor leases any real or personal property. The Company's Directors provide office space free of charge. The officers and directors of the Company are involved in other business activities and may, in the future, become involved in other business opportunities. If a specific business opportunity becomes available, such persons may face a conflict in selecting between the Company and their other business interests. The Company has not formulated a policy for the resolution of such conflicts.
On February 17, 2006 (inception), the Company issued 90,000,000 shares of its common stock to its Directors for cash of $5,000. See Note 5.
The amount due to an officer and director of $33,351 is for reimbursable expenses incurred by the company and paid directly by the President and CEO. The amount is unsecured and does not have any repayment terms or bear any interest. The amount was partially repaid during the quarter.
Note 8 – Going Concern
The accompanying financial statements have been prepared assuming that the company will continue as a going concern. As discussed in the notes to the financial statements, the Company has no established source of revenue. This raises substantial doubt about the Company’s ability to continue as a going concern. Without realization of additional capital, it would be unlikely for the Company to continue as a going concern. The financial statements do not include any adjustments that might result from this uncertainty.
10
| Crown Oil and Gas Inc. |
| (formerly Onelife Health Products Inc.) |
| (An Exploration Stage Company) |
| Notes to Financial Statements |
| May 31, 2008 |
Note 9 – Recent Accounting Pronouncements
Below is a listing of the most recent accounting standards SFAS 150-154 and their effect on the Company.
Statement No. 150 - Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity (Issued 5/03)
This Statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity.
Statement No. 151- Inventory Costs-an amendment of ARB No. 43, Chapter 4 (Issued 11/04)
This statement amends the guidance in ARB No. 43, Chapter 4,Inventory Pricing, to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). Paragraph 5 of ARB 43, Chapter 4, previously stated that “…under some circumstances, items such as idle facility expense, excessive spoilage, double freight and re-handling costs may be so abnormal ass to require treatment as current period charges….” This Statement requires that those items be recognized as current-period charges regardless of whether they meet the criterion of “so abnormal.” In addition, this Statement requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities.
Statement No. 152 - Accounting for Real Estate Time-Sharing Transactions (an amendment of FASB Statements No. 66 and 67)
This Statement amends FASB Statement No. 66,Accounting for Sales of Real Estate, to reference the financial accounting and reporting guidance for real estate time-sharing transactions that is provided in AICPA Statement of Position (SOP) 04-2,Accounting for Real Estate Time-Sharing Transactions.
This Statement also amends FASB Statement No. 67, Accountingfor Costs and Initial Rental Operations of Real Estate Projects, states that the guidance for (a) incidental operations and (b) costs incurred to sell real estate projects does not apply to real estate time-sharing transactions. The accounting for those operations and costs is subject to the guidance in SOP04-2.
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| Crown Oil and Gas Inc. |
| (formerly Onelife Health Products Inc.) |
| (An Exploration Stage Company) |
| Notes to Financial Statements |
| May 31, 2008 |
Note 9 – Recent Accounting Pronouncements (continued)
Statement No. 153- Exchanges of Non-monetary Assets (an amendment of APB Opinion No. 29)
The guidance in APB Opinion No. 29,Accounting for Non-monetary Transactions, is based on the principle that exchanges of non-monetary assets should be measured based on the fair value of the assets exchanged. The guidance in that Opinion, however, includes certain exceptions to the principle. This Statement amends Opinion 29 to eliminate the exception for non-monetary exchanges of similar productive assts and replaces it with a general exception for exchanges of non-monetary assets that do not have commercial substance. A non-monetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange.
Statement No. 154 – Accounting Changes and Error Corrections (a replacement of APB Opinion No. 20 and FASB statement No. 3)
This Statement replaces APB Opinion No. 20,Accounting Changes, and FASB Statement No. 3,Reporting Accounting Changes in Interim Financial Statements, and changes the requirements for the accounting for and reporting of a change in accounting principle. This Statement applies to all voluntary changes in accounting principle. It also applies to changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions. When a pronouncement includes specific transition provisions, those provisions should be followed.
SFAS NO. 155 Accounting for Certain Hybrid Financial Instruments-an amendment of FASB Statements No. 133 and 140
This statement amends FASB Statements No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. This statement resolves issues addressed in Statement 133 Implementation Issue No. D1, Application of Statement 133 to Beneficial Interests in Securitized Financial Assets. This statement is effective for all financial instruments acquired or issued after the beginning of an entity’s first fiscal year that begins after September 15, 2006.
SFAS NO. 156 Accounting for Servicing of Financial Assets-an amendment of FASB Statement No. 140
This statement amends FASB Statement No. 140 with respect to the accounting for separately recognized servicing liabilities. An entity should adopt this statement as of the beginning of its first fiscal year that begins after September 15, 2006.
