Financial Gravity Companies, Inc. - Quarter Report: 2015 March (Form 10-Q)
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
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Quarterly Report under Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2015
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Transition Report under Section 13 or 15(d) of the Exchange Act
For the Transition Period from ________to __________
Commission File Number: 333-144504
Pacific Oil Company
(Exact Name of Registrant as Specified in its Charter)
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NEVADA | 20-4057712 |
(State of other jurisdiction of | (I.R.S. Employer |
incorporation or organization) | Identification Number) |
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9500 W. Flamingo Rd. Suite 205 |
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Las Vegas, NV | 89147 |
(Address of principal executive offices) | (Zip Code) |
Registrant's Phone: 1-888-303-2272 |
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Indicate by check mark whether the issuer (1) filed all reports required to be filed by Section13 or 15(d) of the Exchange Act of 1934 during the past 12 months (or 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 is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
Large accelerated filer .
Accelerated filer . .
Non-accelerated filer .
Smaller reporting company X . .
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes . No X ..
As of May 20, 2015, the issuer had 440,949 shares of common stock issued and outstanding.
TABLE OF CONTENTS
2
ITEM 1. FINANCIAL STATEMENTS
PACIFIC OIL COMPANY
FINANCIAL STATEMENTS
C O N T E N T S
Condensed Balance Sheets as of March 31, 2015 (unaudited) and September 30, 2014 | 4 |
Condensed Statements of Operations for the three and six month periods ended |
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March 31, 2015 and 2014 (unaudited) | 5 |
Condensed Statements of Cash Flows for the six month periods ended |
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March 31, 2015 and 2014 (unaudited) | 6 |
Notes to the Condensed Financial Statements (unaudited) | 7 |
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PACIFIC OIL COMPANY
Condensed Balance Sheets
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| March 31, |
| September 30, |
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| 2015 |
| 2014 |
ASSETS |
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CURRENT ASSETS |
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Cash | $ | 1,092 | $ | 87 |
Total Current Assets |
| 1,092 |
| 87 |
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TOTAL ASSETS | $ | 1,092 | $ | 87 |
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LIABILITIES AND STOCKHOLDERS' DEFICIT |
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CURRENT LIABILITIES |
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Accounts payable | $ | 530 | $ | 1,702 |
Advances payable |
| 58,683 |
| 43,183 |
Advances payable-related party |
| 23,488 |
| 23,488 |
Note payable |
| 1,174 |
| 1,174 |
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Total Current Liabilities |
| 83,874 |
| 69,546 |
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Total Liabilities |
| 83,874 |
| 69,546 |
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STOCKHOLDERS' DEFICIT |
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Common stock: $0.001 par value; |
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300,000,000 shares authorized, 300,949 shares issued |
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and outstanding |
| 301 |
| 301 |
Additional paid-in capital |
| 660,367 |
| 660,367 |
Deficit accumulated |
| (743,450) |
| (730,127) |
Total Stockholders' Deficit |
| (82,782) |
| (69,459) |
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TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT | $ | 1,092 | $ | 87 |
The accompanying notes are an integral part of these condensed unaudited financial statements.
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PACIFIC OIL COMPANY
Condensed Statements of Operations (unaudited)
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| For the Three |
| For the Six | ||||
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| Months Ended |
| Months Ended | ||||
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| March 31, |
| March 31, | ||||
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| 2015 |
| 2014 |
| 2015 |
| 2014 |
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REVENUES | $ | - | $ | - | $ | - | $ | - |
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OPERATING EXPENSES |
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General and administrative |
| 3,426 |
| 1,371 |
| 4,553 |
| 3,465 |
Professional fees |
| 5,150 |
| 7,500 |
| 8,770 |
| 7,500 |
Compensation expense |
| - |
| - |
| - |
| 335,280 |
Total operating expenses |
| 8,576 |
| 8,871 |
| 13,323 |
| 346,245 |
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OTHER INCOME (EXPENSE) |
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Interest expense |
| - |
| - |
| - |
| 3,866 |
Change in fair value of derivative |
| - |
| 2,632 |
| - |
| (2,380) |
Gain on conversion of accounts payable |
| - |
| - |
| - |
| (16,314) |
Total other income (expense) |
| - |
| 2,632 |
| - |
| (14,828) |
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NET LOSS | $ | (8,576) | $ | (6,239) | $ | (13,323) | $ | (331,417) |
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BASIC AND DILUTIVE LOSS PER SHARE | $ | (0.03) | $ | (0.02) | $ | (0.04) | $ | (1.16) |
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WEIGHTED AVERAGE NUMBER OF SHARES |
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OUTSTANDING - BASIC AND DILUTIVE |
| 300,949 |
| 300,949 |
| 300,949 |
| 285,509 |
The accompanying notes are an integral part of these condensed unaudited financial statements.
