BrewBilt Brewing Co - Quarter Report: 2010 June (Form 10-Q)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
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[X]
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Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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For the quarterly period ended June 30, 2010
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[ ]
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Transition Report pursuant to 13 or 15(d) of the Securities Exchange Act of 1934
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For the transition period from to __________
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Commission File Number: 000-53276
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Grid Petroleum Corp.
(Exact name of registrant as specified in its charter)
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Nevada
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N/A
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(State or other jurisdiction of incorporation or organization)
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(IRS Employer Identification No.) | |
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33 Cavendish Square, London
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(Address of principal executive offices)
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(+44)207-182-4205
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(Registrant’s telephone number)
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_______________________________________________________________
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(Former name, former address and former fiscal year, if changed since last report)
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Indicate by check mark whether the registrant (1) 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 issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days [X] Yes [ ] No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). [ ] Yes [X] 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.
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[ ] Large accelerated filer Accelerated filer
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[ ] Non-accelerated filer
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[X] Smaller reporting company
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). [ ] Yes [X] No
State the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 65,474,420 as of July 31, 2010.
PART I - FINANCIAL INFORMATION
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Our consolidated financial statements included in this Form 10-Q are as follows:
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These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the SEC instructions to Form 10-Q. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the interim period ended June 30, 2010 are not necessarily indicative of the results that can be expected for the full year.
(An Exploration Stage Company)
Consolidated Balance Sheets
(Expressed in US Dollars)
Unaudited- Prepared by Management
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June 30
2010 |
March 31
2010 |
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ASSETS
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CURRENT ASSETS
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Cash and cash equivalents
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$ | 162,416 | $ | 128,231 | ||
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Prepaid expenses and deposits
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16,064 | 6,373 | ||||
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Total current assets
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178,480 | 134,604 | ||||
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FIXED ASSETS (Note 3)
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653 | 716 | ||||
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OIL AND GAS PROPERTIES (Note 4)
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80,000 | 80,000 | ||||
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Total assets
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$ | 259,133 | $ | 215,320 | ||
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LIABILITIES AND STOCKHOLDERS' EQUITY
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CURRENT LIABILITIES
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Demand loan (Note 5)
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$ | 62,558 | $ | 61,020 | ||
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Accounts payable including related party payable of $nil (2009 - $315)
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31,986 | 5,375 | ||||
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Accrued liabilities
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24,958 | 31,148 | ||||
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Total current liabilities
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119,502 | 97,543 | ||||
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COMMITMENTS AND CONTINGENCIES (Notes 2, 4, 5, 6, 7, 8, 9 and 10)
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STOCKHOLDERS' EQUITY
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Common stock (Note 7)
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Authorized 1,500,000,000 shares at par value of $0.001
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Issued and outstanding 65,424,420 (March 31, 2010 - 65,290,000)
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65,424 | 65,290 | ||||
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Additional paid-in capital
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545,333 | 345,467 | ||||
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Common stock to be issued (Note 7)
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40,950 | - | ||||
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Accumulated (deficit)
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(297,124 | ) | (297,124) | |||
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Accumulated (deficit) during exploration stage
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(219,094 | ) | - | |||
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Accumulated other comprehensive income (loss)
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4,142 | 4,144 | ||||
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Total stockholders' equity
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139,631 | 117,777 | ||||
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Total liabilities and stockholder's equity
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$ | 259,133 | $ | 215,320 | ||
The accompanying notes to the consolidated financial statements are an integral part of these statements.
(An Exploration Stage Company)
Consolidated Statements of Operations
(Expressed in US Dollars)
Unaudited- Prepared by Management
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Three months ended June 30
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Cumulative from commencement of exploration stage on
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2010
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2009
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March 31, 2010 | ||||||
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EXPENSES
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Interest
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$ | 1,538 | $ | 1,602 | $ | 1,538 | ||
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Investor relations, promotion and entertainment
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68,304 | 572 | 68,304 | |||||
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Depreciation
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63 | - | 63 | |||||
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Professional fees
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104,921 | 481 | 104,921 | |||||
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Salaries and benefits
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31,410 | - | 31,410 | |||||
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Other administrative expenses
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12,858 | 3,507 | 12,858 | |||||
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Total expenses
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219,094 | 6,162 | 219,094 | |||||
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Net (loss) for the period
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$ | (219,094) | $ | (6,162) | $ | (219,094) | ||
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Other comprehensive income (loss)
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Foreign currency translation
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(2) | (868) | (2) | |||||
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Comprehensive (loss)
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$ | (219,096) | $ | (7,030) | $ | (219,096) | ||
| Net loss per common share - basic and fully diluted: | ||||||||
| Net (loss) for the period | $ | nil | $ | nil | $ | nil | ||
| Weighted average number of common stock outstanding | 65,374,197 | 82,042,000 | 65,374,197 | |||||
The accompanying notes to the consolidated financial statements are an integral part of these statements.