SFAS NO. 157 Fair Value Measurements
In September 2006, the FASB issued SFAS No. 157,Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS No. 157 does not require any new fair value measurements, but provides guidance on how to measure fair value by providing a fair value hierarchy used to classify the source of the information. This statement is effective for us beginning May 1, 2008.
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| Crown Oil and Gas Inc. |
| (formerly Onelife Health Products Inc.) |
| (An Exploration Stage Company) |
| Notes to Financial Statements |
| May 31, 2008 |
Note 9 – Recent Accounting Pronouncements (continued)
SFAS NO. 158 Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans-an amendment of FASB Statements No. 87, 88, 106, and 132(R))
This statement improves the financial reporting by requiring an employer to recognize the overfunded or underfunded status of a defined benefit postretirement plan (other than a multiemployer plan) as an asset or liabilities in its statement of financial positions and to recognize changes in that funded status in the year in which the changes occur through comprehensive income of a business entity. This statement also improves financial reporting by requiring an employer to measure the funded status of a plan as of the date of its year-end statement of financial position, with limited exceptions.
SFAS NO. 159 The Fair Value Option for Financial Assets and Financial Liabilities-Including an amendment of FASB Statement No. 115
This statement permits entities to choose to measure many financial instruments and certain items at fair value. The objective is to improve the financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. This statement is expected to expand the use of fair value measurement objectives for accounting for financial instruments. This statement is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007.
SFAS No. 160 Non-controlling Interest in Consolidated Financial Statements-an amendment of ARB No. 51
This statement amends ARB 51 to establish accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. It also changes the way the consolidated income statement is presented for non-controlling interest. This statement improves comparability by eliminating diversity of methods. This statement also requires expanded disclosure.
SFAS No. 161
This statement is intended to enhance the disclosure requirements for derivative instruments and hedging activities as required by SFAS 133.
SFAS 162
This statement indentifies the sources of accounting principles and the framework for selecting the principles to by used in the preparation of financial statements for entities that are presented in conformity with generally accepted accounting principles in the United States, (the GAAP hierarchy).
13
| Crown Oil and Gas Inc. |
| (formerly Onelife Health Products Inc.) |
| (An Exploration Stage Company) |
| Notes to Financial Statements |
| May 31, 2008 |
Note 9 – Recent Accounting Pronouncements (continued)
FIN No. 48
In June 2006, the FASB issued Interpretation No. 48 (“FIN No. 48”),Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109, which clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS No. 109,Accounting for Income Taxes. The Interpretation provides a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Under FIN No. 48, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. FIN No. 48 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. FIN No. 48 is effective for us beginning July 1, 2007.
In June 2006, the FASB ratified the Emerging Issues Task Force (“EITF”) consensus on EITF Issue No. 06-2, “Accounting for Sabbatical Leave and Other Similar Benefits Pursuant to FASB Statement No. 43.” EITF Issue No. 06-2 requires companies to accrue the costs of compensated absences under a sabbatical or similar benefit arrangement over the requisite service period. EITF Issue No. 06-2 is effective for us beginning July 1, 2007. The cumulative effect of the application of this consensus on prior period results should be recognized through a cumulative-effect adjustment to retained earnings as of the beginning of the year of adoption. Elective retrospective application is also permitted.
Staff Accounting Bulletin (“SAB”) No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Current Year Misstatements. SAB No. 108 requires companies to quantify misstatements using both a balance sheet (iron curtain) and an income statement (rollover) approach to evaluate whether either approach results in an error that is material in light of relevant quantitative and qualitative factors, and provides for a one-time cumulative effect transition adjustment. SAB No. 108.
The FASB has replaced SFAS No. 141 with a new statement on Business Combinations that changes the way that minority interest is recorded and modified as a parent’s interest in a subsidiary changes.
The adoption of these new Statements is not expected to have a material effect on the Company’s current financial position, results or operations, or cash flows.
14
| ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION |
Forward Looking Statements
This quarterly report contains forward-looking statements within the meaning of Section 27A of theSecurities Actof 1933, as amended and Section 21E of theSecurities Exchange Act of 1934, as amended. These forward-looking statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may”, “should”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential” or “continue” or the negative of these terms or other comparable terminology. These forward-looking statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks set out in the section hereof entitled “Risk Factors” and the risks set out below, any of which may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.
Forward looking statements are made based on management’s beliefs, estimates and opinions on the date the forward-looking statements are made and we undertake no obligation to update forward-looking statements should these beliefs, estimates and opinions or other circumstances change. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these forward-looking statements to actual results.
Our financial statements are stated in United States dollars and are prepared in accordance with United States generally accepted accounting principles.
In this quarterly report, unless otherwise specified, all dollar amounts are expressed in United States dollars and all references to “common stock” refer to the shares of our common stock.
