NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
AS
OF AND FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
1.
DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Delta
International Oil & Gas Inc. (“Delta” or “the Company”) was incorporated in Delaware on November 17,
1999. Our name was changed from Delta Mutual, Inc. to our present name on October 29, 2013, by filing by the Company in Delaware
of a Certificate of Ownership, providing for the merger of the Company’s wholly-owned subsidiary, Delta International Oil
and Gas Inc., into the Company, and in the merger, changing the Company’s name to Delta International Oil & Gas Inc.
The
primary focus of the Company’s business is its South America Hedge Fund LLC (“SAHF”) subsidiary, which has investments
in oil and gas concessions in Argentina and focuses on the energy sector, including the development and supply of energy in Latin
America. While continuing focus on the energy sector in Argentina, the Company has decided to shift its attention away from exclusively
oil and gas investments and exploration in Argentina and to evaluate entry into another business sector.
Delta
has commenced to devote business efforts to a future business expected to be in the transportation and desalination of water using
a specific propulsion technology that had been deemed uneconomic until present-day. Delta has made the initial investment into
a company that holds the patents for this technology and is expected to get more involved in the second and third quarters of
2016.
PRINCIPLES
OF CONSOLIDATION
The
Company's financial statements include the accounts of all majority-owned subsidiaries where its ownership is more than 50 percent
of the common stock. All material intercompany transactions and balances have been eliminated.
USE
OF ESTIMATES
The
preparation of the consolidated financial statements in conformity with accepted accounting principles generally accepted in the
United States of America requires the Company to make estimates and assumptions that affect the reported amounts of assets, liabilities,
revenues and expenses and related disclosure of contingent assets and liabilities. On an ongoing basis, the Company evaluates
its estimates including, but not limited to, those related to such items as impairments of oil and gas properties, income tax
exposures, accruals, depreciable/useful lives, allowance for doubtful accounts, and valuation allowances. The Company bases its
estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily
apparent from other sources. Actual results could differ from those estimates.
EVALUATION
OF LONG-LIVED ASSETS
Oil
and gas and mineral properties represent an important component of the Company’s total assets. Management reviews long-lived
assets for potential impairment whenever significant events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. Impairment exists when the carrying amount of the long-lived asset is not recoverable and exceeds
its fair value. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the estimated undiscounted
cash flows expected to result from the use and eventual disposition of the asset. If, impairment exists, the resulting write-down
would be the difference between fair market value of the long-lived asset and the related net book value.
DELTA
INTERNATIONAL OIL & GAS INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
AS
OF AND FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
INVESTMENTS
Investments
in non-consolidated affiliates consist of the Company’s ownership interests in oil and gas development and exploration rights
in Argentina, net of impairment losses if any. These investments were reclassified to unproved oil and gas properties after the
Company was officially admitted into the joint ventures for each of the properties.
The
Company evaluates these investments for impairment when indicators of potential impairment are present. Indicators of impairment
include, but are not limited to, levels of oil and gas reserves, availability of pipeline (or other transportation) capacity and
infrastructure and management of the operations in which the investments were made. The Company evaluates its equity method investments
for impairment when events or changes in circumstances indicate, in management’s judgment, that the carrying value of such
investments may have experienced an other-than-temporary decline in value. When evidence of loss in value has occurred, the Company
compares fair value of the investment to its carrying value to determine whether impairment has occurred. If the estimated fair
value is less than the carrying value and management considers the decline to be other than temporary, the excess of the carrying
value over the estimated fair value is recognized as impairment in the consolidated financial statements.
OIL
AND GAS PROPERTIES
The
Company accounts for our oil and natural gas producing activities using the full cost method of accounting as prescribed by the
United States Securities and Exchange Commission (SEC). Under this method, subject to a limitation based on estimated value, all
costs incurred in the acquisition, exploration, and development of proved oil and natural gas properties, including internal costs
directly associated with acquisition, exploration, and development activities, the costs of abandoned properties, dry holes, geophysical
costs, and annual lease rentals are capitalized within a cost center. Costs of production and general and administrative corporate
costs unrelated to acquisition, exploration, and development activities are expensed as incurred.