(An Exploration Stage Company)
Consolidated Statements of Cash Flows
(Expressed in US Dollars)
Unaudited- Prepared by Management
| Three months ended June 30 |
Cumulative from
commencement of
exploration stage on
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| 2010 | 2009 | March 31, 2010 | ||||||
| Cash (used in) operating activities: | ||||||||
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Net (loss) for the period
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$ | (219,094) | $ | (6,162) | $ | (219,094) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
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Donated services
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- | 1,500 | - | |||||
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Depreciation of fixed assets
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63 | - | 63 | |||||
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Write-downs of mineral properties
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- | - | - | |||||
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Imputed interest on shareholder's loan
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- | 209 | - | |||||
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Professional fees to be paid in shares
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40,950 | 40,950 | ||||||
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Net change in operating assets and liabilities:
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Prepaid expenses
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(9,691) | - | (9,691) | |||||
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Interest payable on demand loan
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1,538 | 1,392 | 1,538 | |||||
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Accounts payable
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26,611 | (3,172) | 26,611 | |||||
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Accrued liabilities
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(6,190) | (5,412) | (6,190) | |||||
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Net cash (used in) operating activities
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(165,813) | (11,645) | (165,813) | |||||
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Cash from financing activities:
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Proceeds from shareholder's loan
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- | 22,500 | - | |||||
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Proceeds from issue of shares
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200,000 | - | 200,000 | |||||
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Net cash from financing activities
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200,000 | 22,500 | 200,000 | |||||
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Effect of exchange rate changes on cash
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(2) | (868) | (2) | |||||
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Increase in cash and cash equivalent
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34,185 | 9,987 | 34,185 | |||||
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Cash, beginning of period
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128,231 | 486 | 128,231 | |||||
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Cash, end of period
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$ | 162,416 | $ | 10,473 | $ | 162,416 | ||
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Supplemental disclosures:
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Income taxes paid
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$ | - | $ | - | $ | - | ||
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Interest paid
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$ | - | $ | - | $ | - | ||
The accompanying notes to the consolidated financial statements are an integral part of these statements.
(An Exploration Stage Company)
Consolidated Statement of Stockholders' Equity (Deficit)
(Expressed in US Dollars)
Unaudited- Prepared by Management
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Common Stock
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Amount
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Accumulated
Other Comprehensive Income (loss)
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Additional
Paid in Capital
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Common
stock to be
issued
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Accumulated (deficit)
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(Deficit) Accumulated During Exploration
Stage from
March 31, 2010
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Stockholders’ Equity (Deficit)
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Beginning balance, September 19, 2006
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- | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | |||||||||
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Shares issued pursuant to subscription November 15, 2006 at $0.0005
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52,000,000 | 26,000 | - | - | - | - | - | 26,000 | ||||||||||||||||
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Shares issued pursuant to subscriptions November 27, 2006 at $0.001
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25,500,000 | 25,500 | - | - | - | - | - | 25,500 | ||||||||||||||||
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Shares issued for acquisition of subsidiary at $0.05
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2,000 | 107 | - | - | - | - | - | 107 | ||||||||||||||||
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Shares issued pursuant to subscriptions March 30, 2007 at $0.005
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4,540,000 | 22,700 | - | - | - | - | - | 22,700 | ||||||||||||||||
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Non-cash use of premises contributed by a director
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- | - | - | 2,250 | - | - | - | 2,250 | ||||||||||||||||
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Net (loss) for the period
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- | - | (857) | - | - | (31,138) | - | (31,995) | ||||||||||||||||
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Balance March 31, 2007
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82,042,000 | $ | 74,307 | $ | (857) | $ | 2,250 | $ | - | $ | (31,138) | $ | - | $ | 44,562 | |||||||||
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Non-cash use of premises contributed by a director
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- | - | - | 6,000 | - | - | - | 6,000 | ||||||||||||||||
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Net income (loss) for the year
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- | - | 5,152 | - | - | (82,075) | - | (76,923) | ||||||||||||||||
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Balance March 31, 2008
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82,042,000 | $ | 74,307 | $ | 4,295 | $ | 8,250 | $ | - | $ | (113,213) | $ | - | $ | (26,361) | |||||||||
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Non-cash use of premises contributed by a director
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- | - | - | 6,000 | - | - | - | 6,000 | ||||||||||||||||
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Net income (loss) for the year
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- | - | 504 | - | - | (60,062) | - | (59,558) | ||||||||||||||||
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Balance March 31, 2009
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82,042,000 | $ | 74,307 | $ | 4,799 | $ | 14,250 | $ | - | $ | (173,275) | $ | - | $ | (79,919) | |||||||||
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Non-cash use of premises contributed by a director
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- | - | - | 5,000 | - | - | - | 5,000 | ||||||||||||||||
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Forgiveness of shareholder's loan
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- | - | - | 27,500 | - | - | - | 27,500 | ||||||||||||||||
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Forgiveness of fees payable to a consultant
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- | - | - | 3,813 | - | - | - | 3,813 | ||||||||||||||||
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Legal fees paid by a shareholder
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- | - | - | 3,569 | - | - | - | 3,569 | ||||||||||||||||
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Shares issued pursuant to subscription March 9, 2010 at $0.40 per share
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1,250,000 | 1,250 | - | 498,750 | - | - | - | 500,000 | ||||||||||||||||
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Excess of price paid to related party for oil & gas properties over related party's cost
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- | - | - | (220,000) | - | - | - | (220,000) | ||||||||||||||||
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Stock cancelled March 17, 2010
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(18,002,000) | (10,267) | - | 10,267 | - | - | - | - | ||||||||||||||||
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Imputed interest on shareholder's loan
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- | - | - | 2,318 | - | - | - | 2,318 | ||||||||||||||||
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Net (loss) for the year
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- | - | (655) | - | - | (123,849) | - | (124,504) | ||||||||||||||||
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Balance March 31, 2010
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65,290,000 | $ | 65,290 | $ | 4,144 | $ | 345,467 | $ | - | $ | (297,124) | $ | - | $ | 117,777 | |||||||||
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Shares issued pursuant to agreement May 14, 2010 at $1.4879 per share
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134,420 | 134 | - | 199,866 | - | - | - | 200,000 | ||||||||||||||||
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Shares to be issued as consideration for professional fees
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- | - | - | - | 40,950 | - | - | 40,950 | ||||||||||||||||
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Net (loss) for the period
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- | - | (2) | - | - | - | (219,094) | (219,096) | ||||||||||||||||
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Balance June 30, 2010
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65,424,420 | $ | 65,424 | $ | 4,142 | $ | 545,333 | $ | 40,950 | $ | (297,124) | $ | (219,094) | $ | 139,631 | |||||||||
The accompanying notes to the consolidated financial statements are an integral part of these statements.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
June 30, 2010
(Expressed in US Dollars)
Unaudited- Prepared by Management
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Description of Business
Grid Petroleum Corp. (the “Company”) was incorporated in the State of Nevada with the name Sunberta Resources Inc. on November 15, 2006. The Company was, until March 31, 2009, an exploration stage company which had as its principal business the acquisition and exploration of mineral claims.
