The accompanying notes are an integral
part of the consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 – Nature of Business and Significant Accounting
Policies
Nature of Business
Gray Fox Petroleum Corp. (formerly Viatech
Corp.) (“Gray Fox” or the “Company”) was incorporated in the State of Nevada on September 22, 2011. The
Company was formed to provide interior design and architectural visualization, 3D rendering and architectural animation services.
On May 31, 2013, the then majority stockholder, Viatcheslav Gelshteyn, entered into a stock purchase agreement with Lawrence Pemble
pursuant to which Mr. Gelshteyn sold 7,000,000 shares of common stock, $0.001 par value per share, of the Company to Mr. Pemble
and forgave $8,363 in stockholder loans he had made to the Company in consideration of $50,000 in cash from Mr. Pemble. This transaction
is referred to as the “Change in Control.” As a result of the Change in Control, Mr. Gelshteyn no longer owns any
shares of common stock. In addition, Mr. Gelshteyn resigned from his positions as the sole director and officer of the Company,
and Mr. Pemble was appointed as the Company’s sole director and as its Chief Executive Officer, President, Treasurer and
Secretary. On June 5, 2013, the board of directors approved the dismissal of Ronald R. Chadwick, P.C. as its independent auditor
and appointed M&K CPAS, LLC as its new independent auditor.
On June 10, 2013, the Company entered
into an Agreement for Redemption of Shares of Common Stock, pursuant to which the Company redeemed 4,700,000 shares of common
stock held by Mr. Pemble. As a result of this redemption, Mr. Pemble’s shareholdings decreased from 7,000,000 shares to
2,300,000 shares, which represented approximately 53% of the total shares then issued and outstanding.
On June 18, 2013, the Company received
approval from the Financial Industry Regulatory Authority (“FINRA”) to change its name from “Viatech Corp.”
to “Gray Fox Petroleum Corp.” and to conduct an 8:1 forward stock split of the issued and outstanding shares of common
stock whereby each outstanding share of common stock would be exchanged for eight new shares of common stock. On June 20, 2013,
the Company effected the stock split, which increased the number of issued and outstanding shares of common stock from 4,320,000
shares to 34,560,000 shares. In connection with the Change in Control and the name change, on July 19, 2013, the Company’s
ticker symbol on the OTCBB was changed from VTCH to GFOX.
The Company’s administrative offices
are located at 3333 Lee Parkway, Suite 600, Dallas, Texas 75219. The Company has one full-time employee, Lawrence Pemble, who
serves as its sole officer and director.
Gray Fox is a domestic oil and gas exploration
and development company focused on the acquisition and exploration of oil and natural gas properties in the Western United States.
The Company implements this business focus by pursuing interests in oil and natural gas properties through strategic lease acquisition
activities.
On December 2, 2013, the Company completed
the acquisition of 22 separate oil and gas leases (the “Leases”) issued by the Bureau of Land Management (the “BLM”)
from FFMJ, LLC, a Nevada limited liability company (“FFMJ”), for an aggregate purchase price of $250,000. The leased
land, known as the “West Ranch Prospect,” comprises 32,723 acres in the Butte Valley Oil Play Region in North Central
Nevada. We have a 100% working interest and an 82% net revenue interest in the Leases. If the property is viable and can be developed,
we will receive 82% of the net revenues generated from the property. As the leaseholder, we are responsible for evaluating, exploring,
paying for and maintaining the Leases. . In connection with our acquisition of the Leases, we have agreed to drill a test well
with a surface and bottom hole location on the Leases for the purpose of hydrocarbon exploration and production. The test well
must achieve a depth of 6,000 feet. If we fail to commence drilling with a rig capable of total depth on or before July 5, 2015,
the Leases will be reassigned to FFMJ.
As a result of the acquisition of the
Leases, the Company is no longer a “shell company,” as defined in Rule 12b-2 of the Securities Exchange Act of 1934,
as amended. This change in “shell company” status was previously reported in the Current Report on Form 8-K filed
with the Securities and Exchange Commission (the “SEC”) on December 6, 2013, as amended by a Form 8-K/A filed on December
13, 2013.
Our
plan of operations for the next 12 months is to conduct geological mapping, gravity surveying and 2D seismic coverage on the West
Ranch Prospect in order to determine the best location to drill the initial test well. To that end, we have developed an initial
exploration plan to identify drilling targets. This initial exploration plan is designed to identify new drilling locations targeting
certain geological formations that the Company believes may be capable of producing oil or natural gas in commercial quantities.
Basis of Presentation
The financial statements included herein,
presented in accordance with United States generally accepted accounting principles and is stated in U.S. currency have been prepared
by the Company pursuant to the rules and regulations of the SEC.
The Company has adopted a fiscal year
end of March 31.
These statements reflect all adjustments,
consisting of normal recurring adjustments, which in the opinion of management are necessary for fair presentation of the information
contained therein.
Exploration Stage Company
The Company is currently considered an
exploration stage company as defined by Financial Accounting Standards Board (“FASB”) Accounting Standards Codification
(“ASC”) 915-10-05. As an exploration stage enterprise, the Company discloses the deficit accumulated during the exploration
stage and the cumulative statements of operations and cash flows from inception (September 22, 2011) to the current balance sheet
date. An entity remains in the exploration stage until such time as, among other factors, revenues have been realized.
Reclassifications
Certain prior period amounts have been
reclassified to conform to the current period presentation. There was no material effect to the financial statements as result
of these reclassifications.
Use of Estimates
The preparation of financial statements
in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities, the 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. Actual results could
differ from those estimates.
Cash and Cash Equivalents
The Company maintains cash balances in
non-interest-bearing accounts, which do not currently exceed federally insured limits. For the purpose of the statements of cash
flows, all highly liquid investments with an original maturity of three months or less are considered to be cash equivalents.
