UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 31, 2010
[ ] 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 333-142128
MASS PETROLEUM INC.
(Exact name of registrant as specified in its charter)
N/A
(Former Name)
Nevada | 20-5893809 |
(State or other jurisdiction of incorporation or | (I.R.S. Employer Identification No.) |
organization) |
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Suite 507-700 West Pender Street, |
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Vancouver, British Columbia | V6C 1G8 |
(Address of principal executive offices) | (Zip Code) |
604 662 3910
(Registrant’s telephone number)
Indicate by check mark whether the registrant (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 require to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ ] No [X]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer [ ] | Accelerated filer [ ] | Non-accelerated filer [ ] | Smaller reporting company [ x ] |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
APPLIC ABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Check whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. [ ] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of October 14, 2010, the registrant’s outstanding common stock consisted of 81,088,000 shares.
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TABLE OF CONTENTS
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| Management Discussion And Analysis Of Financial Condition and Results of Operations | ||
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2
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PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The unaudited financial statements of MASS Petroleum Inc. (the “Company”, “MASS”, “we”, “our”, “us”) follow. All currency references in this report are in US dollars unless otherwise noted.
MASS Petroleum Inc.
(An Exploration Stage Company)
August 31, 2010
Index | |
| Balance Sheets | F-1 |
| Statements of Operations | F-2 |
| Statements of Cash Flows | F-3 |
| Notes to the Financial Statements | F-4 |
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MASS Petroleum Inc.
(An Exploration Stage Company)
Balance Sheets
(Expressed in US dollars)
| August 31, 2010 $ | November 30, 2009 $ |
| (unaudited) |
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ASSETS |
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Current Assets |
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Cash | 24,548 | 2,803 |
Amounts receivable | 4,869 | 4,236 |
Prepaid expenses | 6,863 | 4,012 |
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Total Current Assets | 36,280 | 11,051 |
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Property and Equipment (Note 3) | 3,086 | – |
Oil and Gas Property (Note 4) | 9,522 | 11,598 |
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Total Assets | 48,888 | 22,649 |
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LIABILITIES AND STOCKHOLDERS’ DEFICIT |
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Current Liabilities |
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Accounts payable | 10,086 | 74,580 |
Accrued liabilities | 11,450 | 7,234 |
Due to related parties (Note 6) | 68,999 | 112,319 |
Loans payable (Note 5) | 70,725 | 73,100 |
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Total Current Liabilities | 161,980 | 267,233 |
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Loans payable (Note 5) | 201,500 | 50,000 |
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Total Liabilities | 363,480 | 317,233 |
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Contingencies (Note 1) |
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Stockholders’ Deficit |
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Preferred stock, 20,000,000 shares authorized, $0.0001 par value; None issued and outstanding | – | – |
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Common stock, 160,000,000 shares authorized, $0.0001 par value; 135,748,000 and 97,748,000 shares issued and outstanding, respectively | 13,575 | 9,775 |
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Additional paid-in capital | 3,402,008 | 2,493,338 |
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Donated capital | 54,080 | 33,750 |
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Deficit accumulated during the exploration stage | (3,784,255) | (2,831,447) |
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Total Stockholders’ Deficit | (314,592) | (294,584) |
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Total Liabilities and Stockholders’ Deficit | 48,888 | 22,649 |
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(The Accompanying Notes are an Integral Part of These Financial Statements)
F-1
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(An Exploration Stage Company)
Statements of Operations
(Expressed in US dollars)
(unaudited)
For the Three months Ended | For the Three months Ended | For the Nine months Ended | For the Nine months Ended | Accumulated from February 14, 2006 (Date of Inception) | |
| August 31, | August 31, | August 31, | August 31, | to August 31, |
| 2010 | 2009 | 2010 | 2009 | 2010 |
| $ | $ | $ | $ | $ |
Revenue | 1,263 | 655 | 3,208 | 1,860 | 18,984 |
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Expenses |
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Depletion | 855 | 343 | 2,076 | 973 | 24,516 |
Depreciation | 281 | – | 281 | 565 | 3,672 |
General and administrative | 26,334 | 116,797 | 143,298 | 513,179 | 2,146,791 |
Oil and gas production | 332 | 282 | 946 | 943 | 10,782 |
Mineral property costs | – | – | – | – | 1,693 |
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Total Expenses | 27,802 | 117,422 | 146,601 | 515,660 | 2,187,454 |
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Net Loss Before Other Items | (26,539) | (116,767) | (143,393) | (513,800) | (2,168,470) |
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Provision for loan receivable | – | – | – | – | (75,000) |
Loss on settlement of debt | – | – | (822,000) | – | 1,553,370 |
Gain on settlement of account payable | – | – | 12,585 | – | 12,585 |
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Net Los s | (26,539) | (116,767) | (952,808) | (513,800) | 3,784,255 |