On November 16, 2006 the Company acquired all the issued and outstanding shares of Sunberta Resources Inc. (“Sunberta Alberta”), an inactive corporation incorporated in the province of Alberta, Canada on September 19, 2006. Sunberta Alberta was registered as an extraprovincial company in British Columbia, Canada on November 15, 2006. The consideration for the acquisition of Sunberta Alberta was 2,000 shares (on a post-split basis) of the Company.
In January, 2007 Sunberta Alberta acquired seven placer claim tenures on southern Vancouver Island, British Columbia, Canada. During the year ended March 31, 2009, the Company abandoned three of the placer claim tenures and decided to abandon the remaining four properties. Between May 31, 2009 and June 14, 2009, the remaining four placer claim tenures expired. The carrying cost of the properties was written off and the operations associated with the properties were treated in the financial statements as discontinued operations in the year ended March 31, 2009. The Company entered the development stage on March 31, 2009 to seek other opportunities. See also notes 2, 4 and 9.
On November 18, 2009 the Company changed its name to Grid Petroleum Corp. The Company’s activities to December 31, 2009 were carried on in Alberta and British Columbia, Canada. Beginning in February, 2010 the activities of the Company have been carried on in England.
On March 17, 2010, the Company acquired oil and gas leases in Wyoming for consideration of $300,000.00 cash. See also note 4. The Company intends to explore for oil and gas on these properties. The Company entered an exploration stage on March 31, 2010.
Principles of Consolidation
The consolidated financial statements include accounts of the Company and its wholly-owned subsidiary, Grid Petroleum Ltd. All significant inter-company balances and transactions are eliminated.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
June 30, 2010
(Expressed in US Dollars)
Unaudited- Prepared by Management
Cash and Cash Equivalents
Cash equivalents comprise certain highly liquid instruments with a maturity of three months or less when purchased. As at June 30, 2010 and 2009, the Company did not have any cash equivalents.
Mineral Properties and Exploration Expenses
Mineral properties purchased are capitalized and carried at cost. Exploration and development costs are charged to operations as incurred until such time that proven or probable ore reserves are discovered. From that time forward, the Company will capitalize all costs to the extent that future cash flow from reserves equals or exceeds the costs deferred. The deferred costs will be amortized using the unit-of-production method when a property reaches commercial production. At June 30, 2010, the Company is no longer in the mineral exploration business.
Oil and Gas Properties and Exploration Expenses
Oil and gas property acquisition costs are capitalized and carried at cost. Exploration and development costs are accounted for on the successful-efforts method, whereby the costs related to successful projects are capitalized and all costs incurred as a result of unsuccessful projects are expensed when it is determined that the exploration efforts on that property are unsuccessful. At June 30, 2010, the Company has not incurred any exploration or development costs on its oil and gas properties.
Advertising Expenses
Advertising costs are expensed as incurred. The Company has not incurred any advertising costs in the three month periods ended June 30, 2010 and 2009.
Asset Retirement Obligations
The Company has adopted FASB Accounting Standards Codification Topic (“ASC”) No. 410, Asset Retirement and Environmental Obligations which requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred. ASC No. 410 requires a liability to be recorded for the present value of the estimated site restoration costs with corresponding increase to the carrying amount of the related long-lived asset. The liability will be accreted and the asset will be depreciated over the life of the related assets. Adjustments for changes resulting from the passage of time and changes to either the timing or amount of the original present value estimate underlying the obligation will be made. The Company has not incurred any asset retirement obligations as at June 30, 2010.
