UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
for the quarterly period ended March 31,009
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
for the transition period from to
Commission file number 0-30503
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PANGEA PETROLEUM CORP.
(Exact Name of Registrant as Specified in Its Charter)
Colorado 76-0635938
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation of organization)
3600 Gessner, Suite 220, Houston, Texas 77063
(Address of principal executive offices)
(281) 710-7103
(Registrant's telephone number)
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 [ ] No [X]
Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files). Yes No
Indicate by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
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 smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [} No [X]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 390,499,544 common shares as of
May 19, 2009
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
BALANCE SHEET
PANGEA PETROLEUM CORP.
Period End: March 31, 2009
March 31, December 31,
2009 2008
ASSETS
Current assets
Cash 2,471 2,595
Accounts receivable 50,533 1,844
Prepaid expenses 10,139
Inventory 44,262
-----------------------
Total Current Assets 107,405 4,439
Property and equipment: 25,263
Proven oil and gas properties (successful
efforts method), net of accumulated
depletion of $144,723 27,989 28,734
Unproven oil and gas properties (successful
efforts method) 152,000 152,000
------------------------
Total Fixed Assets 205,252 180,734
Investment in subsidiary 10,000
-------------------------
Total assets 322,657 185,173
=========================
PANGEA PETROLEUM CORP
BALANCE SHEET
Period End: March 31, 2009
March 31, December 31,
2009 2008
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Accounts payable 58,843 43,595
Credit card payable 18,374 18,374
Other current liabilities 65,944
Accrued interest payable to related parties 99,197 79,090
Notes payable to related parties 24,753 11,500
Notes payable -
Stock payable -
-------------------------
Total current liabilities 267,111 152,559
Long term debt to related parties 659,771 659,771
Asset retirement obligations 8,193 8,193
-------------------------
Total liabilities 935,075 820,523
Stockholders' deficit:
Preferred stock: $.001 par value;
1,000,000 shares authorized, 10,000
none issued and outstanding
Common stock: $.001 par value;
500,000,000 shares authorized;
390,499,544 shares issued and
outstanding 390,499 365,499
Additional paid-in capital 18,521,904 18,521,904
Accumulated deficit (19,534,821) (19,522,753)
-----------------------------
Total stockholders' deficit (612,418) (635,350)
Total liabilities and stockholders' deficit 322,657 185,173
=============================
PANGEA PETROLEUM CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended Three Months Ended
March 31 March 31
2009 2008
Oil and gas revenue $2,672 $7,567
Income from subsidiary operations 172,722
---------------------------------
Total revenue 175,394 7,567
Costs and expenses:
Cost of goods sold by subsidiary 107,797
Lease operating expenses 787 2,662
Production taxes 146 465
Dry hole costs - -
Depreciation and depletion 745 13,515
Selling, general and administrative, including
stock based compensation 108,432 86,549
--------------------------
Total costs and expenses 217,907 103,191
--------------------------
Loss from operations (42,513) (95,624)
Other (expenses):
Interest expense (20,107) (19,589)
---------------------------
Net loss $(62,620) $(115,213)
===========================
Basic and diluted net loss per common share $(0.00) $(0.00)
Weighted average common shares
outstanding 365,499,544 306,451,893
PANGEA PETROLEUM CORPORATION
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
for the three months ended March 31, 2009 and 2008
(Unaudited)
Three Months Ended Three Months Ended
March 31 March 31
2009 2008
Cash flows from operating activities:
Net loss $(62,620) $(115,213)
Adjustments to reconcile net loss to net cash
used in operating activities 57,185 112,502
-----------------------------------
Net cash used in operating activities (5,425) (2,711)
Cash flows from investing activities:
Capital and exploratory expenditures - -
Cash flows from financing activities:
Repayment of debt - -
-----------------------------------
Net cash used in financing activities - -
-----------------------------------
Net decrease in cash and cash equivalents (4,690) (2,711)
Cash and cash equivalents at beginning
of period 8,998 2,718
------------------------------------
Cash and cash equivalents at end of
period $4,308 $7
====================================
Supplemental Disclosures:
Cash paid for interest $- $-
Cash paid for income taxes - -
Noncash investing and financing
activities:
Oil and gas property acquired
with common stock issuance $32,000 $32,000