Costs
associated with unevaluated properties are capitalized as oil and natural gas properties but are excluded from the amortization
base during the evaluation period. When we determine whether the property has proved recoverable reserves or not, or if there
is an impairment, the costs are transferred into the amortization base and thereby become subject to amortization.
The
Company assesses all items classified as unevaluated property on at least an annual basis for inclusion in the amortization base.
The Company assesses properties on an individual basis or as a group if properties are individually insignificant. The assessment
includes consideration of the following factors, among others: intent to drill; remaining lease term; geological and geophysical
evaluations; drilling results and activity; the assignment of proved reserves; and the economic viability of development if proved
reserves are assigned. During any period in which these factors indicate that there would be impairment, or if proved reserves
are assigned to a property, the cumulative costs incurred to date for such property are transferred to the amortizable base and
are then subject to amortization.
Capitalized
costs included in the amortization base are depleted using the unit of production method based on proved reserves. Depletion is
calculated using the capitalized costs included in the amortization base, including estimated asset retirement costs, plus the
estimated future expenditures to be incurred in developing proved reserves, net of estimated salvage values.
Beginning
December 31, 2009, full cost companies use the un-weighted arithmetic average first day of the month price for oil and natural
gas for the 12-month period preceding the calculation date. Prior to December 31, 2009, companies used the price in effect at
the end of each accounting period and had the option, under certain circumstances, to elect to use subsequent commodity prices
if they increased after the end of the accounting quarter.
Sales
or other dispositions of oil and natural gas properties are accounted for as adjustments to capitalized costs, with no gain or
loss recorded unless the ratio of cost to proved reserves would significantly change.
DELTA
INTERNATIONAL OIL & GAS INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
AS
OF AND FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
IMPAIRMENT
The
net book value of all capitalized oil and natural gas properties within a cost center, less related deferred income taxes, is
subject to a full cost ceiling limitation which is calculated quarterly. Under the ceiling limitation, costs may not exceed an
aggregate of the present value of future net revenues attributable to proved oil and natural gas reserves discounted at 10 percent
using current prices, plus the lower of cost or market value of unproved properties included in the amortization base, plus the
cost of unevaluated properties, less any associated tax effects. Any excess of the net book value, less related deferred tax benefits,
over the ceiling is written off as expense. Impairment expense recorded in one period may not be reversed in a subsequent period
even though higher oil and gas prices may have increased the ceiling applicable to the subsequent period.
ASSET
RETIREMENT OBLIGATION
The
Company records the fair value of an asset retirement cost, and corresponding liability as part of the cost of the related long-lived
asset and the cost is subsequently allocated to expense using a systematic and rational method. The Company records an asset retirement
obligation to reflect our legal obligations related to future plugging and abandonment of our oil and natural gas wells and gas
gathering systems. The Company estimates the expected cash flow associated with the obligation and discount the amount using a
credit-adjusted, risk-free interest rate. At least annually, the Company reassesses the obligation to determine whether a change
in the estimated obligation is necessary. The Company evaluates whether there are indicators that suggest the estimated cash flows
underlying the obligation have materially changed. Should those indicators suggest the estimated obligation may have materially
changed on an interim basis (quarterly), the Company will update our assessment accordingly. Additional retirement obligations
increase the liability associated with new oil and natural gas wells and gas gathering systems as these obligations are incurred.
PROPERTY
AND EQUIPMENT
Property
and equipment are stated at cost. Depreciation is provided for by the straight-line method over the estimated useful lives of
the related assets.
REVENUE
RECOGNITION
The
Company recognizes revenue when persuasive evidence of an arrangement exists, services have been rendered, the sales price is
fixed or determinable, and collectability is reasonably assured. We follow the “sales method” of accounting for oil
and natural gas revenue, so we recognize revenue on all natural gas or crude oil sold to purchasers, regardless of whether the
sales are proportionate to our ownership in the property. Actual sales of gas are based on sales, net of the associated volume
charges for processing fees and for costs associated with delivery, transportation, marketing, and royalties in accordance with
industry standards. Operating costs and taxes are recognized in the same period in which revenue is earned. Severance and ad valorem
taxes are reflected as a component of lease operating expense.