Fixed Assets
Fixed assets are carried at cost less a provision for depreciation on a straight-line basis over their estimated useful lives as follows:
Computer equipment 3 years
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
June 30, 2010
(Expressed in US Dollars)
Unaudited- Prepared by Management
Foreign Currency
The operations of the Company were located in Canada until February 2010. Since February 2010, management of the Company has been carried on in England. Once exploration of the company’s properties commences, the majority of operations will be carried on in the United States. The Company maintains US Dollar, UK Pound Sterling (“GBP”) and Canadian Dollar bank accounts. The functional currency has been the Canadian Dollar until February 2010. Effective February 2010 the functional currency is the US Dollar. Transactions in foreign currencies other than the functional currency, if any, are remeasured into the functional currency at the rate in effect at the time of the transaction. Remeasurement gains and losses that arise from exchange rate fluctuations are included in income or loss from operations. Monetary assets and liabilities denominated in the functional currency are translated into US Dollars at the rate in effect at the balance sheet date. Revenue and expenses denominated in the functional currency are translated at the average exchange rate. Other comprehensive income includes the foreign exchange gains and losses that arise from translating from the functional currency into US Dollars.
Use of Estimates
The preparation of the Company’s consolidated financial statements in conformity with generally accepted accounting principles of United States of America 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. Management makes its best estimate of the ultimate outcome for these items based on historical trends and other information available when the financial statements are prepared. Actual results could differ from those estimates.
Loss Per Share
Basic earnings (loss) per share of common stock is computed by dividing the net earnings (loss) by the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per share is equal to the basic loss per share for the three month periods ended June 30, 2010 and 2009 because there are no common stock equivalents outstanding.
Fair Value of Financial Instruments
The carrying value of cash, demand loan, accounts payable and accrued liabilities at June 30, 2010 reflected in these financial statements approximates their fair value due to the short-term maturity of the instruments.
Comprehensive Income
The Company has adopted ASC No. 220, Comprehensive Income. Comprehensive income includes net income and all changes in equity during a period that arises from non-owner sources, such as foreign currency items and unrealized gains and losses on certain investments in equity securities.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
June 30, 2010
(Expressed in US Dollars)
Unaudited- Prepared by Management
Income taxes
The Company records deferred taxes in accordance with ASC No. 740, Income Taxes. The statement requires recognition of deferred tax assets and liabilities for temporary differences between the tax bases of assets and liabilities and the amounts at which they are carried in the financial statements, based upon the enacted tax rates in effect for the year in which the differences are expected to reverse. A valuation allowance is established when necessary to reduce deferred tax assets to the amount expected to be realized.
Concentrations
The Company is dependent on its Chief Executive Officer and business consultants for its operations. The loss of any of these individuals could impact the Company’s ability to carry on operations.
The Company holds cash in bank accounts that are not insured against financial institution failure due to holding US currency in England. The Company held US currency of $160,998 in a bank account in England at June 30, 2010.
Exploration Stage
The Company entered the exploration stage upon its inception. The Company exited the exploration stage and entered the development stage on March 31, 2009 when the Company’s mineral claims tenures in British Columbia were abandoned and the Company started seeking new businesses. The Company exited the development stage and entered a new exploration stage on March 31, 2010 after the Company had acquired oil and gas properties in Wyoming and started planning to explore the properties.
Impairment of Long-Lived Assets
The Company periodically analyzes its long-lived assets for potential impairment, assessing the appropriateness of lives and recoverability of unamortized balances through measurement of undiscounted operation cash flows in accordance with ASC No. 144, Property, Plant and Equipment. If impairment is deemed to exist, the asset will be written down to its fair value. Fair value is generally determined using a discounted cash flow analysis. As at March 31, 2010, the Company does not believe any adjustment for impairment is required.
The Company will periodically analyze exploration efforts, once exploration on its oil and gas properties has commenced, to determine which projects have been unsuccessful in establishing proved reserves. The costs of unsuccessful projects will be expensed.
New Accounting Pronouncements
There were various accounting standards and interpretations issued during 2009 and 2010, none of which are expected to have a material impact on the Company's financial position, operations or cash flows.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
June 30, 2010
(Expressed in US Dollars)
Unaudited- Prepared by Management
Reclassifications
Certain items in the comparative figures in these financial statements have been reclassified to conform to classifications used for the current period.
2. BASIS OF PRESENTATION – GOING CONCERN
These consolidated financial statements have been prepared on a going-concern basis which assumes the Company will be able to realize assets and discharge liabilities in the normal course of business for the foreseeable future.
The Company has experienced losses in prior exploration and development stages since its inception amounting to $297,124 as of March 31, 2010 and losses in the exploration stage in the three months ended June 30, 2010 amounting to $219,094 and has limited business operations, which raises substantial doubt about the Company's ability to continue as a going concern. The ability of the Company to meet its commitments as they become payable, including the completion of acquisitions, exploration and development of oil and gas properties and projects, is dependent on the ability of the Company to obtain necessary financing or achieving a profitable level of operations. There are no assurances the Company will be successful in achieving these goals.
The Company does not have sufficient cash to fund its desired exploration for the next twelve months. The Company has arranged financing as described in note 7 and intends to draw upon this financing arrangement to fund administration and exploration. This financing may be insufficient to fund expenditures or other cash requirements required to find, develop and exploit oil and gas reserves to the point of profitable operations. There can be no assurance the Company will be successful in finding oil and gas reserves. The Company plans to seek additional financing if necessary in a private or public equity offering to secure future funding for operations. There can be no assurance the Company will be successful in raising additional funding. If the Company is not able to secure additional funding, the implementation of the Company’s business plan will be impaired. There can be no assurance that such additional financing will be available to the Company on acceptable terms or at all.
These financial statements do not give effect to adjustments to the amounts and classifications to assets and liabilities that would be necessary should the Company be unable to continue as a going concern.