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PACIFIC OIL COMPANY
Condensed Statements of Cash Flows (unaudited)
The accompanying notes are an integral part of these condensed unaudited financial statements.
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PACIFIC OIL COMPANY
NOTES TO CONDENSED UNAUDITED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTH PERIODS ENDED MARCH 31, 2015 AND 2014
NOTE 1 - ORGANIZATION AND BUSINESS OPERATIONS
Pacific Oil Company (the “Company”) was originally incorporated in Nevada on December 5, 2005 (“inception’) as Kat Racing, Inc. On January 4, 2013, the Articles of Incorporation of the Company were amended to change the name of the Company to Prairie West Oil & Gas, Ltd. On July 26, 2013, the Company’s Articles of Incorporation were amended to change the name of the registrant to Pacific Oil Company.
From the Company’s inception until the Company’s transition into the oil and natural gas business in early 2013, Kat Racing’s business plan was to design, manufacture, market, sell and distribute custom off-road racing and recreational vehicles and provide marketing and lead services. Kat Racing never generated any revenue from this proposed business plan.
As the market for high end off road vehicles suffered due to the downturn in the economy, Kat Racing sought to arrange the purchase of certain oil and gas properties which were owned by Prairie West Oil and Gas Ltd., a Canadian company through a share exchange. Pursuant to this transaction, the Company changed its name from Kat Racing to Prairie West Oil and Gas Ltd. This transaction was never completed. When it was determined the acquisition would not be completed, the Company did not want to continue with the Prairie West name and changed its name to Pacific Oil Company.
On October 1, 2013, the Company issued a newly appointed officer and director 38,100,000 shares of common stock of the Company to retain his services to attempt to secure certain assets the Company needs to launch its oil and gas operations.
NOTE 2 - GOING CONCERN
The Company's financial statements are prepared using generally accepted accounting principles 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 allow it to continue as a going concern, has incurred losses of $743,450 since inception (December 5, 2005) through March 31, 2015 and had a working capital and shareholder deficit of $82,782 at March 31, 2015 . Accordingly, there is substantial doubt about the Company’s ability to continue as a going concern. 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 operations.
In order to continue as a going concern, the Company will need, among other things, additional capital resources. Management's plan is to obtain such resources for the Company by obtaining capital from management and significant shareholders sufficient to meet its minimal operating expenses and seeking equity and/or debt financing. However, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans.
The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
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PACIFIC OIL COMPANY
NOTES TO CONDENSED UNAUDITED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTH PERIODS ENDED MARCH 31, 2015 AND 2014
NOTE 3 – SIGNIFICANT ACCOUNTING POLICIES
Interim Financial Statements
The accompanying financial statements have been prepared by the Company without audit in accordance with SEC rules for quarterly reports on Form 10-Q. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations, and cash flows at March 31, 2015, and for all periods presented herein, have been made.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company's September 30, 2014 audited financial statements. The results of operations for the periods ended March 31, 2015 and 2014 are not necessarily indicative of the operating results for the full years.
Cash and cash equivalents
For purposes of the statement of cash flows, the Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.
Development Stage Company
The Company is in the development stage as defined under the then current Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 915-205 “Development-Stage Entities,” and among the additional disclosures required as a development stage company are that our financial statements were identified as those of a development stage company, and that the statements of operations, movement in stockholders’ equity (deficit) and cash flows disclosed activity since the date of our inception (December 5, 2005) as a development stage company. Effective June 10, 2014 FASB changed its regulations with respect to Development Stage Entities and these additional disclosures are no longer required for annual reporting periods beginning after December 15, 2014 with the option for entities to early adopt these new provisions. Consequently these additional disclosures are not included in these financial statements.
Use of Estimates and Assumptions
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to the deferred income tax asset valuation allowances. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.