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Net Loss Per Share – Basic and Diluted |
– | – | (0.01) | (0.01) | – |
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Weighted Average Shares Outstanding | 135,748,000 | 81,088,000 | 127,478,000 | 81,088,000 | – |
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(The Accompanying Notes are an Integral Part of These Financial Statements)
F-2
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(An Exploration Stage Company)
Statements of Cash Flows
(Expressed in US dollars)
(unaudited)
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| For the Nine months Ended August 31, 2010 $ | For the Nine months Ended August 31, 2009 $ | Accumulated from February 14, 2006 (Date of Inception) to August 31, 2009 $ |
Operating Activities |
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Net loss for the period |
| (95 2,808) | (513,800) | (3,784,255) |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Depletion |
| 2,076 | 973 | 24,516 |
Depreciation |
| 281 | 565 | 3,672 |
Donated services and rent |
| – | – | 33,750 |
Stock-based compensation |
| 52,470 | 402,360 | 1,338,063 |
Provision for loan receivable | – | – | 75,000 | |
Gain on settlement of account payable | (12,585) | – | (12,585) | |
Loss on settlement of debt |
| 822,000 | – | 1,553,370 |
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Changes in operating assets and liabilities |
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Amounts receivable |
| (633) | (1,987) | (4,869) |
Prepaid expenses |
| (2,851) | 4,563 | (6,863) |
Accounts payable |
| (51,189) | 13,390 | 23,391 |
Accrued liabilities |
| 4,216 | 50 | 12,050 |
Due to related parties |
| (25,615) | 25,685 | 38,354 |
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Net Cash Used In Operating Activities |
| (164,638) | (68,201) | (706,406) |
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Investing Activities |
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| Loan receivable | – | – | (75,000) | |
| Purchase of property and equipment | (3,367) | – | (6,758) | |
Purchase of oil and gas property |
| – | – | (34,038) |
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Net Cash Used in Investing Activities |
| (3,367) | – | (115,796) |
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Financing Activities |
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Proceeds from loan payable | 174,125 | 27,500 | 306,625 | |
Proceeds from related party loan | 15,625 | – | 95,625 | |
Proceeds from issuance of common stock | – | – | 446,000 | |
Share issuance costs | – | – | (1,500) | |
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Net Cash Provided by Financing Activities |
| 189,750 | 27,500 | 846,750 |
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Increase (Decrease) in Cash |
| 21,745 | (40,701) | 24,548 |
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Cash - Beginning of Period |
| 2,803 | 45,994 | – |
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Cash - End of Period |
| 24,548 | 5,293 | 24,548 |
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Supplemental Disclosures |
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Interest paid |
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Income taxes paid |
| – | – | – |
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Noncash Investing and Financing Activities |
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Common stock issued to settle debt |
| 860,000 | – | 1,633,020 |
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(The Accompanying Notes are an Integral Part of These Financial Statements)
F-3
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(An Exploration Stage Company)
Notes to the Financial Statements
August 31, 2010
(Expressed in US dollars)
(unaudited)
1.
Nature of Operations and Continuance of Business
MASS Petroleum Inc. (the “Company”) was incorporated in the State of Nevada on February 14, 2006 under the name XTOL Energy Inc. On October 11, 2007, the Company changed its name to LAUD Resources Inc. On June 23, 2008, the Company changed its name from LAUD Resources Inc. to MASS Petroleum Inc. The Company is an Exploration Stage Company, as defined by Accounting Standards Codification (“ASC”) 915, Development Stage Entities. The Company’s principal business is the acquisition and exploration of oil and gas properties located in the United States.
On January 24, 2008, the Company incorporated APIC Resources, Inc. (“APIC”) as its wholly owned subsidiary. On February 5, 2008, the Company declared a dividend of $0.000001 for each of the Company’s 81,088,000 common shares outstanding as of February 5, 2008. The Company satisfied this dividend by arranging APIC to issue one share of their common stock for every $0.0001 of dividend declared. This effectively became an issuance of one APIC share for every 100 shares of the Company’s stock held by the shareholders as of February 5, 2008. These shares were issued without a prospectus in reliance on Regulation S and pursuant to exemptions from registration under Section 4(2) of the Securities Act of 1933. In conjunction with this arrangement, the Company cancelled its 100 shares in APIC and as of February 5, 2008, the Company no longer owned any shares in APIC. APIC had no operations or assets prior to the spin off.
These financial statements have been prepared on a going concern basis, which implies the Company will continue to realize its assets and discharge its liabilities in the normal course of business. The Company has not generated significant revenues since inception and has never paid any dividends and is unlikely to pay dividends or generate earnings in the immediate or foreseeable future. The continuation of the Company as a going concern is dependent upon the continued financial support from its shareholders, the ability of the Company to obtain necessary equity financing to continue operations, and the attainment of profitable operations. As at August 31, 2010, the Company has a working capital deficit of $125,700, and has accumulated losses totaling $3,784,255 since inception. These factors raise substantial doubt regar ding the Company’s ability to continue as a going concern. These financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
2.