As used in this quarterly report, the terms “we”, “us”, “our” and “company” mean “Crown Oil and Gas Inc.”, unless the context clearly requires otherwise.
Corporate Organization and Structure
We were incorporated on February 17, 2006 in the State of Nevada under the name “OneLife Health Products Inc.”. Our authorized capital consisted of 900,000,000 shares of common stock with a par value of $0.001.
Our principal executive offices are located at 800 – 5th Avenue, Suite 4100, Seattle, Washington, United States 98104. Our telephone number is (206) 224-7975.
Our shares of common stock are traded on the over-the-counter market and quoted on the over-the-counter bulletin board under the symbol “CWOI”. On March 20, 2008, the closing price for our shares of common stock as reported on the OTCBB was $1.25. There have been no trades in our shares of common stock since March 20, 2008.
On January 3, 2007, Dan McFarland resigned from his offices as President (Principal Executive Officer), Chief Executive Officer and director of our company and Rakesh Chehil resigned from his offices as Chief Financial Officer, Secretary, Treasurer (Principal Accounting Officer) and director of our company. On January 3, 2007, John Hiner was appointed as President (Principal Executive Officer), Secretary, Treasure and director of our company.
On January 31, 2008, we effected a stock split on an eighteen to one basis to increase our authorized capital from 50,000,000 shares of common stock with a par value of $0.001 to 900,000,000 shares of common stock with a par value of $0.001.
On January 15, 2008, we completed a merger with our wholly-owned subsidiary, Crown Oil and Gas Inc., a Nevada corporation. Pursuant to the merger, we changed our name from “OneLife Health Products Inc.” to “Crown Oil and Gas Inc.” to better reflect the anticipated future business of our company. We do not have any subsidiaries.
15
We have never declared bankruptcy, have never been in receivership, and have never been involved in any legal actions or proceedings.
Business of Our Company
Since our incorporation we have been in the business of production, sale and distribution of quality herbal supplementstoconsumers via the Internet. As our operations have not been sufficiently profitable and our future prospects for our business are not good, our company’s management has closed our herbal supplement operations and are currently concentrating their efforts on pursuing a change of business in the oil and gas industry.
Currently, we are seeking business opportunities with established business entities; we may seek a business opportunity with entities that have recently commenced operations, or entities that wish to utilize the public marketplace in order to raise additional capital to expand their business development or for other corporate purposes.
In implementing a structure for a particular business opportunity, we may become a party to a merger, consolidation, reorganization, joint venture, or licensing agreement with another corporation or entity. We may acquire assets and establish wholly-owned subsidiaries in various businesses or acquire existing businesses as subsidiaries.
Upon the consummation of a transaction, it is likely that our present management will no longer be in control of our company. In addition, it is likely that our officers and directors will, as part of the terms of the transaction, resign and be replaced by one or more of new officers and directors.
We anticipate that any new acquisition of business opportunities by our company will require additional financing. However, there can be no assurance that we will be able to acquire the financing necessary to enable us to pursue our plan of operation. If our company requires additional financing and we are unable to acquire such funds, our business may fail.
The search for and analysis of new business opportunities is being undertaken by John Hiner, our President (Principal Executive Officer), Secretary, Treasurer (Principal Accounting Officer) and director, who is not a professional business analyst. In seeking or analyzing prospective business opportunities, Mr. Hiner may utilize the services of outside consultants or advisors.
We anticipate that the selection of a business opportunity in which to participate will be complex and without certainty of success. Management believes that there are numerous firms in various industries seeking the perceived benefits of being a publicly registered corporation. Business opportunities may be available in many different industries and at various stages of development, all of which will make the task of comparative investigation and analysis of such business opportunities extremely difficult and complex. We can provide no assurance that we will be able to locate compatible business opportunities.
In addition, we have not been successful in raising the funding necessary to proceed with our business plan. Historically, we have been able to raise a limited amount of capital through private placements of our equity stock, but we are uncertain about our continued ability to raise funds privately. Further, we believe that our company may have difficulties raising capital until we locate a prospective business opportunity through which we can pursue our plan of operation. If we are unable to secure adequate capital to continue our acquisition efforts, our business may fail and our stockholders may lose some or all of their investment.
Due to management’s efforts, on May 28, 2008, we entered into a Letter of Intent with Langford Worldwide Corp., whereby we expressed our intent to purchase all of the issued and outstanding shares in the capital of Covenlina Holdings Ltd. and Bandberg Holdings Ltd., in consideration for a purchase price of $11,900,000, $6.9 million of which is intended to be paid in cash, with the remainder paid by the issuance of common shares for treasury at a deemed issue price of $1.00 per share. Covenlina Holdings and Bandberg Holdings are the holders of 51% and 49%, respectively, of the issued and outstanding shares in the capital of Crown Oil and Gas LLC and RosEuroNeft LLC, companies organized under the laws of the Russian Federation.