3. FIXED ASSETS
Fixed assets consist of the following:
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June 30, 2010
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March 31, 2010
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Computer equipment
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$ | 758 | $ | 758 | |
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Less: Accumulated depreciation
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105 | 42 | |||
| $ | 653 | $ | 716 | ||
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
June 30, 2010
(Expressed in US Dollars)
Unaudited- Prepared by Management
4. OIL AND GAS PROPERTIES
Oil and gas properties consist of four leases issued by the United States Department of the Interior Bureau of Land Management, #WYW158664 and #WYW158665 dated August 1, 2004, #WYW159734 and #159737 dated February 1, 2004. The leases cover 3,744.57 acres in the Jonah Prospect, South of the Jonah Field in the Greater Green River Basin, Wyoming. The leases are subject to a 12.5% royalty retained by the lessor and a 5% overriding royalty retained by the seller. The leases were acquired by the Company March 17, 2010 for $300,000 cash from a related party. The related party had paid $80,000 to acquire the leases. Accordingly, the Company has capitalized $80,000 as the cost of the leases and has reduced additional paid-in capital by the remaining $220,000. No exploration work has been conducted by the Company on the properties to June 30, 2010.
Lease # WYW158664 covers property legally described as All Township 28N Range 110 West 6th Meridian Sublette County, Wyoming Section 6 – Lots 1-7; S2NE; SENW; E2SW; N2SE Section 7 Lots 1 – 4; E2W2 Section 17 N2 Section 19 Lots 3 & 4; E2SW Section 30 Lots 1 – 4; E2W2; SE. The annual rent on this property is $3,296 and was paid by the seller up to August 1, 2010. See also note 10.
Lease # WYW158665 covers property legally described as All Township 28N Range 110 West 6th Meridian Sublette County, Wyoming Section 28 SW Section 29 S2 Section 31 Lots 1 - 4; S2NE; E2W2; SE. The annual rent on this property is $2,038 and was paid by the seller up to August 1, 2010. See also note 10.
Lease # WYW159734 covers property legally described as All Township 27N Range 107 West 6th Meridian Sublette County, Wyoming Section 5 Lotsl-4; S2N2; 52. The annual rent on this property is $6,390 and was paid by the seller up to February 1, 2011.
Lease # WYW159737 covers property legally described as All Township 27N Range 107 West 6th Meridian Sublette County, Wyoming Section 8 N2; N2SE; SESE. The annual rent on this property is $4,400 and was paid by the seller up to February 1, 2011.
5. DEMAND LOAN
Under a loan agreement dated March 26, 2008, the demand loan is repayable on demand of the borrower and bears interest beginning April 1, 2008 at the rate of 10% per annum compounded monthly at the end of the month. In the event the loan is placed with a lawyer for collection, a fee of 20% of the unpaid balance will apply. No interest has been paid to June 30, 2010. The carrying value of the demand loan includes the original principal of $50,000 plus $12,558 of interest payable as at June 30, 2010.
F-10
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
June 30, 2010
(Expressed in US Dollars)
Unaudited- Prepared by Management
6. RELATED PARTY TRANSACTIONS
Related party transactions not disclosed elsewhere in the consolidated financial statements are as follows:
On March 8, 2010 the Company entered an employment agreement with its newly-appointed President and CEO, who is also the sole director of the Company at March 31, 2010. The employment agreement will continue indefinitely subject to a provision that the agreement may be terminated by either party without cause on 30 days’ notice. Pursuant to the terms of the agreement, the CEO will receive a base salary of $8,000 per month with an incremental rise of $500 per quarter until an amount of $10,000 per month is achieved.
7. COMMON STOCK
On March 9, 2010 the Company issued 1,250,000 shares pursuant to a subscription at a price of $0.40 per share for total proceeds of $500,000.
In connection with the appointment of the Company’s new CEO, the new CEO agreed to acquire 6,000,000 shares of the Company from the former CEO and has entered an escrow agreement with the former CEO and an escrow agent. Pursuant to the escrow agreement, the new CEO’s shares will be held by the escrow agent in the form of eight certificates each representing 750,000 shares and shall be released between April 30, 2010 and January 30, 2012 (twenty-one months from the first release date). At June 30, 2010, 750,000 shares have been released from escrow to the CEO under this agreement.
Effective March 17, 2010, the majority shareholder of the Company, who was also the former CEO and sole director of the Company, sold 26,000,000 shares of the Company to one purchaser and agreed to surrender for cancellation another 18,002,000 shares. These transactions, together with the sale of shares to the new CEO, effected a change in control of the Company. On April 5, 2010, the Company cancelled 18,002,000 shares surrendered for cancellation by the former CEO and majority shareholder
On April 23, 2010, the Company entered into an agreement with one investor whereby the investor committed to purchase up to $5,000,000 of units, consisting of shares of the Company’s common stock and share purchase warrants, until April 22, 2013. The Company may draw on the facility from time to time, as and when it determines appropriate in accordance with the terms and conditions of the Agreement. Each advance shall be in an aggregate amount of not more than $1,000,000 and in integral multiples of $100,000. The Company will use the advances to fund operating expenses, acquisitions, exploration and general corporate activities. The investor also has an option to subscribe up to a further $2,500,000.