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PACIFIC OIL COMPANY
NOTES TO CONDENSED UNAUDITED FINANCIAL STATEMENTS
FOR THETHREE AND SIX MONTH PERIODS ENDED MARCH 31, 2015 AND 2014
NOTE 3 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Derivative Liability
The Company evaluates its convertible instruments, options, warrants or other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for under ASC Topic 815, “Derivatives and Hedging.” The result of this accounting treatment is that the fair value of the derivative is marked-to-market each balance sheet date and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the statement of operations as other income (expense). Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value is reclassified to equity. Equity instruments that are initially classified as equity that become subject to reclassification under ASC Topic 815 are reclassified to liabilities at the fair value of the instrument on the reclassification date. We analyzed the derivative financial instruments (the Convertible Note), in accordance with ASC 815. The objective is to provide guidance for determining whether an equity-linked financial instrument is indexed to an entity’s own stock. This determination is needed for a scope exception which would enable a derivative instrument to be accounted for under the accrual method. The classification of a non-derivative instrument that falls within the scope of ASC 815-40-05 “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock” also hinges on whether the instrument is indexed to an entity’s own stock. A non-derivative instrument that is not indexed to an entity’s own stock cannot be classified as equity and must be accounted for as a liability. There is a two-step approach in determining whether an instrument or embedded feature is indexed to an entity’s own stock. First, the instrument's contingent exercise provisions, if any, must be evaluated, followed by an evaluation of the instrument's settlement provisions. The Company utilized multinomial lattice models that value the derivative liability within the notes based on a probability weighted discounted cash flow model. The Company utilized the fair value standard set forth by the Financial Accounting Standards Board, defined as the amount at which the assets (or liability) could be bought (or incurred) or sold (or settled) in a current transaction between willing parties, that is, other than in a forced or liquidation sale.
Fair Value Measurements
The Company adopted ASC No. 820-10 (ASC 820-10), Fair Value Measurements. ASC 820-10 relates to financial assets and financial liabilities.
ASC 820-10 defines fair value, establishes a framework for measuring fair value in accounting principles generally accepted in the United States of America (GAAP), and expands disclosures about fair value measurements. The provisions of this standard apply to other accounting pronouncements that require or permit fair value measurements and are to be applied prospectively with limited exceptions.
ASC 820-10 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. This standard is now the single source in GAAP for the definition of fair value, except for the fair value of leased property. ASC 820-10 establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions, about market participant assumptions that are developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy under ASC 820-10 are described below:
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Level 1. Observable inputs such as quoted prices in active markets;
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Level 2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
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Level 3. Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
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PACIFIC OIL COMPANY
NOTES TO CONDENSED UNAUDITED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTH PERIODS ENDED MARCH 31, 2015 AND 2014
NOTE 3 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Fair Value Measurements (Continued)
The carrying value of cash, accounts payable, accounts payable – related party and note payable related party approximates their fair value due to the short-term maturity of these financial instruments.
Income Taxes
Potential benefits of income tax losses are not recognized in the accounts until realization is more likely than not. The Company has adopted ASC 740 “Accounting for Income Taxes” as of its inception. Pursuant to ASC 740, the Company is required to compute tax asset benefits for net operating losses carried forward. The potential benefits of net operating losses have not been recognized in this financial statement because the Company cannot be assured it is more likely than not it will utilize the net operating losses carried forward in future years.
Basic and Diluted Loss per Share
The Company computes loss per share in accordance with ASC-260, “Earnings per Share” which requires presentation of both basic and diluted earnings per share on the face of the statement of operations. Basic loss per share is computed by dividing net loss available to common shareholders by the weighted average number of outstanding common shares during the period. Diluted loss per share gives effect to all dilutive potential common shares outstanding during the period. Dilutive loss per share excludes all potential common shares if their effect is anti-dilutive.
The Company has previously had potentially dilutive debt instruments outstanding in the form of convertible notes payable – related party. However, as the Company has incurred losses since Inception, these potentially dilutive shares of common stock have been excluded from the calculation of loss per share as their effect would have been anti-dilutive. Consequently basic and diluted loss per share were identical for the three and six month periods ended March 31, 2015 and 2014.
Advertising
The Company follows the policy of charging the costs of advertising to expenses incurred. The Company incurred $0 in advertising costs during the three and six month periods ended March 31, 2015 and 2014.
Stock-based Compensation
The Company records stock based compensation in accordance with the guidance in ASC Topic 718 (Accounting for Share Based Payments) which requires the Company to recognize expenses related to the fair value of its employee stock option awards. This eliminates accounting for share-based compensation transactions using the intrinsic value and requires instead that such transactions be accounted for using a fair-value-based method. The Company recognizes the cost of all share-based awards on a graded vesting basis over the vesting period of the award.