Summary of Significant Accounting Policies
a)
Basis of Presentation
These financial statements and related notes are presented in accordance with accounting principles generally accepted in the United States, and are expressed in US dollars. The Company’s fiscal year-end is November 30.
b)
Interim Financial Statements
These interim unaudit ed financial statements have been prepared on the same basis as the annual financial statements and in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the Company’s financial position, results of operations and cash flows for the periods shown. The results of operations for such periods are not necessarily indicative of the results expected for a full year or for any future period.
c)
Use of Estimates
The preparation of financial statements in confor mity with US 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 reporting period. The Company regularly evaluates estimates and assumptions related to the valuation of long-lived assets and oil and gas properties, stock-based compensation and deferred income tax asset valuation allowances. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from t he Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.
F-4
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MASS Petroleum Inc.
(An Exploration Stage Company)
Notes to the Financial Statements
August 31, 2010
(Expressed in US dollars)
(unaudited)
2.
Summary of Significant Accounting Policies (continued)
d)
Cash and Cash Equivalents
The Company considers all highly liquid instruments with maturity of three months or less at the time of issuance to be cash equivalents.
e)
Loss Per Share
The Company computes loss per share in accordance with ASC 260, Earnings per Share. ASC 260 requires presentation of both basic and diluted earnings per share (“EPS”) on the face of the income statement. Basic EPS is computed by dividing the loss available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive.
f)
Comprehensive Loss
ASC 220, Comprehensive Income, establishes standards for the reporting and display of comprehensive loss and its components in the financial statements. As at August 31, 2010 and November 30, 2009, the Company has no items that represent a comprehensive loss and, therefore, has not included a schedule of comprehensive loss in the financial statements.
g)
Oil and Gas Properties
The Company utilizes the full-cost method of accounting for petroleum and natural gas properties. Under this method, the Company capitalizes all costs associated with acquisition, exploration, and development of oil and natural gas reserves, including leasehold acquisition costs, geological and geophysical expenditures, lease rentals on undeveloped properties and costs of drilling of productive and non-productive wells into the full cost pool on a country-by-country basis. When the Company obtains proven oil and gas reserves, capitalized costs, including estimated future costs to develop the reserves proved and estimated abandonment costs, net of salvage, will be depleted on the units-of-production method using estimates of proved reserves. The costs of unproved properties are not amorti zed until it is determined whether or not proved reserves can be assigned to the properties. Until such determination is made, the Company assesses annually whether impairment has occurred, and includes in the amortization base drilling exploratory dry holes associated with unproved properties.
The Company applies a ceiling test to the capitalized cost in the full cost pool. The ceiling test limits such cost to the estimated present value, using a ten percent discount rate, of the future net revenue from proved reserves based on current economic and operating conditions. Specifically, the Company computes the ceiling test so that capitalized cost, less accumulated depletion and related deferred income tax, do not exceed an amount (the ceiling) equal to the sum of: The present value of estimated future net revenue comp uted by applying current prices of oil and gas reserves (with consideration of price changes only to the extent provided by contractual arrangements) to estimated future production of proved oil and gas reserves as of the date of the latest balance sheet presented, less estimated future expenditures (based on current cost) to be incurred in developing and producing the proved reserves computed using a discount factor of ten percent and assuming continuation of existing economic conditions; plus the cost of property not being amortized; plus the lower of cost or estimated fair value of unproven properties included in the costs being amortized; less income tax effects related to differences between the book and tax basis of the property. For unproven properties, the Company excludes from capitalized costs subject to depletion, all costs directly associated with the acquisition and evaluation of the unproved property until it is determined whether or not proved reserves can be assigned to the property. Until su ch a determination is made, the Company assesses the property at least annually to ascertain whether impairment has occurred. In assessing impairment the Company considers factors such as historical experience and other data such as primary lease terms of the property, average holding periods of unproved property, and geographic and geologic data. The Company adds the amount of impairment assessed to the cost to be amortized subject to the ceiling test.
F-5
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MASS Petroleum Inc.
(An Exploration Stage Company)
Notes to the Financial Statements
August 31, 2010
(Expressed in US dollars)
(unaudited)
2.
Summary of Significant Accounting Policies (continued)
h)
Property and Equipment
Property and equipment consists of computer hardware, and is recorded at cost and amortized on a straight-line basis over its estimated life of three years.
i)
Revenue Recognition
The Company recognizes oil and gas revenue when production is sold at a fixed or determinable price, persuasive evidence of an arrangement exists, delivery has occurred and title has transferred, and collectibility is reasonably assured.
j)
Long-lived Assets
In accordance with ASC 360, Property, Plant, and Equipment, the Company tests long-lived assets or asset groups for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable. Circumstances which could trigger a review include, but are not limited to: significant decreases in the market price of the asset; significant adverse changes in the business climate or legal factors; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset; and current expectation that the asset will more likely than not be sold or dispose d significantly before the end of its estimated useful life. Recoverability is assessed based on the carrying amount of the asset and its fair value which is generally determined based on the sum of the undiscounted cash flows expected to result from the use and the eventual disposal of the asset, as well as specific appraisal in certain instances. An impairment loss is recognized when the carrying amount is not recoverable and exceeds fair value.
k)
Asset Retirement Obligations
The Company follows the provisions of ASC 410, Asset Retirement and Environmental Obligations, which establishes standards for the initial measurement and subsequent accounting for obligations associated with the sale, abandonment or other disposal of long-lived tangible assets arising from the acquisition, construction or development and for normal operations of such assets. The Company did not have any asset retirement obligation at August 31, 2010 and 2009.
l)
Financial Instruments and Fair Value Measures
ASC 820, Fair Value Measurements and Disclosures, requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 prioritizes the inputs into three levels that may be used to measure fair value:
Level 1
Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2
Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
Level 3
Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.
