UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 2008
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to ______________.
DAULTON CAPITAL CORP.
---------------------
(Exact name of Registrant as specified in its charter)
Nevada None 30-0459858
(State or other jurisdiction (Commission File No.) (IRS Employer
of incorporation) Identification No.)
39 New Brighton Manor S.E.
Calgary, Alberta, Canada T2Z 4G8 (Address of
principal executive offices, including Zip Code)
Registrant's telephone number, including area code: (888) 387-1403
--------------
N/A
------------------ ----
(Former name or former address if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) had 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, and
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act. (Check One):
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
(Do not check if a smaller reporting company)
Indicate by check mark whether the Registrant is a shell company (as defined in
Exchange Act Rule 12b-2 of the Exchange Act). Yes _________ No _____X____
Class of Stock No. Shares Outstanding Date
Common 3,600,000 November 30, 2008
DAULTON CAPITAL CORPORATION
(A Development Stage Company)
Balance Sheet
- -------------------------------------------------------------------------------
ASSETS
October 31, April 30,
2008 2008
----------- -----------
(Unaudited)
Current Assets
Cash and Cash Equivalents $ 20,910 $ 46,323
Accounts Receivable - 5,387
Prepaid Rent 750 750
----------- -----------
21,660 52,460
----------- -----------
Other Assets
Oil and Gas Working Interest: Mayberry No. 1 100,000 100,000
Oil and Gas Working Interest: Glencoe Wells 90,000 -
----------- -----------
190,000 100,000
----------- -----------
TOTAL ASSETS $ 211,660 $ 152,460
=========== ===========
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities $ - $ -
----------- -----------
Commitments and contingencies (Note 5)
Stockholders' Deficit
Common Stock, $0.001 par value, 50,000,000 shares
authorized, 3,600,000 shares issued and outstanding
as at October 31, 2008, 3,300,000 shares issued and
outstanding as at December 31, 2008, 3,600 3,300
Additional paid-in capital 250,454 160,754
Deficit accumulated in the development stage (42,394) (11,594)
----------- -----------
Total Stockholders' Equity 211,660 152,460
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 211,660 $ 152,460
=========== ===========
The accompanying notes are an integral part of these financial statements
2
DAULTON CAPITAL CORPORATION
(A Development Stage Company)
Statement of Operations
- --------------------------------------------------------------------------------
(Unaudited)
For the period
of Inception,
For the three For the six from Jan. 8,
months ended months ended 2008 through
October 31, October 31, October 31,
2008 2008 2008
------------- ------------- -------------
Revenues
Crude Oil Production $ - $ 3,359 $ 8,745
------------- ------------- -------------
Costs and Expenses
Professional Fees 2,100 20,264 32,264
Occupancy Expense 2,250 4,500 6,750
Stock Transfer Fees 2,869 2,869 2,869
Other General & Administrative 1,466 6,526 9,256
------------- ------------- -------------
Total Expenses 8,685 34,159 51,139
------------- ------------- -------------
Operating Loss (8,685) (30,800) (42,394)
------------- ------------- -------------
Net Income (Loss) $ (8,685) $ (30,800) $ (42,394)
============= ============= =============
Basic and Dilutive net loss per
share $ (0.003) $ (0.009)
============= =============
Weighted average number of shares
outstanding, basic and diluted 3,348,913 3,324,457
============= =============
The accompanying notes are an integral part of these financial statements
3
DAULTON CAPITAL CORPORATION
(A Development Stage Company)
Statements of Cash Flows
- -------------------------------------------------------------------------------
(Unaudited)
For the
period of
Inception,
For the For the from Jan.