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PACIFIC OIL COMPANY
NOTES TO CONDENSED UNAUDITED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTH PERIODS ENDED MARCH 31, 2015 AND 2014
NOTE 3 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue Recognition
The Company will recognize revenue in accordance with Accounting Standards Codification No. 605, Revenue Recognition (“ASC-605”). ASC-605 requires that four basic criteria must be met before revenue can be recognized:: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured. Determination of criteria (3) and (4) are based on management’s judgment regarding the fixed nature of the selling prices of the products delivered and the collectability of those amounts. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded. The Company defers any revenue for which the product has not been delivered or is subject to refund until such time that the Company and the customer jointly determine that the product has been delivered or no refund will be required.
Reclassifications
Certain amounts in the prior periods may have been reclassified to conform to the current period presentation.
Correction of an error in previously issued financial statements
The Company follows guidance under ASC 250-10-45-23 for reporting any error in the financial statements of a prior period discovered after the financial statements are issued or are available to be issued. The current comparative statements as presented reflect the retroactive application of any error corrections. Certain of the balances reported in the unaudited condensed interim financial statements for the three and six months ended March 31, 2014 reported on Form 10-Q, have been retroactively adjusted to reflect the adjustments made as a result of the audit of the financial statements for the year ended September 30, 2014. The details are summarized in Note 7 below.
Recent Accounting Pronouncements
The Company does not believe that other than disclosed above, recently issued, but not yet adopted, accounting pronouncements will have a material impact on its financial position, results of operations or cash flows.
NOTE 4 – ADVANCES PAYABLE AND ADVANCES PAYABLE, RELATED PARTY TRANSACTIONS
In support of the Company’s efforts and cash requirements, it may rely on advances from related parties and non-related parties until such time that the Company can support its operations or attains adequate financing through sales of its equity or traditional debt financing. There is no formal written commitment for continued support by shareholders. Amounts represent advances or amounts paid in satisfaction of liabilities. The advances are considered temporary in nature and have not been formalized by a promissory note.
The Company had received $23,488 as of March 31, 2015 and September 30, 2014, as advances from a related party to fund ongoing operations. In addition, as of March 31, 2015 and September 30, 2014, the Company had received advances totaling $58,683 and $43,183, respectively, from a former officer and majority shareholder and her spouse. All of the related party and non-related party accounts and notes payable are non-interest bearing, unsecured and due upon demand.
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PACIFIC OIL COMPANY
NOTES TO CONDENSED UNAUDITED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTH PERIODS ENDED MARCH 31, 2015 AND 2014
NOTE 5 – CONVERTIBLE NOTES PAYABLE – RELATED PARTY AND DERIVATIVE LIABILITIES
On July 1, 2013, the Company issued convertible notes payable to a related party in the amount of $77,824 that provided for the issuance of convertible notes with variable conversion provisions. The conversion terms of the convertible notes were variable based on certain factors, such as the future price of the Company’s common stock. Therefore, the number of shares of common stock issuable upon conversion of the promissory note was indeterminate. Due to the fact that the number of shares of common stock issuable could exceed the Company’s authorized share limit, the equity environment is tainted and all additional convertible debentures and warrants are included in the value of the derivative. Pursuant to ASC 815-15 Embedded Derivatives, the fair values of the variable conversion option and warrants and shares to be issued were recorded as derivative liabilities on the issuance date.
The fair values of the Company’s derivative liabilities were estimated at the issuance date and were revalued at each subsequent reporting date, using a lattice model. The Company recorded a discount on the convertible note payable, related party of $57,618, leaving a net balance of $20,206, and current derivative liabilities of $173,856 at September 30, 2013. The change in fair value of the derivative liabilities resulted in a gain of $2,380 for the three months ended December 31, 2013, which has been reported as gain from changes in fair value of derivative liabilities in other income (expense) in the statements of operations.
On October 4, 2013, the Company issued 29,100,002 shares of its common stock to the note holders to satisfy $76,650 of the total outstanding convertible notes payable of $77,824. Effective January 1, 2014, the Company, with the consent of the holder of the remaining note convertible totaling $1,174, amended the terms of the note payable to remove the conversion feature. The remaining $2,632 balance of the derivative liability relating to the note payable was credited to gain from changes in fair value of derivative liabilities in other income on removal of the conversion feature from the note payable.