INCOME
TAXES
The
Company accounts for income taxes in accordance with the liability method. Under the liability method, deferred assets and liabilities
are recognized based upon anticipated future tax consequences attributable to differences between financial statement carrying
amounts of assets and liabilities and their respective tax bases. The Company establishes a valuation allowance to the extent
that it is more likely than not that deferred tax assets will not be utilized against future taxable income.
UNCERTAIN
TAX POSITIONS
The
Company evaluates uncertain tax positions pursuant to ASC Topic 740-10-25 “Accounting for Uncertainty in Income Taxes,”
which allows companies to recognize a tax benefit from an uncertain tax position only if it is more likely than not that the tax
position will be sustained on examination by the taxing authorities based on the technical merits of the position. Those tax positions
failing to qualify for initial recognition are recognized in the first interim period in which they meet the more likely than
not standard, or are resolved through negotiation or litigation with the taxing authority, or upon expiration of the statute of
limitations. De-recognition of a tax position that was previously recognized occurs when an entity subsequently determines that
a tax position no longer meets the more likely than not threshold of being sustained.
DELTA
INTERNATIONAL OIL & GAS INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
AS
OF AND FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
At
December 31, 2015 and 2014, the Company has approximately $0 and $28,000, respectively, of liabilities for uncertain tax positions.
Interpretation of taxation rules relating to investments in Argentina concessions may give rise to uncertain positions. In connection
with the uncertain tax position, there was no interest or penalties recorded.
The
Company is subject to ongoing tax exposures, examinations and assessments in various jurisdictions. Accordingly, the Company may
incur additional tax expense based upon the outcomes of such matters. In addition, when applicable, the Company will adjust tax
expense to reflect the Company’s ongoing assessments of such matters, which require judgment and can materially increase
or decrease its effective rate as well as impact operating results.
The
number of years with open tax audits varies depending on the tax jurisdiction. The Company’s major taxing jurisdictions
include the United States (including applicable states).
EARNINGS
(LOSS) PER SHARE
Basic
earnings per share are computed by dividing net earnings by the weighted average number of common shares outstanding during the
period. Diluted earnings per common share are computed by dividing net earnings by the weighted average number of common share
and potential common share outstanding during the period. Potential common shares consist of outstanding common stock purchase
warrants. For the year ended December 31, 2015 and 2014, there were 9,211,517 and 9,211,517, respectively of potentially dilutive
common shares outstanding. These potentially dilutive common shares are anti-dilutive in the years ended December 31, 2015 and
2014, due to our operating losses, and therefore, have not been included in the calculation of earnings per share.
FOREIGN
CURRENCY TRANSLATION
In
2015 and 2014, the functional currency for the Company’s primary foreign operations is the local currency. Assets and liabilities
of foreign operations are translated at balance sheet date rates of exchange and income, expense and cash flow items are translated
at the average exchange rate for the period. The functional currency in South America is the Argentine Peso. Translation adjustments
are recorded in Accumulated Other Comprehensive Loss. The Company’s subsidiary in Argentina also has certain U.S. dollar
denominated intercompany receivables and payables, which generate foreign currency gains and losses in other income (expense)
when translated at the end of each period using the current exchange rates.
STOCK-BASED
COMPENSATION
The
Company accounts for non-employee share-based awards based upon ASC 505-50, “Equity-Based Payments to Non-Employees.”
ASC 505-50 requires the costs of goods and services received in exchange for an award of equity instruments to be recognized using
the fair value of the goods and services or the fair value of the equity award, whichever is more reliably measurable. The fair
value of the equity award is determined on the measurement date, which is the earlier of the date that a performance commitment
is reached or the date that performance is complete. Generally, our awards do not entail performance commitments. When an award
vests over time such that performance occurs over multiple reporting periods, we estimate the fair value of the award as of the
end of each reporting period and recognize an appropriate portion of the cost based on the fair value on that date. When the award
vests, we adjust the cost previously recognized so that the cost ultimately recognized is equivalent to the fair value on the
date the performance is complete.