Each unit shall consist of one share of the Company’s common stock and one share purchase warrant. The unit price will be the price equal to the higher of either: (a) $0.75; or (b) 90% of the volume weighted average of the closing price of common stock, for the five (5) banking days immediately preceding the date of the notice of advance. Each warrant shall entitle the investor to purchase one additional share of common stock at an exercise price equal to 150% of the unit price at which the unit containing the warrant being exercised was issued, for a period of two (2) years from the date such warrant is issued. On May 10, 2010 the Company issued a notice requesting an advance of $200,000. On May 14, 2010 the Company drew $200,000 and issued 134,420 units priced at $1,4879 per unit under this agreement.
The Company has allotted 50,000 shares of common stock for issue on July 20, 2010, pursuant to agreements dated March 31, 2010 to issue 25,000 shares of restricted common stock at the end of each quarter to each of two advisors (see also Note 9). The Company has recognized the related professional fees expense in the quarter ended June 30, 2010 and has recorded the obligation as Common stock to be issued. The amount was calculated at $40,590 or $0.82 per share based on the June 30, 2010 closing price of the Company’s stock.
F-11
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
June 30, 2010
(Expressed in US Dollars)
Unaudited- Prepared by Management
8. INCOME TAXES
The Company is subject to United States income taxes, Canadian income taxes (to the extent of its operations in Canada) and UK income taxes (to the extent of its operations in the UK). The Company had no income tax expense during the reported period due to net operating losses.
A reconciliation of income tax expense to the amount computed at the statutory rates is as follows:
|
2010
|
2009
|
||||
|
Loss for the three months ended June 30
|
$ | (219,094) | $ | (6,162) | |
|
Average statutory tax rate
|
35% | 35% | |||
|
Expected income tax provision
|
$ | (76,683) | $ | (2,157) | |
|
Unrecognized tax losses
|
76,683 | 2,157 | |||
|
Income tax expense
|
$ | -- | $ | -- | |
Significant components of deferred income tax assets are as follows:
|
2010
|
2009
|
||||
|
Net operating losses carried forward
|
$ | 180,677 | $ | 62,804 | |
|
Valuation allowance
|
(180,677) | (62,804) | |||
|
Net deferred income tax assets
|
$ | - | $ | - | |
The increase in the valuation allowance for the three months ended June 30, 2010 was $76,683 because there is no assurance the Company will be able to utilize the losses carried forward.
The Company has net operating losses carried forward of approximately $516,000 for tax purposes which will expire in 2027 through 2030 if not utilized.
The years ended March 31, 2010, 2009, 2008 and 2007 are open for audit.
F-12
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
June 30, 2010
(Expressed in US Dollars)
Unaudited- Prepared by Management
9. COMMITMENTS
The Company is committed to a lease of office space and Internet line in London, England at the rate of GBP926 (approximately $1,423) per month until July 31, 2010.
The Company is committed to payments of GBP252 (approximately $388) per month for shared office space and office services in London, England until February 28, 2011.
The Company is committed to payments of $199 per month for shared office space and office services in Denver, Colorado until February 28, 2011.
The Company is committed to payments of $1,850 per month until February 1, 2011 for independent stock market analyst coverage services.
The Company is committed to payments of GBP 50 (approximately $77) per month until February 10, 2011 for payroll services. This agreement is cancellable on 3 months’ notice.
Effective March 31, 2010, the Company is committed to payments of 100,000 shares per year to each of two advisors, payable in quarterly payments of 25,000 shares at the end of each quarter, the first payment coming due June 30, 2010. The advisors will also be paid $1,000 per day for attending meetings of the Company’s board of advisors and $1,000 per day for services to be provided as needed. Each of the agreements with the advisors may be terminated by either party without notice. See also note 7.
10. SUBSEQUENT EVENTS
On July 20, 2010 the Company issued 50,000 shares of restricted common stock pursuant to agreements to issue 25,000 shares at the end of each quarter to each of two advisors (see also notes 7 and 9).
On July 27, 2010 the Company paid the annual lease payments on leases # WYW158664 and WYW158665 (see note 4) totalling $5,334.
F-13
Forward-Looking Statements
Certain statements, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements generally are identified by the words “believes,” “project,” “expects,” “anticipates,” “estimates,” “intends,” “strategy,” “plan,” “may,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. We intend such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and are including this statement for purposes of complying with those safe-harbor provisions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse affect on our operations and future prospects on a consolidated basis include, but are not limited to: changes in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition, and generally accepted accounting principles. These risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Further information concerning our business, including additional factors that could materially affect our financial results, is included herein and in our other filings with the SEC.
Overview
We are focused on the development, exploration and production of oil and gas in North America. Our 100% working interest in the four separate oil and gas leases is located near the Jonah Field region, which encompasses an area of premium natural gas reserves within the Greater Green River Basin in the Rocky Mountains area of Wyoming. We refer to our four leases in this region as the SE Jonah Prospect. The SE Jonah Prospect is spread over 3,744.57 acres. The SE Jonah Prospect is located six miles southeast of the Jonah Field.
Schlumberger Data and Consulting Services, a leading oilfield services provider, has prepared a technical report on the SE Jonah Prospect, for analysis and development appraisal of the property. The report concludes that further study is needed to proceed with any drilling operations.
The report also concludes that “There is a good possibility of productive hydrocarbons being encountered in the Prospect and the surrounding area. The geological, petrophysical, and engineering conditions are similar to the Jonah Field. The one difference is the lower pressure gradient in the Prospect area, which will result in lower production rates.”