The following is a summary of changes in the fair market value of the derivative liability during the three months ended December 31, 2013:
Balance, September 30, 2013 | $ | 173,856 |
Debt Conversion |
| (171,476) |
Change in fair market value of derivative liabilities due to the mark to market adjustment |
| 252 |
Cancellation of the conversion feature |
| (2,632) |
Balance at December 31, 2013 | $ | − |
NOTE 6 – COMMON STOCK
On April 25, 2013 the board of director authorized a reverse stock split of 1 for 100. All share amounts have been adjusted for retroactively. In connection with the change in control, it was determined that the authorized capital of the Company consists of 300 million shares of $0.001 par value common stock and no shares of preferred stock. The disclosures on the balance sheet have been corrected accordingly.
On February 19, 2015 the board of director authorized a reverse stock split of 1 for 200. All share amounts have been adjusted for retroactively. In connection with the change in control, it was determined that the authorized capital of the Company consists of 300 million shares of $0.001 par value common stock and no shares of preferred stock. All share amounts have been adjusted retroactively to reflect the split as if it had occurred at the beginning of all periods presented.
On October 1, 2013 the Company issued 38,100,000 shares to a newly appointed officer and director which resulted in a change in control of the Company. The shares were valued at $335,280 or $0.0088 per share, and this expense has been recognized as stock based compensation in our statement of operations. The value of these shares was determined by a valuation expert.
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PACIFIC OIL COMPANY
NOTES TO CONDENSED UNAUDITED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTH PERIODS ENDED MARCH 31, 2015 AND 2014
NOTE 6 – COMMON STOCK (CONTINUED)
On October 4, 2013, the Company issued 21,900,002 shares of its common stock to satisfy an outstanding convertible note payable and its bifurcated derivative liability. The outstanding convertible note payable relieved was $76,650, less unamortized discount of $57,618, along with its bifurcated derivative liability of $171,476. The shares were valued at $192,720, or $0.0088 per share. These shares were valued by a valuation expert as there had been no active market trading of the Company’s stock at the date of the conversion. The following table summarizes allocation of the common shares issued in this transaction:
Derivative liability | $ | 171,476 |
Convertible notes payable |
| 76,650 |
Unamortized discount on convertible notes payable |
| (57,618) |
Interest expense to October 4, 2013 |
| 2,212 |
Value of shares issued to settle liabilities | $ | 192,720 |
On December 31, 2013, the Company issued 23,241 shares of its common stock in settlement of accounts payable, relating to services provided to the Company in the amount of $16,519. The Company valued the shares at $0.0088 as determined by the valuation expert, or $205. The Company recognized a gain on the conversion of $16,314.
NOTE 7 – CORRECTION OF ERRORS IN PREVIOUSLY ISSUED FINANCIAL STATEMENTS
The Company follows guidance under ASC 250-10-45-23 for reporting any error in the financial statements of a prior period discovered after the financial statements are issued or are available to be issued. The current comparative statements as presented reflect the retroactive application of any error corrections. Certain of the balances reported in the unaudited condensed interim financial statements for the three and six months ended March 31, 2014 reported on Form 10-Q, have been retroactively adjusted to reflect the adjustments made as a result of the audit of the financial statements for the year ended September 30, 2014. All of the adjustments are noncash transactions. The transactions are described in the Notes 5 and 6 above and are summarized below:
NOTE 8 – SUBSEQUENT EVENTS
On May 6, 2015, Pacific Oil Company (the “Company”) entered into a purchase and sale agreement with the Emporium Group to purchase certain rights, title, estate, and interest in the petroleum and natural gas rights together with tangible assets on a 40-acre site located in Saskatchewan, Canada. Pacific Oil negotiated the sale for part stock and part debt transaction. The Company shall issue to Emporium Group 140,000 shares of its common stock along with a note payable in the amount of $125,000 with a 6% cumulative interest rate due and payable in 3 years. This note has a conversion feature, which allows Emporium Group to convert any part of the debt including accrued interest at $0.02 per share.