PANGEA PETROLEUM CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
For the Year ended December 31, 2008
Preferred Additional Total
Stock Common Stock Paid-In Accumulated Stockholders'
Shares Shares Amount Capital Deficit Deficit
Balances as of
December 31,
2008 365,499,544 365,500 18,432,989 (19,522,753) (635,350)
Stock issued
for
services 25,000,000 25,000 25,000 17,500
Preferred stock
issued to acquire
San Diego
Airmotive 1,000,000 10,000 10,000
Net loss (62,620) (62,620)
--------------------------------------------------------------
Balance at March
31,2009 1,000,000 390,499,544 400,000 18,457,989 (19,585,373) (612,418)
==================================================================
PANGEA PETROLEUM CORP.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
---------------------
The accompanying unaudited interim consolidated financial statements of Pangea
Petroleum Corp., a Colorado corporation, have been prepared in accordance with
accounting principles generally accepted in the United States of America and the
rules of the Securities and Exchange Commission and should be read in
conjunction with the audited financial statements and notes thereto contained in
the Pangea's latest Annual Report filed with the SEC on Form 10-K. In the
opinion of management, all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation of financial position and the
results of operations for the interim periods presented have been reflected
herein. The results of operations for interim periods are not necessarily
indicative of the results to be expected for the full year.
Notes to the consolidated financial statements that would substantially
duplicate the disclosure contained in the audited financial statements for the
most recent fiscal year, December 31, 2008, as reported in Form 10-K, have been
omitted.
2. GOING CONCERN CONSIDERATIONS
----------------------------
Since its inception, Pangea has suffered recurring losses from operations and
has been dependent on existing stockholders and new investors to provide cash
resources to sustain its operations. During the three months ended March 31,
2009 and 2008, Pangea reported net losses of $43,956 and $115,213 respectively.
These conditions raise substantial doubt about Pangea's ability to continue as a
going concern.
Pangea has developed a multi-step plan and has taken actions to improve its
financial position and deal with its liquidity problems. The final steps of the
plan are still being developed, but may include additional private placements of
Pangea's common stock, and/or exploration efforts, and efforts to raise
additional debt financing or equity investments. There can be no assurance that
any of the plans developed by Pangea will produce cash flows sufficient to
ensure its long-term viability as a going concern.
Pangea's long-term viability as a going concern is dependent on certain key
factors, as follows:
* Pangea's ability to obtain adequate sources of outside financing
to support near term operations and to allow the Company to continue
forward with current strategic plans.
* Pangea's ability to ultimately achieve adequate profitability and
cash flows to sustain continuing operations.
3. STOCKHOLDERS' EQUITY
---------------------
During the three months ended March 31, 2009, Pangea issued 25 million shares of
our common stock to Sage Office Services, an entity controlled by Mary Pollock
Merritt, daughter of a person who served as our chief executive officer during a
part of 2009. This stock issuance was in consideration of services previously
rendered having an aggregate value of approximately $17,500.
4. RELATED PARTY TRANSACTIONS
----------------------------
Notes payable to related parties consist of the following at March 31,
2009:
Note payable to Mary Pollock, daughter of the chief
executive officer. This note bears interest of 12%
per year and became due on December 31, 2008.
These notes are not collateralized. $ 146,691
Notes payable to Charles Pollock, the Chief Executive
Officer and a significant stockholder of the Company.
This note bears interest of 12% per year, and became
due on December 31, 2008. These notes are not collateralized. 400,911
Notes payable to Mark Weller, the Chief Operating
Officer and a significant stockholder of the Company.
This note bears interest of 12% per year, and became
due on December 31, 2008. These notes are not collateralized. 112,169
---------
$ 659,771
===========
The above consists of renewed promissory notes extending the maturity dates from
the original due date of December 31, 2008,which combined prior principal and
accrued interest into principal amount of new debt. Accrued interest payable to
related parties of $20,107 at March 31, 2009 represents interest accrued on the
above notes payable to related parties. We are currently starting negotiations
to satisfy these amounts.