Crown Oil and Gas LLC is the sole shareholder of Attik LLC and Artstroy-XXI LLC, companies organized under the laws of the Russian Federation and which hold oil and gas exploration and development licenses for the Tereshkinsky (valid until September 2030) and Kikinsko-Gusikhinsky (valid until May 2030) areas, respectively, in Russia.
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RosEuroNeft holds an option to acquire all of the outstanding shares of Attik-Neft LLC, a company organized under the laws of the Russian Federation and which holds an oil and gas exploration and development license for the Krasnoarmeisky-2 area (valid until August 2032) in Russia.
The following discussion should be read in conjunction with our unaudited financial statements and the notes thereto included in this quarterly report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to such differences include those discussed below and elsewhere in this quarterly report.
Plan of Operation
Over the next twelve months ending May 31, 2009, we will be seeking business opportunities with established business entities; we may seek a business opportunity with entities who have recently commenced operations, or entities who wish to utilize the public marketplace in order to raise additional capital to expand their business development or for other corporate purposes.
We anticipate that any new acquisition of business opportunities by our company will require additional financing and we will likely have to raise additional funds through private placements of our equity securities and/or debt financing. However, there can be no assurance that we will be able to acquire the financing necessary to enable us to pursue our plan of operation. If our company requires additional financing and we are unable to acquire such funds, our business may fail.
Cash Requirements
Over the next twelve months ending May 31, 2009, we will have to raise any additional monies through private placements of our equity securities and/or debt financing in order that we may fund the identification and evaluation of a suitable business opportunity. We believe we have sufficient cash to satisfy our cash requirements for 3 months.
Results of Operations
| Summary of Period Results | Period Ended May 31 | |
| 2008 | 2007 | |
| Expenses | $ 80,539 | $ 23,627 |
| Income | $ NIL | $ 745 |
| Net Income (Loss) for the Period | $ 55,442 | $ (23,052) |
Revenue
We have had revenue from inception of $882.
| Expenses | Period Ended May 31 | |
| 2008 | 2007 | |
| Amortization | $NIL | $2,496 |
| General and administrative | $8,945 | $19,611 |
| Net Income (Loss) for the Period | $55,442 | $(23,052) |
Total expenses during the period ended May 31, 2008 increased as compared to the comparative period in 2007 due to an increase in professional fees.
Liquidity and Financial Condition
| Working Capital | As at May 31, | November 30, |
| 2008 | 2007 | |
| Current assets | $84,363 | $ 4,074 |
| Current liabilities | $47,707 | $17,007 |
| Working capital | $36,656 | $(13,283) |
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| Cash Flows | Period Ended May 31 | |
| 2008 | 2007 | |
| Cash Flows from (used in) Operating Activities | $86,142 | $(20,033) |
| Cash Flows (used in) Financing Activities | $(5,853) | $NIL |
| Net Increase (Decrease) in Cash Flows | $80,289 | $(20,033) |
Future Financing
At May 31, 2008 we had $84,013 in cash. Over the next twelve months ending May 31, 2009, we will have to raise additional monies through private placements of our equity securities and/or debt financing in order that we may fund the identification and evaluation of a suitable business opportunity. We believe we have sufficient cash to satisfy our cash requirements for 3 months.
On March 17, 2008, we closed a private placement of 5,050,000 units at a price of $1 per unit, raising gross proceeds of $5,050,000. Each unit consists of one share of our common stock and one common share purchase warrant exercisable at $1.50 during the first year after the closing of the offering and at $2 during the second year after the closing of the offering.
Management believes that our cash and cash equivalents, together with cash provided by operating activities, if any, will be sufficient to meet our total estimated operating expenses for the next twelve months ending May 31, 2009. We plan to raise additional capital required to satisfy cash shortfall, if any, through the private placement of our equity securities. There are no assurances that we will be able to obtain funds required for our continued operation. There can be no assurance that additional financing will be available to us when needed or, if available, that it can be obtained on commercially reasonable terms. If we are not able to obtain the additional financing on a timely basis, we will not be able to meet our other obligations as they become due and we will be forced to scale down or perhaps even cease the operation of our business.
Going Concern
The unaudited financial statements accompanying this quarterly report have been prepared on a going concern basis, which implies that our company will continue to realize our assets and discharge our liabilities and commitments in the normal course of business.
Our company has not generated revenues since inception and we do not anticipate that we will derive any revenues from operations unless and until we acquire a new business opportunity. There is no assurance that we will acquire a new business opportunity and that, even if we are successful in doing so, there is no assurance that we will be able to operate profitably. In addition, we have never paid any dividends and we are unlikely to pay any dividends in the immediate or foreseeable future.
As at May 31, 2008, our company had accumulated losses of $12,491 while our cash on hand was approximately $84,013. We may need to obtain additional financing in the future to satisfy cash shortfall, if any, for the next twelve months ending May 31, 2009.
