The accompanying notes are an integral part of these condensed unaudited financial statements
The accompanying notes are an integral part of these condensed unaudited financial statements
NOTES TO CONDENSED UNAUDITED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTH PERIODS ENDED MARCH 31, 2014 AND 2013 AND THE PERIOD FROM INCEPTION (DECEMBER 5, 2005) TO MARCH 31, 2014
NOTE 1 - ORGANIZATION AND BUSINESS OPERATIONS
Pacific Oil Company (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.
The Company is an exploration stage junior energy company.
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 $783,471 since inception (December 5, 2005) through March 31, 2014 and had a working capital and shareholder deficit of $55,319 at March 31, 2014 . Accordingly, there is substantial doubt about the Companys 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.
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, 2014, 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, 2013 (restated) audited financial statements. The results of operations for the periods ended March 31, 2014 and 2013 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.
8
PACIFIC OIL COMPANY
(An Exploration Stage Company)
NOTES TO CONDENSED UNAUDITED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTH PERIODS ENDED MARCH 31, 2014 AND 2013 AND THE PERIOD FROM INCEPTION (DECEMBER 5, 2005) TO MARCH 31, 2014
NOTE 3 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Development Stage Company
The Company is considered an exploration stage company in the business of oil and gas, having limited operating revenues during the period presented, as defined by Accounting Standards Codification ASC 915-205 Development-Stage Entities. ASC 915- 205 requires companies to report their operations, shareholders equity and cash flows since inception through the date that revenues are generated from managements intended operations, among other things.
Use of Estimates and Assumptions
The preparation of financial statements in conformity with US Generally Accepted Accounting Practices 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 Companys estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.
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 entitys 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 Companys Own Stock also hinges on whether the instrument is indexed to an entitys own stock. A non-derivative instrument that is not indexed to an entitys 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 entitys 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.
9
PACIFIC OIL COMPANY
(An Exploration Stage Company)
NOTES TO CONDENSED UNAUDITED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTH PERIODS ENDED MARCH 31, 2014 AND 2013 AND THE PERIOD FROM INCEPTION (DECEMBER 5, 2005) TO MARCH 31, 2014
NOTE 3 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Fair Value Measurements (Continued)
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 entitys 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:
¾
Level 1. Observable inputs such as quoted prices in active markets;
¾
Level 2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
¾
Level 3. Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
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 months ended March 31, 2014 and 2013.
No potentially dilutive debt or equity instruments were issued or outstanding at March 31, 2014.
10
PACIFIC OIL COMPANY
(An Exploration Stage Company)
NOTES TO CONDENSED UNAUDITED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTH PERIODS ENDED MARCH 31, 2014 AND 2013 AND THE PERIOD FROM INCEPTION (DECEMBER 5, 2005) TO MARCH 31, 2014
NOTE 3 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 period ended March 31, 2014 and 2013.
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.
Revenue Recognition
The Company recognizes service revenue using four basic criteria that 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 managements 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.
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. Those items that are reported as error corrections in the Companys restatements of net income and retained earnings, as well as other affected balances for all periods reported there-in, are disclosed in Note 5 of the footnotes to the financial statements presented herein.
Recent Accounting Pronouncements
We are 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, stockholders 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. We have not elected to early adopt these provisions and consequently these additional disclosures are included in these financial statements.
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.
11
PACIFIC OIL COMPANY
(An Exploration Stage Company)
NOTES TO CONDENSED UNAUDITED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTH PERIODS ENDED MARCH 31, 2014 AND 2013 AND THE PERIOD FROM INCEPTION (DECEMBER 5, 2005) TO MARCH 31, 2014
NOTE 4 - RELATED PARTY TRANSACTIONS
In support of the Companys efforts and cash requirements, it may rely on advances from 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 $43,255 and $46,133 as of September 30, 2013 (restated) and March 31, 2014 as advances from related parties to fund ongoing operations. In addition, as of March 31, 2014, a related party payable balance is $ $1,174. All of the related party accounts and note payable are non-interest bearing, unsecured and due upon demand.
NOTE 5 - 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 error resulted from the Company not properly reporting convertible debt to a related party and the associated derivative liability. The current comparative statements as presented reflect the retroactive application of any error corrections. Those items that are reported as error corrections in the Companys restatements of net income and retained earnings, as well as other affected balances for all periods reported there-in, are disclosed in Note 5 of the footnotes to the financial statements presented herein.