5. Current events
The Company entered into a Share Exchange Agreement fully executed on February
20, 2009 (the "Exchange Agreement") by and between the Company and AvStar
Aviation Services, Inc. ("AvStar"), providing for the Company's acquisition of
all of the outstanding common stock in San Diego Airmotive ("SDA"), which
(through its predecessor entity) has been providing maintenance, repair and
overhaul ("MRO") services in California since 1987. In connection with this
acquisition, the Company issued to AvStar, the prior owner of SDA, 1,000,000
shares of the Company's newly-created series A preferred stock ("Series A
Preferred Stock"), which shares constitute in the aggregate approximately 92.8%
of outstanding economic interest and voting power in the Company All
descriptions of the share exchange contained herein and all references to the
terms, provisions and conditions of the Exchange Agreement are qualified in
their entirety by reference to the Exchange Agreement which was detailed in the
8-K filed on February 25, 2009.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS.
CAUTIONARY STATEMENT FOR FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. We have based
these forward-looking statements on our current expectations and projections
about future events. These forward-looking statements are subject to known and
unknown risks, uncertainties and assumptions about us that may cause our 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 such forward-looking statements. In some
cases, you can identify forward-looking statements by terminology such as "may,"
"should," "could," "would," "expect," "plan," "anticipate," "believe,"
"estimate," "continue," or the negative of such terms or other similar
expressions. Factors that might cause or contribute to such a discrepancy
include, but are not limited to, those described in our other Securities and
Exchange Commission filings. The following discussion should be read in
conjunction with our Financial Statements and related Notes thereto included
elsewhere in this report.
GENERAL
We have historically been an independent energy company focused on
exploration and development of oil and natural gas reserves, whose core business
was directed to the development of oil and gas prospects in proven onshore
production areas. In February 2009, we adopted a significant change in our
corporate direction. We have decided to focus our efforts on acquiring aviation
related businesses and developing these businesses to their commercial
potential.
Our new business plan is to acquire, consolidate and grow businesses in the
general aviation industry. We will place our initial focus on the maintenance,
repair and overhaul (MRO) of aircraft providing products and services for the
general aviation sector. We believe that since September 11, 2001, both private
air transportation and the number of aircraft owned by both individuals and
business have dramatically increased. Each of these sectors, in addition to
routine maintenance, has mandated a number of inspections by the FAA that are
commonly included in traditional MRO services.
Our recently acquired, wholly owned subsidiary, San Diego Airmotive
("SDA"), has been operating (through its predecessor entity) as an MRO for
approximately 19 years. SDA historically provided MRO services for single and
multi-engine aircraft. As capital is available to us, we intend to grow our
business through the expansion of our existing MRO business as well as by
acquisitions of existing MRO's, fixed base operations (FBO), charter operations
and other operational aircraft related businesses.
Since our inception, we have recurring losses from operations and have been
dependent on existing stockholders and new investors to provide the cash
resources to sustain its operations. During the three months ended March 31,
2009, we reported a loss of $62,620 compared to a loss of $115,213 reported for
the three months ended March 31, 2008.
Our long-term viability as a going concern depends on certain key factors,
as follows:
* Our ability to continue to obtain sources of outside financing to allow us
to continue to business operations.
* Our ability to increase profitability and sustain a cash flow level that
will ensure support for continuing operations.
We are currently exploring the amendment and restatement of our Articles of
Incorporation to change our corporate name to "AvStar Aviation Group, Inc." to
reflect our new business focus, and to change our capital structure by effecting
a one-for-100 reverse split of our common stock to improve our capital
structure. There can be no assurance that our shareholders will approve the
preceding amendment and restatement of our Articles of Incorporation.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our discussion and analysis of the financial condition and results of
operations are based upon our financial statements, which have been prepared in
accordance with generally accepted accounting principles in the United States.
The preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenue and
expenses, and related disclosure of contingent assets and liabilities. On an
ongoing basis, we evaluate estimates. We base our estimates on historical
experience and on various other assumptions that are believed to be reasonable
under the circumstances. These estimates and assumptions provide a basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions, and these differences may
be material.