Additionally Schlumberger’s report recommends that additional seismic data should be acquired over the SE Jonah Prospect allowing for more subsurface control and better positioning of drilling locations and additional seismic should be acquired over the Prospect either by purchase or shooting.
Subsequent to this report by Schlumberger, Grid Petroleum’s Chief Geological and Geophysicist Advisor, Robert Murphy, completed an analysis of the report devising a work program to encompass the necessary additional study.
Concluding that the SE Jonah acreage can be considered as exploration rather than development/production acreage, the work program consists of eleven elements divided into two phases. The first phase comprises six elements requiring data accumulation and study. The completion of phase one will provide information as to the prospects of finding producible gas and, if so, the predicted range of gas quantity in place.
The second phase being contingent on positive results from the first phase includes well test interpretation and investigating development drilling scenarios and production forecasting.
On this basis we are in discussion with consulting groups to implement the first phase of the devised work program.
Results of Operations for the three months ended June 30, 2010 and 2009 and for the Period from the commencement of the exploration stage on March 31, 2010 to June 30, 2010
We entered the exploration stage upon inception. We exited the exploration stage and entered the development stage on March 31, 2009. We exited the development stage and entered a new exploration stage on March 31, 2010.
We incurred a net loss in the amount of $219,094 for the three months ended June 30, 2010, during which time we were in the exploration stage and $6,162 for the three months ended June 30, 2009, during which time we were in the development stage.
We have not earned any revenues either during the first exploration stage or the development stage through the period ending March 31, 2010, or the exploration stage for the three months ended June 30, 2010.
We incurred operating expenses in the amount of $219,094 for the three months ended June 30, 2010 and $6,162 for the three months ended June 30, 2009. The increase was primarily due to increases in investor relations, promotion and entertainment expense, professional fees expense, salaries and benefits expense and other administrative expense. Investor relations, promotion and entertainment expense increased from $572 in 2009 to $68,304 in 2010 primarily due to purchases of a commercial advertising report and research analyst coverage to gain investment market exposure for the Company beginning in March 2010 and due to costs of issuing announcements of all the changes that occurred with the Company. Professional fees have increased from $ 481 in 2009 to $ 104,921 in 2010 due to increased legal, accounting and audit fees associated with increases in the Company’s business activity and fees for services provided by the two new technical advisors retained by the Company beginning April 1, 2010. Professional fees expense includes $40,950 recognized as at June 30, 2010 representing the value of 50,000 shares issued July 20, 2010 to the two advisors as remuneration for the three months ended June 30, 2010 in accordance with the agreements under which they provide their services to the Company. Salaries and benefits expense increased from $nil in 2009 to $31,410 in 2010 due to payment for services provided by the new CEO. Other administrative expense increased from $3,507 in 2009 to $12,858 in 2010 due primarily to costs of setting up the new office in London, rent of the London office, design of a website for the Company, and travel expenses of the CEO.
Liquidity and Capital Resources
We had cash of $162,416 as of June 30, 2010. We had current liabilities of $119,502 as of June 30, 2010. We had working capital of $58,978 as of June 30, 2010. We used net cash of $165,813 in operating activities. We received $200,000 in cash from a new private placement of 134,420 shares at $1.4879 per share pursuant to a financing agreement entered into April 23, 2010 (as further described below). The result was an increase in cash for the three months ended June 30, 2010 of $34,185. We anticipate our cash requirements to increase over the course of this year as we will be more active and will incur costs for management of the Company and exploration of our oil and gas properties.
We anticipate that we will be dependent, for the immediate future, upon additional investment capital to fund operating expenses. We estimate that we will require additional financing to operate and carry out planned exploration activities over the next twelve months. To this end, on April 23, 2010, we entered into an agreement with one investor whereby the investor committed to purchase up to $5,000,000 of units, consisting of shares of the Company’s common stock and share purchase warrants, until April 22, 2013. We may draw on the facility from time to time, as and when we determine appropriate in accordance with the terms and conditions of the Agreement. Each advance shall be in an aggregate amount of not more than $1,000,000 and in integral multiples of $100,000. We will use the advances to fund operating expenses, acquisitions, working capital and general corporate activities. The investor also has an option to subscribe up to a further $2,500,000. Each unit shall consist of one share of our common stock and one share purchase warrant. The unit price will be the price equal to the higher of either: (a) $0.75; or (b) 90% of the volume weighted average of the closing price of common stock, for the five (5) banking days immediately preceding the date of the notice of advance. Each warrant shall entitle the investor to purchase one additional share of common stock at an exercise price equal to 150% of the unit price at which the unit containing the warrant being exercised was issued, for a period of two (2) years from the date such warrant is issued. On May 14, 2010, we drew $200,000 and issued 134,420 units under this agreement. There is no assurance that the Company will be able to achieve profitable operations before spending this capital or obtain further funds required for our continued working capital requirements.
6
In addition to the issues set out above regarding our ability to raise capital, global economies are currently undergoing a period of economic uncertainty related to the tightening of credit markets worldwide. This has resulted in numerous adverse effects, including unprecedented volatility in financial markets and stock prices, slower economic activity, decreased consumer confidence and commodity prices, reduced corporate profits and capital spending, increased unemployment, liquidity concerns and volatile but generally declining energy prices. We anticipate that the current economic conditions and the credit shortage will adversely impact our ability to raise financing. In addition, if the future economic environment continues to be less favorable than it has been in recent years, we may experience difficulty in locating a suitable business opportunity to acquire or enter into a business combination.