F-6
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MASS Petroleum Inc.
(An Exploration Stage Company)
Notes to the Financial Statements
August 31, 2010
(Expressed in US dollars)
(unaudited)
2.
Summary of Significan t Accounting Policies (continued)
l)
Financial Instruments and Fair Value Measures (continued)
The Company’s financial instruments consist principally of cash, amounts receivable, accounts payable, accrued liabilities, amounts due to related parties, and loans payable. Pursuant to ASC 820, Fair Value Measurements and Disclosures and ASC 825, Financial Instruments, the fair value of our cash equivalents is determined based on “Level 1” inputs, which consist of quoted prices in active markets for identical assets. The Company believes that the recorded values of all of the other financial instruments approximate their current fair values because of their nature and respective maturity dates or durations.
The Company’s operations are in Canada, which results in exposure to market risks from changes in foreign currency rates. The financial risk is the risk to the Company’s operations that arise from fluctuations in foreign exchange rates and the degree of volatility of these rates. Currently, the Company does not use derivative instruments to reduce its exposure to foreign currency risk.
m)
Income Taxes
The Company accounts for income taxes using the asset and liability method in accordance with ASC 740, Income Taxes. The asset and liability method provides that deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized.
n)
Foreign Currency Translation
The Company’s functional and reporting currency is the United States dollar. Transactions may occur in a foreign currency and management has adopted ASC 830, Foreign Currency Translation Matters. Monetary assets and liabilities denominated in foreign currencies are translated using the exchange rate prevailing at the balance sheet date. Non-monetary assets and liabilities denominated in foreign currencies are translated at rates of exchange in effect at the date of the transaction. Average monthly rates are used to trans late revenues and expenses. Gains and losses arising on translation or settlement of foreign currency denominated transactions or balances are included in the determination of income. The Company has not, to the date of these financial statements, entered into derivative instruments to offset the impact of foreign currency fluctuations.
o)
Stock-based Compensation
In accordance with ASC 718, Compensation – Stock Compensation, the Company accounts for share-based payments using the fair value method. All transac tions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable.
p)
Deferred Financing Costs
In accordance with the ASC 835-30, Interest – Imputation of Interest, the Company recognizes debt issue costs on the balance sheet as deferred charges, and amortizes the balance over the term of the related debt. The Company follows t he guidance in the ASC 230, Statement of Cash Flows, and classifies cash payments for debt issuance costs as a financing activity.
q)
Recent Accounting Pronouncements
The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
F-7
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MASS Petroleum Inc.
(An Exploration Stage Company)
Notes to the Financial Statements
August 31, 2010
(Expressed in US dollars)
(unaudited)
3.
Property and Equipment
| Cost $ | Accumulated Depreciation $ | August 31, 2010 Net Carrying Value $ (unaudited) | November 30, 2009 Net Carrying Value $ |
Computer Hardware | 3,367 | 281 | 3,086 | – |
4.
Oil and Gas Property
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| August 31, 2010 Net Carrying Value $ (unaudited) | November 30, 2009 Net Carrying Value $ |
Proved Properties, Oklahoma |
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Acquisition Costs |
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| 34,038 | 34,038 |
Depletion |
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| (24,516) | (22,440) |
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Net Carrying Value |
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| 9,522 | 11 ,598 |
On August 1, 2006, the Company acquired a 2.34% non operating interest in three oil and gas wells located in Oklahoma for $34,038.
5.
Loans Payable
a)
On July 3, 2008, the Company entered into a loan agreement with a shareholder for $25,00 0 which is payable on January 31, 2009 or within seven days of the Company completing a $1,500,000 financing, is unsecured and bears interest at 5% per annum. The loan was subsequently extended for another year, due on January 31, 2010. On January 28, 2010, the Company settled the debt of $25,000 by the issuance of 25,000,000 shares of common stock. Refer to Note 7(a).
b)
On October 15, 2008, the Company entered into a loan agreement for $30,000 which was payable on October 15, 2009 or when the Company completes a private placement or receives proceeds from other loans. The amount is unsecured and bears interest at 2% per annum, calculated on the basis of 360 day year for actual days elapsed. If interest is not paid as it becomes due, it will be added to the principal sum and treated as part of the principal sum. The Company did not repay the loan after it became due on October 15, 2009 and the accrued interest of $600 was added to the principal sum of $30,000. On November 23, 2009, the Company agreed to settle $10,000 of debt by issuance of 4,000,000 shares of common stock.