We believe the following critical accounting policies affect its more
significant judgments and estimates used in the preparation of its consolidated
financial statements.
Oil and Gas Producing Activities
We follow the "successful efforts" method of accounting for our oil and gas
properties. Under this method of accounting, all property acquisition costs
(cost to acquire mineral interests in oil and gas properties) and costs (to
drill and equip) of exploratory and development wells are capitalized when
incurred, pending determination of whether the well has found proved reserves.
If an exploratory well has not found proved reserves in commercial quantities,
the costs associated with the well are charged to expense. The costs of
development wells are capitalized whether productive or nonproductive.
Geological and geophysical costs and the costs of carrying and retaining
undeveloped properties are expensed as incurred. Management estimates the
future liability for plugging and abandonment of the related wells.
Unproved oil and gas properties that are individually significant are
periodically assessed for impairment of value, and a loss is recognized at the
time of impairment by providing an impairment allowance. Other unproved
properties are amortized based on the average holding period. Capitalized costs
of producing oil and gas properties after considering estimated dismantlement
and abandonment costs and estimated salvage values are depreciated and depleted
by the unit-of-production method. On the sale or retirement of a complete unit
of a proved property, the cost and related accumulated depreciation, depletion,
and amortization are eliminated from the property accounts, and the resultant
gain or loss is recognized. On the retirement or sale of a partial unit of
proved property, the cost is charged to accumulated depreciation, depletion, and
amortization with a resulting gain or loss recognized in the statement of
operations.
On the sale of an entire interest in an unproved property for cash or cash
equivalent, gain or loss on the sale is recognized, taking into consideration
the amount of any recorded impairment if the property had been assessed
individually. If a partial interest in an unproved property is sold, the amount
received is treated as a reduction of the cost of the interest retained.
RESULTS OF OPERATIONS
Quarter Ended March 31, 2009 Compared to the Quarter Ended March 31, 2008
-------------------------------------------------------------------------
The net loss of $62,620 for the three months ended March 31, 2009
decreased by $52,593 from the net loss of $115,213 for the three months ended
March 31, 2008. We generated revenue from the participation in ongoing oil
and gas wells in the amount of $2,672 for the three months ended March 31, 2009,
compared to $19,835 in revenue for the three months ended March 31, 2008. This
revenue decrease resulted from a decrease in production. Total assets decreased
to $322,657 at March 31, 2009 compared to $239,988 at March 31, 2008. This
decrease is primarily reflected in a decrease in oil and gas properties and by
the decrease in cash to $7 at March 31, 2009 compared to $28,241 at March 31,
2008.
Total liabilities at March 31, 2009 were $935,075 compared to $808,929 at
March 31, 2008. The increase in liabilities is primarily due to an increase in
accrued liabilities related to accrued interest on notes payable and increased
debt related to the Blue Ridge field in Ft. Bend County, Texas.
LIQUIDITY AND CAPITAL RESOURCES
Currently, we have limited financial ability to pursue our new business
plan. We are currently trying to determine the scope of the business activities
that we will pursue in the foreseeable future. The amount of capital that we
will need depends on the scope of the business activities that we ultimately
decide to pursue. This scope is uncertain at this time. However, we know that
we must obtain additional financing to pursue our business plan at any level
that we are likely to pursue. We are currently searching for sources of
financing, but we currently do not have any binding commitments for, or readily
available sources of, financing. We cannot assure anyone that financing will be
available to us when needed or, if available, that such financing can be
obtained on commercially reasonably terms. If we do not obtain financing we
will be constrained to contract the scope of our business plan. Under certain
circumstances, we may be constrained to attempt to sell some of our assets.
However, we cannot assure anyone that we will be able to find interested buyers
or that the funds received from any such sale would be adequate to fund our
activities. Under certain circumstances, we could be forced to cease our
operations and liquidate our remaining assets, if any.
OFF-BALANCE SHEET ARRANGEMENTS
We have no off balance sheet arrangements.
ITEM 4T. CONTROLS AND PROCEDURES.