three six 8,
months months 2008
ended ended through
October October October
31, 31, 31,
2008 2008 2008
------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ (8,685) $ (30,800) $ (42,394)
Adjustments to reconcile net loss to
net cash used by operating activities:
Change in operating assets and
liabilities:
Increase (Decrease) in accounts
receivable 5,387 -
Increase (Decrease) in prepaids (750)
------------ ---------- ----------
Net Cash provided by (used by) operating
activities (8,685) (25,413) (43,144)
------------ ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of oil and gas working interest (100,000)
------------ ---------- ----------
Net Cash (used by) Investing Activities - - (100,000)
------------ ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the sale of Common Stock - - 164,054
------------ ---------- ----------
Net Cash provided by Financing
Activities - - 164,054
------------ ---------- ----------
NET INCREASE (DECREASE) IN CASH (8,685) (25,413) 20,910
CASH AT BEGINNING OF PERIOD 29,595 46,323 -
------------ ---------- ----------
CASH AT END OF PERIOD $ 20,910 $ 20,910 $ 20,910
============ ========== ==========
CASH PAID FOR:
Interest $ - $ - $ -
Income Taxes $ - $ - $ -
The accompanying notes are an integral part of these financial statements
4
DAULTON CAPITAL CORPORATION
(A Development Stage Company)
Statement of Stockholders' Equity (Deficit)
- --------------------------------------------------------------------------------
(Unaudited)
Accumulated
Additional Deficit During
Common Stock Paid-in Development
Shares Amount Capital Stage Total
--------------------------------------------------------------
Balances at January 8, 2008,
Inception - $ - $ - $ - $ -
Common stock issued for cash on
January 14, 2008 at $0.098 per
share 1,800,000 1,800 15,777 17,577
Common stock issued for cash on
February 21, 2008 at $0.0977
per share 1,500,000 1,500 144,977 146,477
Net loss, period ended April 30,
2008 (11,594) (11,594)
Balances at April 30, 2008 3,300,000 $ 3,300 $ 160,754 $ (11,594) $ 152,460
Common stock issued for purchase
of a working interest in wells
at $0.30 300,000 300 89,700 90,000
Net loss, six months ended Oct.
31, 2008 (30,800) (30,800)
------------ --------- ---------- ----------- ----------
Balances at October 31, 2008 3,600,000 $ 3,600 $ 250,454 $ (42,394) $ 211,660
============ ========= ========== =========== ==========
The accompanying notes are an integral part of these financial statements
5
Daulton Capital Corporation
(A Developmental Stage Company)
Notes to Financial Statements
October 31, 2008
1. Organization
Daulton Capital Corporation (the "Company") was incorporated under the
laws of the State of Nevada January 8, 2008. The Company was organized for
the purpose of engaging in any activity or business not in conflict with
the laws of the State of Nevada or of the United States of America. The
company became engaged in the oil and gas industry.
Current Business of the Company
In February, 2008 the Company purchased a 20% working interest /16% Net
Revenue Interest in a producing oil well known at Mayberry No. 1, located
in an oil and gas leasehold estate in Creek County, Oklahoma. In June,
2008 Semcrude, Inc., the purchaser of the oil produced by the well, filed
for bankruptcy under Chapter 11 of the Federal Bankruptcy Code. Payments
to the Company for oil sold have been temporarily suspended.
On July 30, 2008 the Company purchased a 5% working interest / 4% net
revenue interest in six oil wells known as the Glencoe Wells located in an
oil and gas leasehold estate in Pawnee County, Oklahoma. The purchase was
paid in restricted common stock.
Volumetric calculations of the wells have not been performed.
Property Acquisition Costs:
Unproved
Mayberry No. 1 well $100,000
Glencoe Wells 90,000
----------
$190,000
2. Summary of Significant Accounting Policies
Basis of Presentation
The financial statements of the Company have been prepared using the
accrual basis of accounting in accordance with generally accepted
accounting principles in the United States.
6
Daulton Capital Corporation
(A Developmental Stage Company)
Notes to Financial Statements
October 31, 2008
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make certain estimates and assumptions that affect the
reported amounts of assets and liabilities at the date of the financial
statements, and reported amounts of revenue and expenses during the
reporting period. Actual results could differ materially from those
estimates. Significant estimates made by management are, among others,
realizability of long-lived assets, deferred taxes and stock option
valuation.