There are no other subsequent events for the period ended March 31, 2015 through the date these financial statements are available to be issued that would warrant further disclosures.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
This 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. All statements, other than statements of historical facts, included or incorporated by reference in this Form 10-Q which address activities, events or developments which the Company expects or anticipates will or may occur in the future, including such things as future capital expenditures (including the amount and nature thereof); finding suitable merger or acquisition candidates; expansion and growth of the Company's business and operations; and other such matters are forward-looking statements. These statements are based on certain assumptions and analyses made by the Company in light of its experience and its perception of historical trends, current conditions and expected future developments, as well as other factors it believes are appropriate under the circumstances. However, whether actual results or developments will conform with the Company's expectations and predictions is subject to a number of risks and uncertainties, including general economic, market and business conditions; the business opportunities (or lack thereof) that may be presented to and pursued by the Company; changes in laws or regulation; and other factors, most of which are beyond the control of the Company.
These forward-looking statements can be identified by the use of predictive, future-tense or forward-looking terminology, such as "believes," "anticipates," "expects," "estimates," "plans," "may," "will," or similar terms. These statements appear in a number of places in this Filing and include statements regarding the intent, belief or current expectations of the Company, and its directors or its officers with respect to, among other things: (i) trends affecting the Company's financial condition or results of operations for its limited history; (ii) the Company's business and growth strategies; and, (iii) the Company's financing plans. Investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve significant risks and uncertainties, and that actual results may differ materially from those projected in the forward-looking statements as a result of various factors. Such factors that could adversely affect actual results and performance include, but are not limited to, the Company's limited operating history, potential fluctuations in quarterly operating results and expenses, government regulation, technological change and competition.
Consequently, all of the forward-looking statements made in this Form 10-QSB are qualified by these cautionary statements and there can be no assurance that the actual results or developments anticipated by the Company will be realized or, even if substantially realized, that they will have the expected consequence to or effects on the Company or its business or operations. The Company assumes no obligations to update any such forward-looking statements.
The Company has a limited operating history upon which an evaluation of the Company, its current business and its prospects can be based. The Company's prospects must be considered in light of the risks, uncertainties, expenses and difficulties frequently encountered by companies in their early stages of development. Such risks include inadequate funding the company's inability to anticipate and adapt to a developing market, the failure of the company's infrastructure, changes in laws that adversely affect the company's business, the ability of the Company to manage its operations, including the amount and timing of capital expenditures and other costs relating to the expansion of the company's operations, the introduction and development of different or more extensive communities by direct and indirect competitors of the Company, including those with greater financial, technical and marketing resources, the inability of the Company to attract, retain and motivate qualified personnel and general economic conditions.
The Company expects that its operating expenses will increase significantly, especially as it implements its business plan. To the extent that increases in its operating expenses precede or are not followed by commensurate increases in revenues, or that the Company is unable to adjust operating expense levels accordingly, the Company's business, results of operations and financial condition would be materially and adversely affected. There can be no assurances that the Company can achieve or sustain profitability or that the Company's operating losses will not increase in the future.
GENERAL DESCRIPTION OF BUSINESS
The Company was originally incorporated in Nevada on December 5, 2005 as Kat Racing, Inc. On January 4, 2013, the Company changed its name to Prairie West Oil & Gas, Ltd and subsequently on July 26, 2013 to Pacific Oil Company.
From the Company’s inception until the Company’s transition into the oil and natural gas business in early 2013, Kat Racing’s business plan was to design, manufacture, market, sell and distribute custom off-road racing and recreational vehicles and provide marketing and lead services. Kat Racing never generated any revenue from this proposed business plan.
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RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2015 COMPARED TO THE THREE MONTHS ENDED MARCH 31, 2014
The Company has achieved no revenue or profits to date and the Company anticipates that it will continue to incur net losses for the foreseeable future.
The Company incurred a net loss of $8,576 for the three months ended March 31, 2015, compared with a net loss of $6,239 for the three months ended March 31, 2014. The year to year variance was due to a gain in the fair value of derivatives of $2,632 recognized in 2014.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED MARCH 31, 2015 COMPARED TO THE SIX MONTHS ENDED MARCH 31, 2014
The Company has achieved no revenue or profits to date and the Company anticipates that it will continue to incur net losses for the foreseeable future.
The Company incurred a net loss of $13,323 for the six months ended March 31, 2015, compared with a net loss of $331,417 for the six months ended March 31, 2014. The year to year variance was largely due to stock issued for services of $335,280 related to the issuance of 38,100,000 pre-split shares to the officer and director of the Company in 2014.