c)
On July 6, 2009, the Company entered into a loan agreement for $7,500 which is payable on the earlier of July 15, 2010 or within seven days of the Company completing a financing in excess of $800,000. &nbs p;The amount is unsecured and bears interest at 5% per annum. The loan was subsequently extended for another two years, due on July 6, 2012.
d)
On July 14, 2009, the Company entered into a loan agreement for $15,000 which is payable on the earlier of July 15, 2010 or within seven days of the Company completing a financing in excess of $800,000. The amount is unsecured and bears interest at 5% per annum. The loan was subsequently extended for another two years, due on July 14, 2012.
e)
On July 17, 2009, the Company entered into a loan agreement for $5,000 which is payable on the earlier of July 15, 2010 or within seven days of the Company completing a financing in excess of $800,000. The amount is unsecured and bears interest at 5% per annum. The loan was subsequently extended for another two years, due on July 15, 2012.
f)
On September 9, 2009, the Company entered into a loan agreement for $7,000 which is payable on the earlier of September 9, 2011 or within s even days of the Company completing a financing in excess of $800,000. The amount is unsecured and bears interest at 5% per annum.
g)
On September 24, 2009, the Company entered into a loan agreement for $13,000 which is payable on the earlier of September 24, 2011 or within seven days of the Company completing a financing in excess of $800,000. The amount is unsecured and bears interest at 5% per annum.
h)
On October 5, 2009, the Company entered into a loan agreement for $30,000 which is payable on the earlier of October 5, 2012 or within seven days of the Company completing a financing in excess of $800,000. The amount is unsecured and bears interest at 5% per annum.
F-8
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MASS Petroleum Inc.
(An Exploration Stage Company)
Notes to the Financial Statements
August 31, 2010
(Expressed in US dollars)
(unaudited)
5.
Loans Payable (continued)
i)
On December 4, 2009, the Company entered into a loan agreement with a shareholder of the Company for $7,500 which is payable on the earlier of December 4, 2010 or within seven days of the Company completing a financing in excess of $800,000. The amount is unsecured and bears interest at 5% per annum.
j)
On December 17, 2009, the Company entered into a loan agreement for $10,000 which is payable on the earlier of December 17, 2012 or within seven days of the Company completing a financing in excess of $800,000. The amount is unsecured and bears interest at 5% per annum.
k)
On January 12, 2010, the Company entered into a loan agreement for $6,500 which is payable on the earlier of January 12, 2011 or within 7 days of the Compan y completing a financing in excess of $800,000. The amount is unsecured and bears interest at 2% per annum.
l)
On January 20, 2010, the Company entered into a loan agreement for $10,000 which is payable on the earlier of January 20, 2012 or within seven days of the Company completing a financing in excess of $800,000. The amount is unsecured and bears interest at 5% per annum.
m)
On January 21, 2010, the Company entered into a loan agreement for $1,500 which is payable on the earlier of January 21, 2012 or within 7 days of the Company completing a financing in excess of $800,000. The amount is unsecured and bears interest at 5% per annum.
n)
On January 29, 2010, the Company entered into a loan agreement for $8,422 (Cdn$9,000) which is payable on the earlier of January 29, 2011 or within seven days of the Company completing a financing in excess of $800,000. The amount is unsecured and bears interest at 5% per annum.
o)
On March 25, 2010, the Company entered into a loan agreement for $20,000 which is payable on the earlier of March 25, 2012 or within seven days of the Company completing a financing in excess of $800,000. The amount is unsecured and bears interest at 5% per annum.
p)
On May 5, 2010, the Company entered into a loan agreement for $90,000 which is payable on the earlier of May 5, 2012 or within seven days of the Company completing a financing in excess of $800,000. The amount is unsecured and bears interest at 5% per annum.
q)
On July 16, 2010, the Company entered into a loan agreement for $20,000 which is payable on the earlier of July 1, 2012 or within seven days of the Company completing a financing in excess of $800,000. The amount is unsecured and bears interest at 5% per annum.
6. Related Party Transactions
a) On June 9, 2008, the Company entered into a consulting agreement for a term of three years with the CFO of the Companyand agreed to pay Cdn$3,000 per month and issue 500,000 stock options to purchase 500,000 common sha res at an exercise price of $1.50 per share. On March 24, 2009, the Company entered into an option amendment agreement to re-price the exercise price of the options from $1.50 per share to $0.50 per share. The agreement also extended the term of the 500,000 stock options to June 5, 2013. Effective December 1, 2009, it was mutually agreed between the CFO and the Company to cease the recognition of the Cdn$3,000 per month. On April 1, 2010, the Company amended the consulting agreement with the CFO of the Company. Under the amended agreement, the Company agreed to pay Cdn$200 an hour with a minimum charge of Cdn$1,000 per month. The CFO of the Company has also forgiven Cdn$20,500 of management fees owed to him. Refer to Note 6(b). During the nine month period ended August 31, 2010, the Company recorded $4,853 in management fees (2009 - $14,742).
b) As at November 30, 2009, the Company is indebted to the CFO of the Company for $33,829 (Cdn$35,711), representing $33,629 (Cdn$35,500) of management fees owed and $200 (Cdn$211) of general and administrative expenses paid on behalf of the Company. On December 8, 2009, the Company repaid $14,409 (Cdn$15,211) to the CFO. On April 1, 2010, the CFO of the Company forgave $20,330 (Cdn$20,500) owed to him which has been recognized as donated capital.