Due to the uncertainty of our ability to meet our current operating expenses and other anticipated expenses noted above, our independent auditors included an explanatory paragraph regarding concerns about our ability to continue as a going concern in their report on the audited financial statements for the fiscal year ended November 30, 2007. Our audited financial statements contain additional note disclosures describing the circumstances that lead to such disclosure by our independent auditors.
The continuation of our company as a going concern is dependent upon the continued financial support from our stockholders, the ability of our company to obtain necessary equity financing to achieve our operating objectives and the attainment of profitable operations. The issuance of additional equity securities by us could result in a significant dilution in the equity interests of our current stockholders. Obtaining commercial loans, assuming such loans are available, will increase our liabilities and future cash commitments.
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There is no assurances that we will be able to either (a) achieve a level of revenues adequate to generate sufficient cash flow from operations, or (b) obtain additional financing through private placements, public offerings and/or bank financings necessary to support our working capital requirements. As noted herein, we are pursuing various financing alternatives to meet our immediate and long-term financial requirements. There is no assurance that additional financing will be available to us when needed or, if available, that it can be obtained on commercially reasonable terms. If we are not able to obtain the additional financing on a timely basis, we will be unable to conduct our operations as planned, and we will not be able to meet our other obligations as they become due. In such event, we will be forced to scale down or perhaps even cease our operations.
As of the date of this quarterly report, we have entered into negotiations with prospective business entities but have not entered into any formal written agreements for a business opportunity.
Purchase of Significant Plant and Equipment
Unless we acquire a new business, we do not intend to purchase any significant equipment over the twelve months ending May 31, 2009.
Employees
Currently, our only employee is John Hiner, our President (Principal Executive Officer), Secretary, Treasurer (Principal Accounting Officer) and director. We do not anticipate any significant changes in the number of employees during the next twelve months ending May 31, 2009.
Off-Balance Sheet Arrangements
There are 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 investors.
Our principal capital resources have been acquired through the subscription and issuance of our shares of common stock. Occasionally, we have also used stockholder loans and advances from related parties.
Recently Issued Accounting Standards
In February 2007, the Financial Accounting Standards Board (the “FASB”) issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS No. 159”). SFAS No. 159 permits companies to choose to measure many financial instruments and certain other items at fair value. The standard requires that unrealized gains and losses on items for which the fair value option has been elected be reported in earnings. SFAS No. 159 is effective for a company beginning in the first quarter of fiscal year ending in 2008, although earlier adoption is permitted. We are currently evaluating the impact that SFAS No. 159 will have on our financial statements.
In September 2006, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (“SAB No. 108”). SAB No. 108 addresses how the effects of prior year uncorrected misstatements should be considered when quantifying misstatements in current year financial statements. SAB No. 108 requires companies to quantify misstatements using a balance sheet and income statement approach and to evaluate whether either approach results in quantifying an error that is material in light of relevant quantitative and qualitative factors. SAB No. 108 is effective for periods ending after November 15, 2006. The adoption of this statement did not have a material effect on our reported financial position or results of operations.
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”). SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. SFAS No. 157 applies under other accounting pronouncements that require or permit fair value measurements and does not require any new fair value measurements. The provisions of SFAS No. 157 are effective for fair value measurements made in fiscal years beginning after November 15, 2007. The adoption of this statement is not expected to have a material effect on our future reported financial position or results of operations.
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In June 2006, the FASB issued FASB Interpretation No. 48,“Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statements No. 109” (“FIN. 48”). FIN. 48 clarifies the accounting for uncertainty in income taxes by prescribing a two-step method of first evaluating whether a tax position has met a more likely than not recognition threshold, and second, measuring that tax position to determine the amount of benefit to be recognized in the financial statements. FIN. 48 provides guidance on the presentation of such positions within a classified statement of financial position as well as on derecognition, interest and penalties, accounting in interim periods, disclosure and transition. FIN. 48 is effective for fiscal years beginning after December 15, 2006. The adoption of this statement is not expected to have a material effect on our future reported financial position or results of operations.
Application of Critical Accounting Estimates
Our financial statements have been prepared in accordance with the United States generally accepted accounting principles. Because a precise determination of many assets and liabilities is dependent upon future events, the preparation of financial statements for a period necessarily involves the use of estimates which have been made using careful judgment.
Our financial statements have, in management’s opinion, been properly prepared within reasonable limits of materiality and within the framework of the significant accounting policies as disclosed in the notes to our audited financial statements for the fiscal year ended November 30, 2007.
Risk Factors
An investment in our shares of common stock involves a number of very significant risks. You should carefully consider the following risks and uncertainties in addition to other information herein when evaluating our business. Our business, operating results and financial condition could be seriously harmed and you could lose all or part of your investment in our shares of common stock due to any of the following risks.