DELTA
INTERNATIONAL OIL & GAS INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
AS
OF AND FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
FAIR
VALUE OF FINANCIAL MEASUREMENTS
FASB
ASC 820, Fair Value Measurements and Disclosures, defines fair value as the exchange price that would be received for an asset
or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an
orderly transaction between market participants on the measurement date. FASB ASC 820 also establishes a fair value hierarchy,
which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair
value. FASB ASC 820 describes three levels of inputs that may be used to measure fair value:
The
Company utilizes the accounting guidance for fair value measurements and discloses for all financial assets and liabilities that
are recognized or disclosed at fair value in the consolidated financial statements on a recurring basis during the reporting period.
The
fair value is an exit price, representing 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. The Company utilizes market data or assumptions that
market participants would use in pricing the asset or liability. ASC 820, "Fair Value Measurements and Disclosures",
establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers are defined
as follows:
Level
1 - Observable inputs such as quoted market prices in active markets.
Level
2 - Inputs other than quoted prices in active markets that are either directly or indirectly observable.
Level
3 - Unobservable inputs about which little or no market data exists, therefore requiring an entity to develop its own assumptions.
As
of December 31, 2014, there were no financial assets or liabilities that required disclosure.
2.
RECEIVABLE FROM SALE OF BIDDING RIGHTS AND OIL AND GAS PROPERTIES
On
March 30, 2012 the Company entered into the Cooperation Agreement with PPL. Under the Cooperation Agreement, PPL agreed to pay
us $7,000,000 for certain exploration and exploitation rights to oil and gas deposits and certain bidding rights held by Delta
on the following areas: Valle de Lerma in the province of Salta; San Salvador de Jujuy; Libertador General San Martin in the province
of Jujuy; and Selva Maria in the province of Formosa. Pursuant to a separate Agreement dated March 31, 2012, the Company agreed
with PPL to assign and transfer 50% of SAHF's current ownership of the Tartagal and Morillo (i.e., a 9% interest in the concession)
to PPL for a purchase price of $500,000. PPL has also agreed in an Undertaking to provide funds to the operating entities of Valle
de Lerma (the San Salvador, Libertador, and Selva Maria concessions were awarded to another party, whose bid exceeded that of
the Company for these concessions), in the aggregate amount of up to $10,000,000.
As
of December 31, 2015, the Company had received deposits in the amount of $4,299,891 from PPL on account of remainder of the proceeds
was initially recorded as a $3,200,109 receivable from the sale of bidding rights and oil and gas properties. As of December 31,
2014, the Company provided a reserve for doubtful accounts of $3,200,069. PPL is not current with the payment schedule set forth
in the Cooperation Agreement, and while, the Company is in discussions with PPL to ensure that all payments provided for under
the Cooperation Agreement are made within the time frame as required for concession financial commitments.
As
of March 31, 2016, the Company was working on an understanding of sale and settlement terms with PPL and a third party. The settlement
terms would apply to all previous agreements signed with PPL.
3.
INVESTMENT IN MINERAL PROPERTIES
On
March 1, 2010, SAHF purchased control of 51% of the Guayatayoc project via a partnership agreement with Oscar Chedrese and Servicios
Mineros SA. The project holds the concession for a period of 20 years for the mineral rights to 143,000 hectares with 29 mines
located in the Northwest part of Argentina, south of the border with Bolivia, with high lithium and borates brines concentration.
We have performed sampling in the property to determine the value of the property, but the results have been inconclusive. We
are seeking a purchaser for our concession interest in this property, but we expect a transfer to happen for little or no value.
Accordingly, as of December 31, 2015 we recorded a reserve for impairment of $36,294 on this property to write it down to $0.
DELTA
INTERNATIONAL OIL & GAS INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
AS
OF AND FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
4.
INVESTMENT IN UNPROVED OIL AND GAS PROPERTIES
As
of December 31, 2014, the Company, through SAHF, retained 18% of the total concession in the carryover mode ("no cost obligations
to SAHF") in the Tartagal and Morillo oil and gas concessions located in Northern Argentina. We do not operate the Tartagal
and Morillo concession, and have a minority position in the joint venture. 9% of Tartagal and Morillo had been sold to PPL in
March 2012, but due to payment defaults, the 9% were not transferred.