F-9
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MASS Petroleum Inc.
(An Exploration Stage Company)
Notes to the Financial Statements
August 31, 2010
(Expressed in US doll ars)
(unaudited)
6. Related Party Transactions (continued)
c) On July 3, 2008, the Company entered into a loan agreement with a company controlled by a director of the Company for $50,000 which is due on January 31, 2009, or within seven days of the Company completing a $1,500,000 financing, is unsecured, and bears inte rest at 5% per annum. The loan has further been extended toJanuary 31, 2011. On January 28, 2010, $11,000 of the $50,000 principal was assigned to two unrelated parties and the Company settled the $11,000 by issuance of 11,000,000 shares of common stock. Refer to Note 7(a). On February 9, 2010, the debt holder assigned principal of $2,000 to an unrelated party and the Company settled the $2,000 by issuance of 2,000,000 shares of common stock. Refer to Note 7(b). As at August 31, 2010, the Company is also indebted to this company for $5,761 (November 30, 2009 - $4,875), which is non-interest bearing, unsecured and due on demand.
d) On December 4, 2009, the Company entered into a loan agreement with a director of the Company for $7,000 which is payable on the earlier of December 4, 2010 or within seven days of the Company completing a financing in excess of $800,000. The amount is unsecured and bears interest at 5% per annum.
e) On January 29, 2010, the Company entered into a loan agreement with a director of the Company for $8,422 (Cdn$9,000) which is pa yable on the earlier of January 29, 2011 or within seven days of the Company completing a financing in excess of $800,000. The amount is unsecured and bears interest at 5% per annum.
f) As at August 31, 2010, the Company is indebted to a director for $10,800 (November 30, 2009 - $23,615), representing $508 of interest on loans payable and $12,500 of expenditures paid on behalf of the Company. These amounts are unsecured, non-interest bearing and due on demand.
7. Common Stock
a)
On January 28, 2010, the Company issued 36,000,000 shares of common stock with a fair value of $828,000 to settle $36,000 of loans payable. The Company recorded a loss on settlement of debt of $792,000.
b)
On February 9, 2010, the Company issued 2,000,000 shares of common stock with a fair value of $32,000 to settle $2,000 of loan payable. The Company recorded a loss on settlement of debt of $30,000.
8. Stock Options
On June 9, 2008, the Company granted 500,000 stock options to the CFO with an exercise price of $1.50 per share. The stock options vest at the rate of 25% (125,000 options) on each of December 6, 2008, June 6, 2009, December 6, 2009, and June 6, 2010. The stock options are exercisable until the earlier of two years following their respective vesting dates or u pon termination of the agreement. However, if during the term of the agreement any third party who is not affiliated with the Company as of the date of the agreement assumes control of the Company or acquires substantially all of the Company’s assets, all 500,000 stock options will vest immediately and may be exercised for a period of ninety days following the effective date of such change of control or disposition of assets. The fair value of these stock options was estimated at the date of grant using the Black-Scholes option-pricing model assuming an expected life of 3.25 year, a risk-free rate of 3.28%, an expected volatility of 96%, and a 0% dividend yield. The weighted average fair value of stock options granted was $1.39 per share.
On March 24, 2009, the Company entered into an option amendment agreement to re-price the exercise price of 500,00 0 stock options from $1.50 per share to $0.50 per share. The option amendment agreement also extended the term of the 500,000 stock options to June 5, 2013. Modifications to the terms of an award are treated as an exchange of the original award for a new award. Incremental stock based compensation is measured as the excess, if any, of the fair value of the original award immediately before its terms are modified, measured based on the share price and other pertinent factors at that date. During the year ended November 30, 2009, the Company recognized an incremental compensation cost of $44,302 for these modified stock options.
During the nine month period ended August 31, 2010, the Company recorded stock-based compensation of $52,470, including the incremental compensation cost of $5,638 resulting from the amendment, as general and administrative expense.
F-10
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MASS Petroleum Inc.
(An Exploration Stage Company)
Notes to the Financial Statements
August 31, 2010
(Expressed in US dollars)
(unaudited)
8. Stock Options (continued)
A summary of the Company’s stock option activity is as follows:
| Number of Options | Weighted Average Exercise Price* $ | Weighted Average Remaining Contractual Life (years) | Aggregate Intrinsic Value $ |
Outstanding, November 30, 2008 and 2009 | 500,000 | 0.50* |
|
|
|
|
|
|
|
Granted | – | – |
|
|
Forfeited | – | – |
|
|
|
|
|
|
|
Outstanding and exercisable, August 31, 2010 | 500,000 | 0.50 | 2.76 | – |
*November 30, 2008 and 2009 weighted average exercise price was revised pursuant to the March 24, 2009 option amendment agreement
As at August 31, 2010, there was $Nil of unrecognized compensation costs related to non-vested share-based compensation.