The financial statements presented include all adjustments which are, in
the opinion of management, necessary to present fairly the financial
position, results of operations and cash flows for the period presented in
accordance with the accounting principles generally accepted in the United
States of America. All adjustments are of a normal recurring nature.
Cash and equivalents
Cash and equivalents include investments with initial maturities of
three months or less.
Fair Value of Financial Instruments
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards ("SFAS") No. 107, "Disclosures About Fair Value of
Financial Instruments." SFAS No. 107 requires disclosure of fair value
information about financial instruments when it is practicable to estimate
that value. The carrying amounts of the Company's financial instruments as
of October 31, 2008 approximate their respective fair values because of
the short-term nature of these instruments. Such instruments consist of
cash, accounts payable and accrued expenses. The fair value of related
party payables is not determinable.
Income Taxes
The Company utilizes SFAS No. 109, "Accounting for Income Taxes," which
requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred tax
assets and liabilities are determined based on the difference between the
tax basis of assets and liabilities and their financial reporting amounts
based on enacted tax laws and statutory tax rates applicable to the
periods in which the differences are expected to affect taxable income.
Valuation allowances are established, when necessary, to reduce deferred
tax assets to the amount expected to be realized. The Company generated a
deferred tax credit through net operating loss carryforward. However, a
7
Daulton Capital Corporation
(A Developmental Stage Company)
Notes to Financial Statements
October 31, 2008
valuation allowance of 100% has been established, as the realization of
the deferred tax credits is not reasonably certain, based on going concern
considerations outlined as follows.
Going Concern
The Company's financial statements are prepared using accounting
principles generally accepted in the United States of America applicable
to a going concern, which contemplates the realization of assets and
liquidation of liabilities in the normal course of business. The Company
has not yet established an ongoing source of revenues sufficient to cover
its operating costs and to allow it to continue as a going concern. The
company experienced a loss of $30,800 in the nine months ended October 31,
2008 and $42,394 since inception October 31, 2008. The ability of the
Company to continue as a going concern is dependent on the Company
obtaining adequate capital to fund operating losses until it becomes
profitable. If the Company is unable to obtain adequate capital, it could
be forced to cease development of operations.
The ability of the Company to continue as a going concern is dependent
upon its ability to successfully accomplish its plans to generate revenue
from well head machinery and oil and gas leases. The accompanying
financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the amount
and classifications or liabilities or other adjustments that might be
necessary should the Company be unable to continue as a going concern.
Development-Stage Company
The Company is considered a development-stage company, with limited
operating revenues during the periods presented, as defined by Statement
of Financial Accounting Standards ("SFAS") No. 7. SFAS. No. 7 requires
companies to report their operations, shareholders deficit and cash flows
since inception through the date that revenues are generated from
management's intended operations, among other things. Management has
defined inception as January 8, 2008. Since inception, the Company has
incurred an operating loss of $42,394. The Company's working capital has
been generated through the sales of common stock. Management has provided
financial data since January 8, 2008 in the financial statements, as a
means to provide readers of the Company's financial information to make
informed investment decisions.
Basic and Diluted Net Loss Per Share
Net loss per share is calculated in accordance with SFAS 128, Earnings Per
Share for the period presented. Basic net loss per share is based upon the
weighted average number of common shares outstanding. Diluted net loss per
share is based on the assumption that all dilative convertible shares and
stock options were converted or exercised. Dilution is computed by
8
Daulton Capital Corporation
(A Developmental Stage Company)
Notes to Financial Statements
October 31, 2008
applying the treasury stock method. Under this method, options and
warrants are assumed exercised at the beginning of the period (or at the
time of issuance, if later), and as if funds obtained thereby we used to
purchase common stock at the average market price during the period.
The Company has no potentially dilutive securities outstanding as of
October 31, 2008.