PACIFIC OIL COMPANY
(An Exploration Stage Company)
Balance Sheet and Statement of Operations (restated)
|
|
|
|
|
|
|
|
BALANCE SHEET
|
|
|
|
09/30/13
|
|
|
|
|
|
As Filed
|
|
Adjustments
|
|
|
Restated Actual
|
Assets
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
Cash
|
$
|
820
|
$
|
-
|
|
$
|
820
|
Total current assets
|
|
820
|
|
-
|
|
|
820
|
|
|
|
|
|
|
|
|
Total Assets
|
$
|
820
|
$
|
-
|
|
$
|
820
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
$
|
746
|
$
|
16,519
|
(a)
|
$
|
17,265
|
Account Payable-related party
|
|
121,079
|
|
(77,824)
|
(b)
|
|
43,255
|
Derivative Liability
|
|
-
|
|
173,856
|
(b)
|
|
173,856
|
Convertible note payable - related party, net of discount $57,618
|
|
-
|
|
20,206
|
(b)
|
|
20,206
|
Total current liabilities
|
|
121,825
|
|
132,757
|
|
|
254,582
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
121,825
|
|
132,757
|
|
|
254,582
|
|
|
|
|
|
|
|
|
12
|
|
|
|
|
|
|
|
Stockholders' Deficit
|
|
|
|
|
|
|
|
Common Stock, $0.001 par value 300,000,000 Common Shares
|
|
|
|
|
|
|
|
Authorized 57,490 Common Shares issued and outstanding
|
|
|
|
|
|
|
|
as of September 30, 2013
|
|
57
|
|
-
|
|
|
57
|
Additional paid-in capital
|
|
130,751
|
|
-
|
|
|
130,751
|
Deficit accumulated during development stage
|
|
(251,813)
|
|
(132,757)
|
(a, b)
|
|
(384,570)
|
Total stockholders deficit
|
|
(121,005)
|
|
(132,757)
|
|
|
(253,762)
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders deficit
|
$
|
820
|
|
-
|
|
$
|
820
|
|
|
|
|
|
|
|
|
STATEMENT OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
$
|
-
|
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
OPERATING EXPENSE
|
|
|
|
|
|
|
|
Professional Fees
|
|
15,050
|
|
16,519
|
(a)
|
|
31,569
|
General and administrative expense
|
|
7,069
|
|
-
|
|
|
7,069
|
TOTAL OPERATING EXPENSE
|
|
22,119
|
|
16,519
|
|
|
38,638
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE)
|
|
|
|
|
|
|
|
Related party income
|
|
-
|
|
-
|
|
|
-
|
Change in fair value of derivative
|
|
-
|
|
(96,032)
|
(b)
|
|
(96,032)
|
Interest Expense
|
|
(8,910)
|
|
(20,206)
|
(b)
|
|
(29,116)
|
Total Other Income (Expense)
|
|
(8,910)
|
|
(116,238)
|
|
|
(125,148)
|
|
|
|
|
|
|
|
|
LOSS BEFORE INCOME TAXES
|
|
(31,029)
|
|
(132,757)
|
|
|
(163,786)
|
|
|
|
|
|
|
|
|
Provision for income tax
|
|
-
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
Net Income (Loss)
|
$
|
(31,029)
|
$
|
(132,757)
|
|
$
|
(163,786)
|
|
|
|
|
|
|
|
|
Basic & Diluted (Loss) per Common Share:
|
$
|
(0.54)
|
$
|
(2.31)
|
|
$
|
(2.85)
|
|
|
|
|
|
|
|
|
Basic & Diluted Weighted Average Number of Common Shares:
|
|
57,490
|
|
57,490
|
|
|
57,490
|
|
|
|
|
|
|
|
|
(a) Relates to account payable
|
|
|
|
|
|
|
|
(b) Relates to derivative liability
|
|
|
|
|
|
|
|
13
PACIFIC OIL COMPANY
(An Exploration Stage Company)
NOTES TO CONDENSED UNAUDITED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTH PERIODS ENDED MARCH 31, 2014 AND 2013 AND THE PERIOD FROM INCEPTION (DECEMBER 5, 2005) TO MARCH 31, 2014
NOTE 6 DERIVATIVE LIABILITIES
As discussed in Note 7 under Convertible Debentures, the Company issued convertible notes payable that provide for the issuance of convertible notes with variable conversion provisions. The conversion terms of the convertible notes are variable based on certain factors, such as the future price of the Companys common stock. The number of shares of common stock to be issued is based on the future price of the Companys common stock. The number of shares of common stock issuable upon conversion of the promissory note is indeterminate. Due to the fact that the number of shares of common stock issuable could exceed the Companys 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 Companys derivative liabilities were estimated at the issuance date and are revalued at each subsequent reporting date, using a lattice model. The Company recorded current derivative liabilities of $2,632 and $173,856 at December 31, 2013 and September 30, 2013, respectively. The change in fair value of the derivative liabilities resulted in a loss of $252 and $0 for the three months ended December 31, 2013 and 2012, respectively, which has been reported as other income (expense) in the statements of operations. The loss of $252 for the three months ended December 31, 2013 consisted of a loss of $252 attributable to the fair value of attributable to the fair value of the convertible notes and settlement of derivative liability from conversion of $171,476.Effective January 1, 2014, the Company, with the consent of the holder of the remaining note convertible related party 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 as other income on removal of the conversion feature from the note payable related party.