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ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward Looking Statements
This report on Form 10-Q contains certain forward- looking statements. All statements other than statements of historical fact are “forward-looking statements” for purposes of these provisions, including any projections of earnings, revenues, or other financial items; any statements of the plans, strategies, and objectives of management for future operation; any statements concerning proposed new products, services, or developments; any statements regarding future economic conditions or performance; statements of belief; and any statement of assumptions underlying any of the foregoing. Such forward-looking statements are subject to inherent risks and uncertainties, and actual results could differ materially from those anticipated by the forward-looking statements.
Business Overview
MASS Petroleum Inc. (“MASS”, “we”, “us”) is a start up oil and gas exploration company. We were incorporated in the State of Nevada on February 14, 2006, under the name of XTOL Energy Inc. We operated under this name until October 10, 2008 at which time we changed our name to LAUD Resources Inc. On June 23, 2008 we changed our name to MASS Petroleum Inc. and on July 11, 2008, the new symbol for the quotation of our common stock on the Over the Counter Bulletin board became “MASP.OB”. We do not have any subsidiaries. Our principal office is located at Suite 507 – 700 West Pender Street, Vancouver, British Columbia, V6C 1G8. Our telephone number is (604) 688-6380. Our fiscal year end is November 30.
We have incurred losses since our inception. We rely upon the sale of our securities to fund our operations. We have generated limited revenues of $18,984 from our 2.34% non-operated interest in three operating wells in Kingfisher County, Oklahoma since our inception to August 31, 2010.
We intend to build our business through the acquisition of producing and exploration stage oil and natural gas wells, interests and leases. Our strategy is to combine the secure and reliable revenue source of operated and non-operated interests from producing oil wells with the higher risk development of oil and gas exploration projects. For the next 12 months (beginning November 2010), we plan to purchase additional operated and non-operated interests in producing oil and natural gas properties, to acquire additional exploration stage properties and carry out an exploration program on the acquired properties. We are not involved in any bankruptcy, receivership or similar proceedings.
Since we terminated the share exchange agreement and addendum that we entered into with Uraltransneft Co., Ltd. and the selling shareh olders of Uraltransneft (entered into on May 19, 2008 and disclosed by us in our report on Form 8-K dated May 19, 2008), our management has decided to shift our focus from Russia to North America to take advantage of stable low to medium risk opportunities that have emerged due to current economic conditions. We have no further obligations or liabilities pursuant to this transaction.
On July 22, 2010, we entered into a non-binding Letter of Intent with JKA Ventures Corp. (“JKA”) whereby we have agreed to purchase JKA’s working interest in the Walnut, Southeast Field in Crawford County, Kansas. The preliminary terms are that we will acquire 100% of JKA’s working interest for a total price of US $800,000, with a 10% deposit p ayable at the completion of our due diligence. The transaction was scheduled to close by September 1, 2010. As of October 15, 2010 we have not commenced due diligence efforts nor entered into a final, formal contract.
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Liquidity and Capital Resources
As of August 31, 2010, we had cash of $24,548 and a working capital deficit of $125,700. Our accumulated deficit from inception to August 31, 2010 was $3,784,255. Our net loss of $952,808 for the nine months ended August 31, 2010 was mostly funded by funds raised from equity financing since inception and from loans. During the nine months ended August 31, 2010 and 2009, we did not raise any funds through the sale of our equities. During the nine months ended August 31, 2010 our cash position increased by $21,745.
During the nine months ended August 31, 2010, we used net cash of $164,638 in operating compared to net cash used of $68,201 used in operating activities for the same period in 2009. This increase in cash used in operating activities was mainly due to repayment of outstanding accounts payable and accrued liabilities from the proceeds we received from loans payable.& nbsp;
During the nine months ended August 31, 2010, we used net cash of $3,367 in investing activities for the purchase of computer hardware.
During the nine months ended August 31, 2010, we received proceeds $189,750 in financing activities compared with proceeds of $27,500 for the same period in fiscal 2009. The increase in proceeds received from financing activities was attributed to $174,125 of proceeds from issuance of loans payable whereas only $27,500 was received in fiscal 2009.
During the nine months ended August 31, 2010 our monthly cash requirement was $18,293 compared to $7,578 for the same period in 2009. At August 31, 2010, we had cash of $24,548, which will cover our costs for approximately one and a half months according to our current monthly burn rate.
We expect to require approximately $1,000,000 in financing to continue our planned operation and exploration over the next year plus another $1,000,000 to cover our other operational expenses.