The following is a reconciliation of the numerator and denominator of the
basic and diluted earnings per share computations for the six months ended
October 31, 2008. There is no comparable period in 2007.
Numerator:
Basic and diluted net loss per share:
Net Loss $ (30,800)
Denominator
Basic and diluted weighted average
number of shares outstanding 3,324,457
Basic and Diluted Net Loss Per Share $ (0.009)
-------------------------------------
Accounting for Oil and Gas Producing Activities
The company uses the successful efforts method of accounting for oil and
gas producing activities. Under this method, acquisition costs for proved
and unproved properties are capitalized when incurred.
Acquisition costs are capitalized when incurred pending the determination
of whether a well has found proved reserves. A determination of whether a
well has found proved reserves is made within a year of acquisition.
If after that year has passed, a determination that proved reserves exist
cannot be made, the well is assumed to be impaired, and its costs are
charged to expense. It's costs can however, continue to be capitalized if
a sufficient quantity of reserves are discovered in the well to justify
its completion as a producing well and sufficient progress is made
assessing the reserves and the well's economic and operating feasibility.
The impairment of unamortized capital costs is measured at a lease level
and is reduced to fair value if it is determined that the sum of expected
future net cash flows is less than the net book value.
9
Daulton Capital Corporation
(A Developmental Stage Company)
Notes to Financial Statements
October 31, 2008
The company determines if impairment has occurred through either adverse
changes or as a result of the annual review of all fields. During 2008 the
company did not record any impairment. Development costs of proved oil and
gas properties, including estimated dismantlement, restoration and
abandonment costs and acquisition costs, are depreciated and depleted on a
field basis by the units-of-production method using proved reserves,
respectively.
The Costs of unproved oil and gas properties are generally combined and
impaired over a period that is based on the average holding period for
such properties and the company's experience of successful operations.
Oil and Gas Revenue Recognition
The company applies the sales method of accounting for crude oil and
natural gas revenue. Under thus method, revenues are recognized based on
the actual volume of natural gas sold to purchasers. Revenue from the sale
of gas is reported by the gas gathering company monthly and paid two
months in arrears.
Accounts Receivable
The Company's crude oil revenue is normally paid two months in arrears by
the oil purchasing company. The purchasing company, Semcrude Inc., was in
Chapter 11 bankruptcy at October 31, 2008, interrupting the payments and
creating uncertainly as to collection. The receivable at fiscal year end
April 30, 2008 was received in May, 2008. However no receivables are
recorded at October 31, 2008 because of the uncertainty.
August 31, 2008 April 30, 2008
--------------- --------------
0 $ 5,387
4. Capital Structure
During the period from inception through October 31, 2008 the Company
entered into the following equity transactions:
January 14, 2008: Sold 1,800,000 shares of common stock at $.01 per
share realizing $17,577.
February 21, 2008 Sold 1,500,000 shares of common stock at $.098
per share realizing $146,477.
10
Daulton Capital Corporation
(A Developmental Stage Company)
Notes to Financial Statements
October 31, 2008
October 16, 2008 The Company issued 300,000 restricted common shares
at a price of $0.30 per share in payment for the
working interest in six oil wells known as the
Glencoe wells.
As at October 31, 2008, the Company was authorized to issue 50,000,000
shares of $0.001 par value common stock, of which 3,600,000 shares were
issued and outstanding.
The Company was also authorized to issue 5,000,000 shares of preferred
stock, of which none were issued and outstanding.
5. Commitments and Contingencies
There were no commitments and contingencies in the three months ended July
31, 2008.
6. Legal Proceedings
There were no legal proceedings against the Company with respect to
matters arising in the ordinary course of business. Neither the Company
nor any of its officers or directors is involved in any other litigation
either as plaintiffs or defendants, and have no knowledge of any
threatened or pending litigation against them or any of the officers or
directors.
11
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion of financial condition and results of operations
should be read in conjunction with the consolidated financial statements and the
notes to the consolidated financial statements, which are included elsewhere in
this report.