LIQUIDITY AND CAPITAL RESOURCES
As at March 31, 2015 the Company’s current assets, comprising solely of cash, were $1,092 compared to $87 in current assets, also solely cash, at September 30, 2014. As at March 31, 2015, the Company’s current liabilities were $83,874 compared to $69,546 at September 30, 2014.
Stockholder’s deficit was $82,782 as of March 31, 2015 compared to stockholders’ deficit of $69,459 as of September 30, 2014.
The Company's financial statements are prepared using generally accepted accounting principles 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 allow it to continue as a going concern, has incurred losses of $743,450 at March 31, 2015 and had a working capital and shareholder deficit of $82,782 at March 31, 2015. Accordingly, there is substantial doubt about the Company’s ability to continue as a going concern. 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 operations.
In order to continue as a going concern, the Company will need, among other things, additional capital resources. Management's plan is to obtain such resources for the Company by obtaining capital from management and significant shareholders sufficient to meet its minimal operating expenses and seeking equity and/or debt financing. However management cannot provide any assurances that the Company will be successful in accomplishing any of its plans.
The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
Cash Flows from Operating Activities
For the six month period ended March 31, 2015, net cash used in operating activities was $14,495 compared to $2,946 used in operating activities in the six months ended March 31, 2014. During the six months ended March 31, 2015 the Company incurred a loss of $13,323, and a $1,172 decrease in the balance of its accounts payable. By comparison during the six months ended March 31, 2014 the Company incurred a loss of $331,417, which was partially offset for cash flow purposes by $335,280 in non-cash expenses related to stock issued for services, and a gain on conversion of accounts payable of $16,314 and an increase in accounts payable by $8,020.
Cash Flows from Investing Activities
We neither used, nor provided cash flow from investing activities during the six month period ended March 31, 2015 or 2014.
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Cash Flows from Financing Activities
During the six months ended March 31, 2015, the Company received $15,500 in advances as compared to $2,877 in advances during the six months ended March 31, 2014. The decrease in funding between the two periods reflects the decrease in the amount of funds used in operating activities between the two periods.
CRITICAL ACCOUNTING POLICIES
In Financial Reporting release No. 60, "CAUTIONARY ADVICE REGARDING DISCLOSURE ABOUT CRITICAL ACCOUNTING POLICIES" ("FRR 60"), the Securities and Exchange Commission suggested that companies provide additional disclosure and commentary on their most critical accounting policies. In FRR 60, the SEC defined the most critical accounting policies as the ones that are most important to the portrayal of a company's financial condition and operating results, and require management to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Based on this definition, our most critical accounting policies include: non-cash compensation valuation that affects the total expenses reported in the current period and the valuation of shares. The methods, estimates and judgments we use in applying these most critical accounting policies have a significant impact on the results we report in our financial statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a "smaller reporting company" as defined by Item 10 of Regulation S-K, the Company is not required to provide information required by this Item.
ITEM 4. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934 , as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to our management, including our president (also our principal executive officer) and our secretary, treasurer and chief financial officer (also our principal financial and accounting officer) to allow for timely decisions regarding required disclosure.
As of March 31, 2015 we carried out an evaluation, under the supervision and with the participation of our president (also our principal executive officer and our chief financial officer), of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our President and Chief Financial Officer concluded that our disclosure controls and procedures were not effective in providing reasonable assurance in the reliability of our corporate reporting as of the end of the period covered by this Quarterly Report due to certain deficiencies that existed in the design or operation of our internal controls over financial reporting and that may be considered to be material weaknesses.
CHANGES IN INTERNAL CONTROLS.
There was no change in our internal controls or in other factors that could affect these controls during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect our internal control over financial reporting.
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PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company was not subject to any legal proceedings during the three and six month periods ended March 31, 2015 or 2014 and, to the best of its knowledge; no legal proceedings are pending or threatened.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
There were no sales of unregistered equity securities during the three and six month periods ended March 31, 2015.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
There were no senior securities issued or outstanding during the three and six month periods ended March 31, 2015 or 2014.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable to our Company.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
The following documents are included or incorporated by reference as exhibits to this report.
Exhibit
Number
Description
31.1
Certification of Chief Executive Officer and Chief Financial Officer pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906of the Sarbanes-Oxley Act of 2002
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SIGNATURES
In accordance with Section 13 or 15 (d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: May 20, 2015
Pacific Oil Company
Registrant
By: /s/ Anthony Sarvucci
Anthony Sarvucci
Chief Executive Officer and Chief Financial Officer
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