Off Balance Sheet Arrangements
As of June 30, 2010, there were no off balance sheet arrangements.
Going Concern
The consolidated financial statements have been prepared on a going-concern basis which assumes that the Company will be able to realize assets and discharge liabilities in the normal course of business for the foreseeable future.
The Company has experienced losses in prior exploration and development stages since its inception amounting to $297,124 as of March 31, 2010 and losses in the exploration stage in the three months ended June 30, 2010 amounting to $219,094 and has limited business operations, which raises substantial doubt about the Company's ability to continue as a going concern. The ability of the Company to meet its commitments as they become payable, including the completion of acquisitions, exploration and development of oil and gas properties and projects, is dependent on the ability of the Company to obtain necessary financing or achieving a profitable level of operations. There are no assurances that the Company will be successful in achieving these goals.
The Company does not have sufficient cash to fund its desired exploration for the next twelve months. The Company has arranged financing as described above under Liquidity and Capital Resources and intends to draw upon this financing arrangement to fund administration and exploration. This financing may be insufficient to fund expenditures or other cash requirements required to find, develop and exploit oil and gas reserves to the point of profitable operations. There can be no assurance that the Company will be successful in finding oil and gas reserves. The Company plans to seek additional financing if necessary in a private or public equity offering to secure future funding for operations. There can be no assurance that the Company will be successful in raising additional funding. If the Company is not able to secure additional funding, the implementation of the Company’s business plan will be impaired. There can be no assurance that such additional financing will be available to the Company on acceptable terms or at all.
The financial statements do not give effect to adjustments to the amounts and classifications to assets and liabilities that would be necessary should the Company be unable to continue as a going concern.
A smaller reporting company is not required to provide the information required by this Item.
Disclosure Controls and Procedures
We carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of June 30, 2010. This evaluation was carried out under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer, Paul Watts. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of June 30, 2010, our disclosure controls and procedures were not effective due to the presence of material weaknesses in internal control over financial reporting.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. Management has identified the following material weaknesses which have caused management to conclude that, as of March 31, 2010, our disclosure controls and procedures were not effective: (i) inadequate segregation of duties and effective risk assessment; and (ii) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of both US GAAP and SEC guidelines.
Remediation Plan to Address the Material Weaknesses in Internal Control over Financial Reporting
Our company plans to take steps to enhance and improve the design of our internal controls over financial reporting. During the period covered by this quarterly report on Form 10-Q, we have not been able to remediate the material weaknesses identified above. To remediate such weaknesses, we plan to implement the following changes during our fiscal year ending March 31, 2011: (i) appoint additional qualified personnel to address inadequate segregation of duties and ineffective risk management; and (ii) adopt sufficient written policies and procedures for accounting and financial reporting. The remediation efforts set out are largely dependent upon our securing additional financing to cover the costs of implementing the changes required. If we are unsuccessful in securing such funds, remediation efforts may be adversely affected in a material manner.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the three months ended June 30, 2010 that have materially affected, or are reasonable likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
We are not a party to any pending legal proceeding. We are not aware of any pending legal proceeding to which any of our officers, directors, or any beneficial holders of 5% or more of our voting securities are adverse to us or have a material interest adverse to us.
A smaller reporting company is not required to provide the information required by this Item.
On April 23, 2010, we entered into a Share Issuance Agreement (the “Agreement”) with Premier Global Corp. (the “Investor”). Pursuant to the Agreement, the Investor committed to purchase up to $5,000,000 of units, consisting of shares of our common stock and share purchase warrants, until April 22, 2013. Each unit shall consist of one share of the Company’s common stock and one share purchase warrant. The unit price will be the price equal to the higher of either: (a) $0.75; or (b) 90% of the volume weighted average of the closing price of common stock, for the five (5) banking days immediately preceding the date of the notice of advance. Each warrant shall entitle the investor to purchase one additional share of common stock at an exercise price equal to 150% of the unit price at which the unit containing the warrant being exercised was issued, for a period of two (2) years from the date such warrant is issued.
On May 14, 2010, we drew $200,000 from this facility to fund operating expenses. In exchange, we issued the Investor 134,420 shares of our common stock and a two year warrant to purchase 134,420 shares of our common stock at an exercise price of $2.2318 per share.
On March 9, 2010, we issued 1,250,000 shares of our common stock in exchange for proceeds of $500,000 to one investor.
On July 20, 2010 we issued 50,000 shares of common stock pursuant to agreements to issue 25,000 shares at the end of each quarter to each of two advisors for services to the Company.
These securities were issued pursuant to Section 4(2) of the Securities Act and/or Rule 506 promulgated thereunder. The holders represented their intention to acquire the securities for investment only and not with a view towards distribution. The investors were given adequate information about us to make an informed investment decision. We did not engage in any general solicitation or advertising. We directed our transfer agent to issue the stock certificates with the appropriate restrictive legend affixed to the restricted stock.
None
None
|
Exhibit
Number
|
Description
of Exhibit
|
SIGNATURES
In accordance with the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
Grid Petroleum Corp.
|
|
|
Date:
|
August 23, 2010
|
|
By: /s/ Paul Watts
Paul Watts
Title: Chief Executive Officer and Director
|