We
hold a 30.6% interest in the Valle de Lerma concession in Northern Argentina, where the joint venture partners are Grasta SA,
PetroNEXUS and REMSA. 29.4% of Valle de Lerma had been sold to PPL via an agreement dating March 2012. High Luck Group, as per
request from PPL, was included in the UTE agreement for Valle de Lerma as 29.4% owner of the concession and bearer of 50% of all
incurred costs. Thus far, Delta, via SAHF, has paid for all expenses related to Valle de Lerma to ensure that the concession remained
in good standing, and PPL has defaulted in all of its payments in its agreement with SAHF. The official government decree issuing
High Luck Group 29.4% of the concession has not yet been issued.. The exploration terms are four years for the first period, three
years for the second and two years for the last period. Currently our ability to reopen the existing well site is constrained
by law, since the location of the well was within the city limits of Salta. Requests made for government approval to override
the existing restrictions of the current policy have been rejected. The Company is looking to sell its stake in Valle de Lerma.
Valle de Lerma’s book value is $336,383, but is subject to fluctuating interest rates between the Argentine Peso and the
US Dollar.
The
Company no longer intends to pursue any of its own operating activities on its oil and gas properties that are not in a carry-over
mode.
As
of December 31, 2015, the Company was negotiating with New Times Energy and PPL to settle the original PPL agreements dated March
30 and 31, 2012 as well as sell Delta’s remaining oil and gas investments in Argentina.
|
|
Concession
Investments
|
|
|
Exploration
Rights
|
|
|
Total
|
|
At
January 1, 2014
|
|
$
|
410,354
|
|
|
$
|
1,210296
|
|
|
$
|
1,620,650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve
for Impairment
|
|
|
(328,953
|
)
|
|
|
(608,418
|
)
|
|
|
(937,371
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation
gain (loss)
|
|
|
(81,401
|
)
|
|
|
(254,495
|
)
|
|
|
(335,896
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
December 31, 2014
|
|
$
|
--
|
|
|
$
|
336,383
|
|
|
$
|
336,383
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation
gain (loss)
|
|
|
--
|
|
|
|
(114,503
|
)
|
|
|
(114,503
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
December 31, 2015
|
|
$
|
--
|
|
|
$
|
221,880
|
|
|
$
|
221,880
|
|
DELTA
INTERNATIONAL OIL & GAS INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
AS
OF AND FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
5.
INVESTMENT IN OIL REFINERY
As
of December 31, 2014, SAHF’s 33.33% stake in the Caimancito Refinery in Jujuy was revoked by the majority owner. Due to
the cost of required rehabilitation work, and a partner dropping part of the financing, SAHF decided that it would not further
invest by itself in the refinery, leading to the revocation of SAHF’s interest. Currently this refinery is not being operated
to produce gasoline or diesel fuel, and the owner has no plans to rehabilitate the facility.
We
incurred an impairment charge of $87,740 and have written down the carrying amount for this property to $-0- as of December 31,
2014.
6.
PROPERTY AND EQUIPMENT
Property
and equipment consists of:
|
|
December
31,
|
|
|
|
2015
|
|
|
2014
|
|
Oilfield
equipment
|
|
$
|
--
|
|
|
$
|
--
|
|
|
|
|
|
|
|
|
|
|
Furniture
and equipment
|
|
|
16,386
|
|
|
|
16,386
|
|
Less
accumulated depreciation
|
|
|
(16,386
|
)
|
|
|
(16,386
|
)
|
Total
property and equipment
|
|
$
|
--
|
|
|
$
|
--
|
|
The
Company no longer intends to pursue any of its own operating activities on its current oil and gas properties that are not in
a carry-over mode. Accordingly, an impairment charge of $42,110 was incurred with respect to swabbing rig equipment and other
miscellaneous equipment we had purchased, and the carrying value of the equipment was written down to $-0-, as of December 31,
2014. All other furniture and equipment was fully depreciated in the year ending December 31, 2014.
7.
RELATED PARTY TRANSACTIONS
In
the year ending December 31, 2015, the company issued bonuses to related parties. Santiago L Peralta received a $5,000 quarterly
bonus as part of his CEO agreement. Pablo D. Peralta received a total of $10,447 in bonuses for his quarterly performances.