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
As of the end of the period of this report, our principal executive and
principal financial officer carried out an evaluation of the effectiveness of
the design and operation of our disclosure controls and procedures. This
evaluation was carried out under the supervision and with the participation of
our management, including our Chief Executive Officer and Chief Financial
Officer. We have concluded, based on that evaluation, that, as of such date,
the disclosure controls and procedures were not effective to ensure that
information required to be disclosed in reports filed or submitted under the
Securities Exchange Act of 1934 (the "Exchange Act") is accumulated and
communicated to our management, including our Chief Executive Officer and Chief
Financial Officer, as appropriate to allow timely decisions regarding required
disclosure. Although the evaluation did not detect any material weaknesses in
our system of internal accounting controls over financial reporting, management
identified significant deficiencies with respect to the timely public reporting
of events requiring such reporting. We are instituting corrective action to
ensure that such events are timely reported publicly. Notwithstanding
management's assessment that our internal control over financial reporting was
ineffective as of the end of the period of this report, and the significant
deficiencies described above, we believe that the consolidated financial
statements included in this report correctly present our financial condition,
results of operations and cash flows for the periods covered thereby in all
material respects.
LIMITATIONS ON EFFECTIVENESS OF CONTROLS AND PROCEDURES
Our management, including our Chief Executive Officer and Chief Financial
Officer, does not expect that our disclosure controls and procedures or our
internal controls will prevent all error and all fraud. A control system, no
matter how well conceived and operated, can provide only reasonable, not
absolute, assurance that the objectives of the control system are met. Further,
the design of a control system must reflect the fact that there are resource
constraints and the benefits of controls must be considered relative to their
costs. Because of the inherent limitations in all control systems, no evaluation
of controls can provide absolute assurance that all control issues and instances
of fraud, if any, within we have been detected. These inherent limitations
include, but are not limited to, the realities that judgments in decision-making
can be faulty and that breakdowns can occur because of simple error or mistake.
Additionally, controls can be circumvented by the individual acts of some
persons, by collusion of two or more people, or by management override of the
control. The design of any system of controls also is based in part upon certain
assumptions about the likelihood of future events and there can be no assurance
that any design will succeed in achieving its stated goals under all potential
future conditions; over time, control may become inadequate because of changes
in conditions, or the degree of compliance with the policies or procedures may
deteriorate.
CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING
There have not been any changes in our internal control over financial
reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act, during our first fiscal quarter of 2009 that have materially
affected, or are reasonably likely to materially affect our internal control
over financial reporting.
PART II OTHER INFORMATION
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On January 7, 2009, we issued 25 million shares of our common stock to Sage
Office Services, an entity controlled by Mary Pollock Merritt, daughter of a
person who served as our chief executive officer during a part of 2009. This
stock issuance was in consideration of services previously rendered having an
aggregate value of approximately $17,500. These issuances are claimed to be
exempt pursuant to Rule 506 of Regulation D under the Securities Act of 1933
(the "Act"). No advertising or general solicitation was employed in offering
these securities. The offering and sale was made only to accredited investors,
and subsequent transfers were restricted in accordance with the requirements of
the Act.
ITEM 6. EXHIBITS.
(a) The following exhibits are filed with this Quarterly Report or are
incorporated herein by reference:
Exhibit
Number Description
31.01 Certification pursuant to Rule 13a-14(a) of the Securities Exchange
Act of 1934.
31.02 Certification pursuant to Rule 13a-14(a) of the Securities Exchange
Act of 1934.
32.01 Certification Pursuant to 18 U.S.C. Section 1350, as pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
32.02 Certification Pursuant to 18 U.S.C. Section 1350, as pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant has
duly caused this Report to be signed on its behalf by the undersigned, thereunto
duly authorized.
PANGEA PETROLEUM CORP.
(Registrant)
By: /s/Russell Ivy
---------------
Russell Ivy,
Chief Executive Officer
(Principal Executive Officer)
By: /s/ Robert Wilson
-----------------
Robert Wilson,
Vice President and Chief Financial
Officer
(Principal Financial Officer and
Principal Accounting Officer)
May 20, 2009