Risks Associated with our Business
Scarcity of and competition for business opportunities and combinations place our company at a competitive disadvantage in identifying possible business opportunities and successfully completing a business combination.
We are, and will continue to be, an insignificant participant amongst numerous other companies seeking a suitable business opportunity or business combination. A large number of established and well-financed entities, including venture capital firms, are actively seeking suitable business opportunities or business combinations which may also be desirable target candidates for us. Virtually all such entities have significantly greater financial resources, technical expertise and managerial capabilities than we do. We are, consequently, at a competitive disadvantage in identifying possible business opportunities and successfully completing a business combination. We will also compete with numerous other small public companies seeking suitable business opportunities or business combinations.
We will require additional financing. Inadequate financing may impair our ability to compete in the marketplace which may result in the dissolution of our company.
We anticipate that we may require additional financing while we are seeking a suitable business opportunity or business combination. Further, we anticipate that we may not have sufficient capital to fund our ongoing operations for the next twelve months. We may be required to raise additional financing for a particular business combination or business opportunity. We would likely secure any additional financing necessary through a private placement of our shares of common stock.
There can be no assurance that, if required, any such financing will be available upon terms and conditions acceptable to us, if at all. Our inability to obtain additional financing in a sufficient amount when needed and upon terms and conditions acceptable to us could have a materially adverse effect upon our company. Although we believe that we have funds sufficient to meet our immediate needs, we may require further funds to finance the development of any business opportunity that we acquire. There can be no assurance that such funds will be available or available on terms satisfactory to us. If additional funds are raised by issuing equity securities, further dilution to existing or future stockholders is likely to result. If adequate funds are not available on acceptable terms when needed, we may be required to delay, scale back or
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eliminate the development of any business opportunity that we acquire. Inadequate funding could also impair our ability to compete in the marketplace, which may result in the dissolution of our company.
We have a limited operating history and if we are not successful in continuing to grow our business, then we may have to scale back or even cease our ongoing business operations.
We have a limited operating history on which to base an evaluation of our business and prospects. Our prospects must be considered in light of the risks, uncertainties, expenses and difficulties frequently encountered by companies seeking to acquire or establish a new business opportunity. Some of these risks and uncertainties relate to our ability to identify, secure and complete an acquisition of a suitable business opportunity.
We cannot be sure that we will be successful in addressing these risks and uncertainties and our failure to do so could have a materially adverse effect on our financial condition. In addition, our operating results are dependent to a large degree upon factors outside of our control. There are no assurances that we will be successful in addressing these risks, and failure to do so may adversely affect our business.
It is unlikely that we will generate any or significant revenues while we seek a suitable business opportunity. Our short and long-term prospects depend upon our ability to select and secure a suitable business opportunity. In order for us to make a profit, we will need to successfully acquire a new business opportunity to generate revenues in an amount sufficient to cover any and all future costs and expenses in connection with any such business opportunity. Even if we become profitable, we may not sustain or increase our profits on a quarterly or annual basis in the future.
We will, in all likelihood, sustain operating expenses without corresponding revenues, at least until we complete a business combination or acquire a business opportunity. This may result in our company incurring a net operating loss which will increase continuously until we complete a business combination or acquire a business opportunity that can generate revenues that result in a net profit to us. There is no assurance that we will identify a suitable business opportunity or complete a business combination.
Ability to generate revenues is uncertain until we acquire a business opportunity or complete a business combination.
We have not generated any revenues since January 3, 2008 and do not anticipate generating any additional revenues until we acquire a business opportunity or complete a business combination. As of May 31, 2008, we have a net income of $55,442 and a working capital of $36,656. Our ability to generate any further revenues is uncertain.
The success of our proposed plan of operation will depend to a great extent on the operations, financial condition and management of any identified business opportunity.
The success of our proposed plan of operation will depend to a great extent on the operations, financial condition and management of any identified business opportunity. While management intends to seek business opportunities and/or business combinations with entities which have established operating histories, there is no assurance that we will successfully locate business opportunities meeting such criteria. In the event that we complete a business combination or otherwise acquire a business opportunity, the success of our operations may be dependent upon management of the successor firm or venture partner firm, together with a number of other factors beyond our control.
We have no arrangement, agreement, or understanding with respect to acquiring a business opportunity or engaging in a business combination with any private entity. Accordingly, we may enter into a business combination with a business opportunity having no significant operating history, losses, limited or no potential for earnings, limited assets, negative net worth or other negative characteristics.