8.
DEBT
|
|
December
31,
|
|
Short
– term debt
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
Note
payable to third party, interest at 6%, due August 10, 2011
|
|
|
15,000
|
|
|
|
15,000
|
|
Total
|
|
$
|
15,000
|
|
|
$
|
15,000
|
|
Notes
Payable to Related Parties
During
the year ending December 31, 2014, the Company paid off notes payable owed to three shareholders in the amount of $150,655, plus
accrued interest of approximately $77,000.
9.
ACCRUED EXPENSES
|
|
December
31,
|
|
|
|
2015
|
|
|
2014
|
|
Accrued
compensation
|
|
$
|
--
|
|
|
$
|
42,984
|
|
Accrued
interest
|
|
|
4,704
|
|
|
|
6,140
|
|
Total
|
|
$
|
4,704
|
|
|
$
|
49,124
|
|
DELTA
INTERNATIONAL OIL & GAS INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
AS
OF AND FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
10.
INCOME TAXES
The
Company has not made provision for income taxes in the years ended December 31, 2015 and 2014, respectively, since the Company
has the benefit of net operating losses carried forward in these periods.
Deferred
income tax assets consist of:
|
|
December
31,
|
|
|
|
2015
|
|
|
2014
|
|
Net
operating loss carry-forwards
|
|
$
|
1,850,118
|
|
|
$
|
1,521,381
|
|
|
|
|
|
|
|
|
|
|
Less
valuation allowance
|
|
|
(1,850,118
|
)
|
|
|
(1,521,381
|
)
|
|
|
|
|
|
|
|
|
|
Deferred
income tax assets, net
|
|
$
|
--
|
|
|
$
|
--
|
|
Due
to uncertainties surrounding the Company’s ability to generate future taxable income to realize these assets, a full valuation
has been established to offset the net deferred income tax asset. Based on management’s assessment, utilizing an effective
combined tax rate for federal and state taxes of approximately 42%, the Company has determined it to be more likely than not that
a deferred income tax asset of approximately $2,402,611 and $2,073,874 attributable to the future utilization of the approximately
$5,720,503 and $4,937,796 in eligible net operating loss carry-forwards as of December 31, 2015 and 2014, respectively, will not
be realized. The Company will continue to review this valuation allowance and make adjustments as appropriate. The net operating
loss carryforwards will begin to expire in varying amounts from year 2020 to 2034.
The
Company is subject to taxation in the United States and certain state jurisdictions as well as in Argentina. The Company’s
net operating loss carry forwards are subject to examination by the United States and applicable state tax authorities in the
year of its utilization.
11.
STOCKHOLDERS' EQUITY
Preferred
Stock
As
of December 31, 2015 the board of directors had not authorized the issuance of any series of preferred stock.
Common
Stock
The
Company has in certain cases issued shares of common stock for services and repayment of debt and interest valued at fair market
value at time of issuance.
For
the years ended December 31, 2015 and 2014, the Company did not issue and new shares.
The
company recorded compensation expense of for the year ended December 31, 2015 and 2014 of $32,499 and $97,500, respectively.
DELTA
INTERNATIONAL OIL & GAS INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
AS
OF AND FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
A
summary of warrant activity is detailed below:
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
Aggregated
|
|
|
|
Warrants
|
|
|
Exercise
Price
|
|
|
Contractual
Term
|
|
|
Intrinsic
Value
|
|
Outstanding,
December 31, 2013
|
|
|
9,211,517
|
|
|
$
|
0.21
|
|
|
|
4.65
years
|
|
|
$
|
691,052
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding,
December 31, 2014
|
|
|
9,211,517
|
|
|
$
|
0.21
|
|
|
|
3.65
years
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding,
December 31, 2015
|
|
|
9,211,517
|
|
|
$
|
0.21
|
|
|
|
2.65
years
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested,
December 31, 2015
|
|
|
9,211,517
|
|
|
$
|
0.21
|
|
|
|
2.65
years
|
|
|
$
|
-
|
|
12.