Daulton Capital was incorporated on January 8, 2008. In February 2008
Daulton Capital sold 1,500,000 shares of its common stock at a price of $0.10
CDN per share to a group of private investors.
Daulton Capital has a 20% working interest (16% net revenue interest) in a
oil well located in Creek County, Oklahoma. As of October 31, 2008 the well was
producing, net to Daulton Capital's net revenue interest, two barrels of oil per
day.
On July 30, 2008 Daulton Capital acquired a 5% working interest (4% net
revenue interest) in six wells located in Pawnee County, Oklahoma. In
consideration for assignment of the working interest in these wells the Company
issued 300,000 shares of its restricted common stock to the former owner of the
working interests. As of October 31, 2008, five of the six wells were producing
approximately 80 barrels (gross) of oil per day and 120 MCF (gross) of gas per
day. The sixth well is being used as a saltwater disposal well.
In June, 2008 Semcrude, Inc., the purchaser of the oil produced by Daulton
Capital's wells, filed for bankruptcy under Chapter 11 of the Federal Bankruptcy
Code. As a result, payments to Daulton Capital for oil sold have been
temporarily suspended.
Daulton Capital plans to generate profits by drilling productive oil or
gas wells. However, Daulton Capital will need to raise the funds required to
drill new wells from third parties willing to pay Daulton Capital's share of
drilling and completing the wells. Daulton Capital may also attempt to raise
needed capital through the private sale of its securities or by borrowing from
third parties. Daulton Capital may not be successful in raising the capital
needed to drill oil or gas wells. In addition, any future wells which may be
drilled by Daulton Capital may not be productive of oil or gas. The inability of
Daulton Capital to generate profits may force Daulton Capital to curtail or
cease operations.
Daulton Capital's future plans will be dependent upon the amount of
capital Daulton Capital is able to raise. Daulton Capital does not have any
commitments or arrangements from any person to provide Daulton Capital with any
additional capital.
Contractual Obligations
As of October 31, 2008 Daulton Capital did not have any material capital
commitments, other than funding its operating losses. It is anticipated that any
capital commitments that may occur will be financed principally through the sale
of shares of Daulton Capital's common stock or other equity securities. However,
there can be no assurance that additional capital resources and financings will
be available to Daulton Capital on a timely basis, or if available, on
acceptable terms.
12
Item 4.T. CONTROLS AND PROCEDURES
Daulton Capital's management is responsible for establishing and
maintaining adequate internal control over financial reporting as required by
Sarbanes-Oxley (SOX) Section 404.A. Daulton Capital's internal control over
financial reporting is a process designed under the supervision of its Chief
Executive and Financial Officer to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of its financial
statements for external purposes in accordance with Generally Accepted
Accounting Principles.
There were no changes in Daulton Capital's internal controls over
financial reporting that occurred during the quarter ended October 31, 2008 that
have affected, or are reasonably likely to materially affect, Daulton Capital's
internal control over financial reporting.
Ryan Beamin, Daulton Capital's President and Principal Financial Officer,
evaluated the effectiveness of Daulton Capital's disclosure controls and
procedures as of the end of the period covered by this report; and in his
opinion Daulton Capital's disclosure controls and procedures were effective.
PART II
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On July 30, 2008 the Company acquired a 5% working interest (4% net
revenue interest) in six wells located in Pawnee County, Oklahoma. In
consideration for assignment of the working interest in these wells the Company
issued 300,000 shares of its restricted common stock to the former owner of the
working interests.
The Company relied upon the exemption provided by Section 4(2) of the
Securities Act of 1933 in connection with the issuance of these shares.
Item 6. (a) Exhibits
Number Exhibit
31 Rule 13a-14(a) Certifications
32 Section 1350 Certifications
13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DAULTON CAPITAL CORP.
Date: December 1, 2008 /s/ Ryan Beamin
------------------------------
Ryan Beamin, President and Principal
Financial and Accounting Officer