Although we have entered into negotiations with prospective business entities, we have not entered into any formal written agreements for a business combination or opportunity. There can be no assurance that we will successfully identify and evaluate suitable business opportunities or conclude a business combination. There is no assurance that we will be able to negotiate the acquisition of a business opportunity or a business combination on terms favourable to us. We have not established a specific length of operating history or a specified level of earnings, assets, net worth or other criteria which we will require a target business opportunity to have achieved, and without which we would not consider a business
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combination in any form with such business opportunity. Accordingly, we may enter into a business combination with a business opportunity having no significant operating history, losses, limited or no potential for earnings, limited assets, negative net worth or other negative characteristics.
There is no assurance that we will successfully complete a business opportunity or business combination.
We have not conducted or received results of market research indicating that there is a demand for the acquisition of a business opportunity or business combination as contemplated by our company. Even if there is demand for the acquisition of a business opportunity or combination as contemplated, there is no assurance we will successfully complete such an acquisition or combination.
Lack of diversification may increase the risks associated with our operations.
In all likelihood, our proposed operations, even if successful, may result in a business combination with only one entity. Consequently, the resulting activities will be limited to that entity’s business. Our inability to diversify our activities into a number of areas may subject us to economic fluctuations within a particular business or industry, thereby increasing the risks associated with our operations.
Probable change in control and management may reduce or eliminate the participation of our present officers and directors in the future affairs of our company.
A business combination or acquisition of a business opportunity involving the issuance of our shares of common stock may result in new or incoming stockholders obtaining a controlling interest in our company. Any such business combination or acquisition of a business opportunity may require management of our company to sell or transfer all or a portion of shares of common stock that they hold or resign as members of our board of directors. The resulting change in our control could result in removal of one or more of our present officers and directors, and a corresponding reduction in, or elimination of, their participation in the future affairs of our company.
Reduction of percentage share ownership following a business combination may result in a change in our control and/or management.
Our primary plan of operation is based upon the acquisition of a business opportunity or a business combination with a private company, which, in all likelihood, would result in us issuing shares of our common stock to stockholders of such private company. Issuing previously authorized and unissued shares of our common stock will reduce the percentage of shares of common stock owned by present and prospective stockholders and may result in a change in our control and/or management.
Requirement of audited financial statements may disqualify a business opportunity.
Management believes that any potential business opportunity or target company must provide audited financial statements for review and for the protection of all parties to the business acquisition or combination. One or more attractive business opportunities may forego a business combination with us rather than incur the expenses associated with preparing audited financial statements.
A failure to manage growth effectively could have a materially adverse effect on our business.
Our ability to achieve any planned growth upon the acquisition of a suitable business opportunity or business combination will be dependent upon a number of factors including, but not limited to, our ability to hire, train and assimilate management and other employees and the adequacy of our financial resources. In addition, there can be no assurance that we will be able to manage successfully any business opportunity or business combination. Failure to manage anticipated growth effectively and efficiently could have a materially adverse effect on our business.
Risks Associated with our Shares of Common Stock
Because we do not intend to pay any dividends on our shares of common stock, investors seeking dividend income or liquidity should not purchase our shares of common stock.
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We have not declared or paid any dividends on our shares of common stock since inception, and we do not anticipate paying any such dividends for the foreseeable future. Investors seeking dividend income or liquidity should not invest in our shares of common stock.
Because we can issue additional shares of our common stock, purchasers of our shares of common stock may incur immediate dilution and may experience further dilution.
We are authorized to issue up to 900,000,000 shares of common stock, of which 113,050,000 shares of common stock are issued and outstanding. Our board of directors has the authority to cause the issuance of additional shares of our common stock and to determine the rights, preferences and privilege of such shares of our common stock, without consent of any of our stockholders. Consequently, the stockholders may experience more dilution in their ownership of our shares of common stock in the future.
A decline in the price of our shares of common stock could affect our ability to raise further working capital, may adversely impact our ability to continue operations and we may go out of business.
A prolonged decline in the price of our shares of common stock could result in a reduction in the liquidity of our shares of common stock and a reduction in our ability to raise capital. Because we may attempt to acquire a significant portion of the funds we need in order to conduct our planned operations through the sale of equity securities, a decline in the price of our shares of common stock could be detrimental to our liquidity and our operations; the decline may cause investors to not choose to invest in our shares of common stock. If we are unable to raise the funds we require for all of our planned operations, we may be forced to reallocate funds from other planned uses and may suffer a significant negative effect on our business plan and operations, including our ability to develop new products and continue our current operations. As a result, our business may suffer and not be successful and we may go out of business. Also, we might not be able to meet our financial obligations if we cannot raise enough funds through the sale of our shares of common stock and we may be forced to go out of business.
Trading of our shares of common stock may be restricted by the Securities and Exchange Commission’s penny stock regulations, which may limit a stockholder’s ability to buy and sell our Common Shares.
The Securities and Exchange Commission (the “SEC”) has adopted regulations which generally define “penny stock” to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. Our securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and “accredited investors”. The term “accredited investor” refers generally to institutions with assets in excess of $5,000,000, or individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the SEC, which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer’s account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer’s confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities. We believe that the penny stock rules discourage investor interest in and limit the marketability of our shares of common stock.