COMMITMENTS AND CONTINGENCIES
ECONOMIC
AND POLITICAL RISK
The
Company is exposed in the inherent risks for the foreseeable future of conducting business internationally. Language barriers,
foreign laws and tariffs and taxation issues all have a potential effect on the Company’s ability to transact business.
Political instability may increase the difficulties and costs of doing business. Accordingly, events resulting from changes in
the economic and political climate could have a material effect on the Company.
OPERATING
LEASES
The
Company has a two-year lease expiring in April 2016. Currently, the Company is looking for a smaller office space that is more
suitable to the current staff and will help lower the Company’s SG&As.
Rent
expense was $25,483 and $29,364 for the years ended December 31, 2015 and 2014, respectively.
EMPLOYMENT
AGREEMENTS
On
November 8, 2012, the Board of Directors of the Company appointed Malcolm W. Sherman as the Chief Executive Officer of Delta International
Oil and Gas, Inc. to fill a vacancy caused by Dr. Peralta’s death. Mr. Sherman’s Executive Contract signed on March
23, 2010 remained valid; the only changes were his position and his salary. Under the Employment Agreement, he was eligible for
participation in a bonus pool with other senior executives. The quarterly bonus amounts are based on financial performance comparisons
with prior fiscal quarters, beginning with the quarterly reports of the Company for the year 2006 and each subsequent year during
the respective terms of each of the Employment Agreements. Such bonus will be pooled with those of other senior executives and
computed based on a total bonus pool equal to 15% of the net profits of the Company as set forth in the Company’s SEC filings.
Mr. Sherman retired as of December 31, 2014.
DELTA
INTERNATIONAL OIL & GAS INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
AS
OF AND FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
The
only current Executive Employment Agreement is with Mr. Santiago Peralta dated February 6, 2015 as an Interim CEO, President,
and Director for a one (1) year term and an annual salary of $80,000 plus a $5,000 quarterly bonus. Additionally, Mr. Peralta,
alongside other company management, is eligible for participation of a bonus pool of up to 15% of net profits difference between
the current quarter and the same quarter five years in the past. This bonus pool has been company standard since 2010 when the
original executive employment agreements were signed.
COUNTRY
RISK
The
Company has significant operations in the Argentina. The operating results of the Company may be adversely affected by changes
in the political and social conditions in Argentina and by changes in Argentinean government policies with respect to laws and
regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other
things. The Company can give no assurance that those changes in political and other conditions will not result in have a material
adverse effect upon the Company’s business and financial condition.
EXCHANGE
RISK
The
Company cannot guarantee the Argentinean Peso and US dollar exchange rate will remain steady, therefore the Company could post
the same profit for two comparable periods and post higher or lower profit depending on exchange rate of Peso and US dollar. The
exchange rate could fluctuate depending on changes in the political and economic environments without notice.
COLLECTION
RISK
The
Company has a large amount of receivables from one partner that are overdue and outstanding. This, coupled with our partner’s
payment record, gives the Company some uncertainty on the ability to collect its receivables. Currently, the Company is working
with its partner and third parties to settle this outstanding receivable, effectively nullifying its Collection Risk.
13.
SUBSEQUENT EVENTS
On
March 22, 2016, The Company formed a wholly-owned subsidiary by the name of Neptune Industries. Through this subsidiary, the Company
signed a subscription agreement with MHD Technology Corporation- a technology company that is developing a new way to transport
and desalinate water. MHD Technology Corporation is positioning itself as a licensing company to keep manufacturing costs at a
minimum. Delta, through its wholly-owned subsidiary, purchased 10% of the outstanding shares for two tranches adding up to a total
of $200,000 and a 6-month option for 5% of the outstanding shares for an additional $300,000. Additionally, there are clauses
that double Delta’s percentage in MHD Tech if conditions aren’t met. Finally, the agreement indicates that if Delta
brings in a new desalination technology, that MHD Technology will use it if it is more efficient than the current method. The
use for the funds will be: 1) to perform various simulations of the water transport technology, 2) to apply for additional international
patents, 3) to develop a prototype of the water transport technology, and 4) to provide funds for selling and marketing expenses.
The
simulation and the prototypes are expected to be finished by the third quarter of 2016.