The following presents the derivative liability value at March 31, 2014 and September 30, 2013:
|
|
|
|
|
|
|
|
|
March 31,
2014
|
|
September 30,
2013
|
Convertible Note - Related party
|
|
$
|
-
|
|
$
|
173,856
|
|
|
|
|
|
|
|
|
|
$
|
-
|
|
$
|
173,856
|
The following is a summary of changes in the fair market value of the derivative liability during the three and six months ended March 31, 2014 and the year ended September 30, 2013:
|
|
|
Balance, September 30, 2012
|
$
|
-
|
Increase in derivative value due to issuance of convertible note
|
|
168,812
|
Change in fair market value of derivative liabilities due to the mark to market adjustment
|
|
5,044
|
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
|
Balance, December 31, 2013
|
|
2,632
|
Cancellation of the conversion feature
|
|
(2,632)
|
Balance at March 31, 2014
|
$
|
-
|
14
PACIFIC OIL COMPANY
(An Exploration Stage Company)
NOTES TO CONDENSED UNAUDITED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTH PERIODS ENDED MARCH 31, 2014 AND 2013 AND THE PERIOD FROM INCEPTION (DECEMBER 5, 2005) TO MARCH 31, 2014
NOTE 6 DERIVATIVE LIABILITIES (CONTINUED)
Key inputs and assumptions used to value the convertible debentures and warrants issued during the three months ended December 31, 2013 and the year ended September 30, 2013:
·
The underlying stock price was used as the fair value of the common stock;
·
The note amount as of issuance 7/1/13 and 9/30/13 was $77,823.50. The principal amounts of $20,650, $7,000, $10,500, $10,500, $8,750 and $8,750 were converted out by the various Note assignees on 10/4/13. The remaining principal balance as of 12/31/13 was $1,173.50.
·
Capital raising events are not a factor for this Note since it was unlikely that the Company would raise capital at less than 50% of market during the term which would reset the conversion feature;
·
It was assumed that the Company would not file a registration statement and it would not become effective.
·
The Issue would redeem based on availability of alternative financing, 0% of the time increasing 1.0% monthly to a maximum of 10%;
·
The Holder would convert over a six month term;
·
The projected annual volatility for each valuation period was based on the historic volatility of the company;
·
Events of default were not modeled since there was no penalty for default
NOTE 7 CONVERTIBLE NOTE RELATED PARTIES
The Company and the related party agreed to convert the reaming balance of the convertible note to a non-convertible note. The remaining convertible note of $1,174 was reclassified as a note payable during the period ended March 31, 2014.
NOTE 8 COMMON STOCK
On October 1, 2013 the Company issued 38,100,000 shares to Anthony Sarvucci which resulted in a change in control of the Company. The shares were valued at $137,786 or $0.00362 per share, and were recorded as professional fees for stock based compensation.
On October 4, 2013, the Company issued 29,100,002 as a result of a conversion on a note payable. The total debt relieved was $76,650. The Company issued 21,889,489 additional shares outside the term of the conversion; the excess shares were valued at $193,258 or $0.0088 per share, which is recorded as a loss on debt conversion. These shares were valued by a valuation expert as there had been no orderly trades of the Companys stock to date.
On December 31, 2013, the Company issued 23,241 common stock in settlement of accounts payable relating to services provided to the Company. The Company valued the shares based on fair market value services provided to the Company and recorded an expense of $16,519 in the prior period as disclosed in Note 5 above.
NOTE 9 SUBSEQUENT EVENTS
There are no events subsequent to period ended March 31, 2014 through the date these financial statements are available to be issued on July 24, 2014 that would warrant further disclosures.
15
ITEM 2.