FINRA sales practice requirements may also limit a stockholder’s ability to buy and sell our stock.
In addition to the “penny stock” rules described above, the Financial Industry Regulatory Authority (the “FINRA”), formerly the National Association of Securities Dealers, has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make
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reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, the FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. The FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our shares of common stock, which may limit your ability to buy and sell our Common Shares and have an adverse effect on the market for our shares of common stock.
| ITEM 3. | CONTROLS AND PROCEDURES |
As required by Rule 13a-15 under the Securities and Exchange Act of 1934, as of May 31, 2008, we have carried out an evaluation of the effectiveness of the design and operation of our company’s disclosure controls and procedures. This evaluation was carried out under the supervision and with the participation of our company’s management, including our company’s President (Principal Executive Officer) and Treasurer (Principal Accounting Officer). Based upon the results of that evaluation, our company’s President (Principal Executive Officer) and Treasurer (Principal Accounting Officer) have concluded that, as of May 31, 2008, our company’s disclosure controls and procedures were effective and provide reasonable assurance that material information related to our company is recorded, processed and reported in a timely manner.
Our company’s management, with the participation of our President (Principal Executive Officer) and Treasurer (Principal Accounting Officer), is responsible for the design of internal controls over financial reporting. The fundamental issue is to ensure all transactions are properly authorized, identified and entered into a well-designed, robust and clearly understood system on a timely basis to minimize risk of inaccuracy, failure to fairly reflect transactions, failure to fairly record transactions necessary to present financial statements in accordance with generally accepted account principles, unauthorized receipts and expenditures or the inability to provide assurance that unauthorized acquisitions or dispositions of assets can be detected. The small size of our company makes the identification and authorization process relatively simple and efficient and a process for reviewing internal controls over financial reporting has been developed. To the extent possible given our company’s small size, the internal control procedures provide for separation of duties for handling, approving and coding invoices, entering transactions into the accounts, writing cheques and requests for wire transfers and also require two signatures on significant payments. As of May 31, 2008, our company’s President (Principal Executive Officer) and Treasurer (Principal Accounting Officer) conclude that our company’s system of internal controls is adequate and comparable to those of issuers of a similar size and nature.
This quarterly report does not include an attestation report of our company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the company’s registered public accounting firm pursuant to temporary rules of the SEC that permit our company to provide only management’s report in this quarterly report.
There were no significant changes to our company’s internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any significant deficiencies or material weaknesses of internal controls that would require corrective action.
PART II. OTHER INFORMATION
| ITEM 1. | LEGAL PROCEEDINGS |
We know of no material, active or pending legal proceedings against our company nor of any proceedings that a governmental authority is contemplating against us.
We know of no material proceedings to which any of our directors, officers, affiliates, owner of record or beneficially of more than 5% of our voting securities or security holder is an adverse party or has a material interest adverse to our interest.
| ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
None.
| ITEM 3. | DEFAULTS UPON SENIOR SECURITIES |
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None.
| ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |
None.
| ITEM 5. | OTHER INFORMATION |
None.
| ITEM 6. | EXHIBITS |
| Exhibit Number | Description |
| (3) | Articles of Incorporation and Bylaws |
| 3.1 | Articles of Incorporation (incorporated by reference to the Company’s SB-2 Registration Statement filed February 5, 2007). |
| 3.2 | Bylaws (incorporated by reference to the Company’s SB-2 Registration Statement filed February 5, 2007). |
| 3.3 | Certificate of Merger filed with the Nevada Secretary of State and effective on January 15, 2008 (incorporated by reference to our Current Report on Form 8-K filed on January 16, 2008). |
| 3.4 | Certificate of Change filed with the Nevada Secretary of State, effective on January 31, 2008 (incorporated by reference to our Current Report on Form 8-K filed on February 1, 2008). |
| (10) | Material Contracts |
| 10.1 | Form of Subscription Agreement used between our company and the 35 non affiliated stockholders who purchased 1,000,000 common shares at $0.05 per Common Share (incorporated by reference to our SB-2 Registration Statement filed February 5, 2007). |
| 10.2 | Form of Subscription Agreement used between our company and the ten investors who purchased 5,050,000 units at $1 per unit (incorporated by reference to our Current Report on Form 8-K filed on March 20, 2008). |
| (31) | Section 302 Certifications |
| 31.1* | |
| (32) | Section 906 Certification |
| 32.1* |
* Filed herewith
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
CROWN OIL AND GAS INC.
| By: | “John Hiner” | |
| Name: John Hiner | ||
| Title: President (Principal Executive Officer), | ||
| Secretary, Treasurer (Principal Accounting | ||
| Officer and Director |
DATED: July 21, 2008