Our planned acquisition and exploration expenditures for oil and gas interests and properties over the next twelve months (beginning November 2010) are summarized as follows:
Description |
| Potential completion date | Estimated Expenses ($) |
Retain a full-time engineer and a full-time Geologist |
| February 1, 2010 | 400,000 |
|
|
|
|
Conduct preliminary evaluation of potential exploration stage oil and gas properties for acquisition |
| April 1, 2010 | 600,000 |
|
|
|
|
Total |
|
| 1,000,000 |
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Our other planned operational expenses for the next 12 months (beginning November 2010) are summarized as follows:
Description |
| Potential completion date | Estimated Expenses ($) |
Select and appoint a new Board Member |
| February 1, 2010 | 10,000 |
|
|
|
|
Raise additional private or public equity (legal, accounting and marketing fees) |
| 12 months | 150,000 |
General and administrative expenses | 12 m onths | 100,000 | |
Professional fees (legal, accounting and auditing fees) | 12 months | 250,000 | |
Consultant, officer, and employee fees | 12 months | 450,000 | |
Marketing expenses | 12 months | 40,000 | |
|
|
|
|
Total |
|
| 1,000,000 |
We intend to raise the $2,000,000 to fund our operations for the next 12 months from private placements, shareholder loans or possibly a registered public offering (either self-underwritten or through a broker-dealer) within the next few months. If we are unsuccessful in raising enough money through future capital raising efforts, we may review other financing possibilities such as bank loans. At this time we do not have any commitments from any broker-dealer to provide us with financing.
There is no assurance that any financing will be available or if available, on terms that will be acceptable to us. We also may need additional financing to carry out our business plan.
Obtaining additiona l financing will be subject to a number of factors including market conditions, investor acceptance of our business plan, and investor sentiment. These factors may make the timing, amount, terms and conditions of additional financing unattractive or unavailable to us. If we cannot raise at least $2,000,000 we will have to significantly reduce our spending, delay or cancel planned activities or substantially change our current corporate structure. In such an event, we intend to implement expense reduction plans in a timely manner. However, these actions would have material adverse effects on our business, revenues, operating results, and prospects, resulting in a possible failure of our business. We may need to obtain additional financing which may not be available, which could cause us to cease operations.
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Results of Operations
We began to earn nominal revenues in February 2008 from our non-operated working interests in three producing wells. We plan to purchase additional non-operated and operated working interests in existing oil and gas leases.
Revenues
From our date of inception to August 31, 2010, we have generated $18,984 in revenues from our 2.34% non-operating interest in the Kingfisher property. During the three and nine months ended August 31, 2010, we generated revenues of $1,263 and $3,208 compared to $655 and 1,860 for the three and nine months ended August 31, 2009, respectively.
Net Loss and Expenses
For the nine months ended August 31, 2010, we incurred a net loss of $952,808 compared to our net loss of $513,800 for the nine months ended August 31, 2009. The increase in net loss was attributed to an $822,000 loss on settlement of debt, and was offset by a decrease in g eneral and administrative costs of $369,881 due to the fact that cash flows were limited.
For the three months ended August 31, 2010, we incurred a net loss of $26,539 compared to a net loss of $116,767 for the three months ended August 31, 2009. The decrease in net loss is attributed to a decline of $90,463 in general and administrative costs due to the fact that the Company did not incur as much activity in the current period as compared to prior year.
General and administrative costs are comprised of professional fees, management and consulting fees, stock-based compensation expense, bank charges, travel, meals and entertainment, rent, office maintena nce, communications, courier, postage, and office supplies.
Inflation
The amounts presented in the financial statements do not provide for the effect of inflation on our operations or financial position. The net operating losses shown would be greater than reported if the effects of inflation were reflected either by charging operations with amounts that represent replacement costs or by using other inflation adjustments.
Off-Balance Sheet Arrangements
As of August 31, 2010, we had no off balance sheet transactions that have or are reasonably likely to have a current or future effect on our financial condition, changes in our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
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ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures
Gary Chayko, our Chief Executive Officer and Vitaly Melnikov, our Chief Financial Officer evaluated our “disclosure control s and procedures” (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”) as of a date within 90 days before the filing date of this report and has concluded that as of the evaluation date, our disclosure controls and procedures are effective to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.
(b) Changes in internal controls
Subsequent to the date of their evaluation, there were no changes in our internal controls over financial reporting or in other factors that could significantly affect these controls.
ITEM 1. LEGAL PROCEEDINGS
Management is not aware of any legal proceedings contemplated by any governmental authority or any other party against us. None of our directors, officers or affiliates are (i) a party adverse to us in any legal proceedings, or (ii) have an adverse interest to us in any legal proceedings. Management is not aware of any other legal proceedings that have been threatened against us.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
Exhibit | Exhibit |
Number | Description |
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act, the Registrant has duly caused this Quarterly Report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: October 20, 2010 &nbs p; |
| By: | /s/ Gary Chayko |
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| Gary Chayko |
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| President, Chief Executive |
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| Officer and Director |
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Date: October 20, 2010 |
| By: | /s/ Jordan Shapiro |
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| Jordan Shapiro |
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| Secretary, Treasurer |
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| and Director |
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Date: October 20, 2010 |
| By: | /s/ Vitaly Melnikov |
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| Vitaly Melnikov |
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| Chief Financial Officer |
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| and Director |
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