There were no cash equivalents on hand for the periods presented herein.
Fair Value of Financial Instruments
Under FASB ASC 820-10-05, FASB established
a framework for measuring fair value in generally accepted accounting principles and expanded disclosures about fair value measurements.
This Statement reaffirms that fair value is the relevant measurement attribute. The adoption of this standard did not have a material
effect on the Company’s financial statements as reflected herein. The carrying amounts of cash, prepaid expenses and accrued
expenses reported on the balance sheet are estimated by management to approximate fair value primarily due to the short term nature
of the instruments.
Revenue Recognition
Revenue from the production of oil and
natural gas is recognized when persuasive evidence of an arrangement exists (such as a contract with an oil buyer), the Company
has delivered the oil, the fee is fixed and determinable, and collectability is reasonably assured.
Start-Up Costs
The Company accounts for start-up costs,
including organization costs, whereby such costs are expensed as incurred.
Income Taxes
Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
A valuation allowance is provided for significant deferred tax assets when it is more likely than not that such asset will not
be recovered through future operations.
Uncertain Tax Positions
In accordance with ASC 740, the Company
recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be capable
of withstanding examination by the taxing authorities based on the technical merits of the position. These standards prescribe
a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken
or expected to be taken in a tax return. These standards also provide guidance on de-recognition, classification, interest and
penalties, accounting in interim periods, disclosure and transition.
Various taxing authorities may periodically
audit the Company’s income tax returns. These audits may include questions regarding the Company’s tax filing positions,
including the timing and amount of deductions and the allocation of income to various tax jurisdictions. In evaluating the exposures
connected with these various tax filing positions, including state and local taxes, the Company records allowances for probable
exposures. A number of years may elapse before a particular matter for which an allowance has been established is audited and
fully resolved. The Company has not yet undergone an examination by any taxing authorities.
The assessment of the Company’s
tax position relies on the judgment of management to estimate the exposures associated with the Company’s various filing
positions.
Stock-Based Compensation
The Company adopted FASB guidance on stock
based compensation upon inception at September 22, 2011. Under FASB ASC 718-10-30-2, all share-based payments to employees, including
grants of employee stock options, are to be recognized in the income statement based on their fair values. Pro forma disclosure
is no longer an alternative.
Basic and Diluted Loss per Share
The basic net loss per common share is
computed by dividing the net loss by the weighted average number of common shares outstanding. Diluted net loss per common share
is computed by dividing the net loss adjusted on an “as if converted” basis by the weighted average number of common
shares outstanding plus potential dilutive securities. For the periods presented, potential dilutive securities had an anti-dilutive
effect and were not included in the calculation of diluted net loss per common share.
Impairment of Oil and Gas Properties
We assess proved crude oil and natural gas
properties and other investments for possible impairment whenever events or circumstances indicate that the recorded carrying
values of the assets may not be recoverable. We recognize an impairment loss as a result of an event that causes us to consider
the possibility that impairment may have occurred and when the estimated undiscounted future cash flows from a property or other
investment are less than the carrying value. If impairment is indicated, the carrying values are written down to fair value, which,
in the absence of comparable market data, is estimated using a discounted cash flow method.
During the year ended March 31, 2014, we impaired
the West Ranch Prospect due to the fact that the future cash flows were undeterminable. We therefore charged the $602.919 impairment
as loss.
Recently Issued Accounting Pronouncements
In February 2013, FASB issued Accounting
Standards Update (“ASU”) No. 2013-02,
Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of
Accumulated Other Comprehensive Income
, to improve the transparency of reporting these reclassifications. Other comprehensive
income includes gains and losses that are initially excluded from net income for an accounting period. Those gains and losses
are later reclassified out of accumulated other comprehensive income into net income. The amendments in this ASU do not change
the current requirements for reporting net income or other comprehensive income in financial statements. All of the information
that this ASU requires already is required to be disclosed elsewhere in the financial statements under U.S. GAAP. The new amendments
will require an organization to:
|
·
|
Present
(either on the face of the statement where net income is presented or in the notes) the
effects on the line items of net income of significant amounts reclassified out of accumulated
other comprehensive income, but only if the item reclassified is required under U.S.
GAAP to be reclassified to net income in its entirety in the same reporting period; and
|
|
·
|
Cross-reference
to other disclosures currently required under U.S. GAAP for other reclassification items
(that are not required under U.S. GAAP) to be reclassified directly to net income in
their entirety in the same reporting period. This would be the case when a portion of
the amount reclassified out of accumulated other comprehensive income is initially transferred
to a balance sheet account (e.g., inventory for pension-related amounts) instead of directly
to income or expense.
|
The amendments apply to all public and private
companies that report items of other comprehensive income. Public companies are required to comply with these amendments for all
reporting periods (interim and annual). The amendments are effective for reporting periods beginning after December 15, 2012 for
public companies. Early adoption is permitted. The adoption of ASU No. 2013-02 is not expected to have a material impact on our
financial position or results of operations.
In January 2013, FASB issued ASU No. 2013-01,
Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities
, which clarifies
which instruments and transactions are subject to the offsetting disclosure requirements originally established by ASU 2011-11.
This ASU addresses preparer concerns that the scope of the disclosure requirements under ASU 2011-11 was overly broad and imposed
unintended costs that were not commensurate with estimated benefits to financial statement users. In choosing to narrow the scope
of the offsetting disclosures, FASB determined that it could make them more operable and cost effective for preparers while still
giving financial statement users sufficient information to analyze the most significant presentation differences between financial
statements prepared in accordance with U.S. GAAP and those prepared under IFRSs. Like ASU 2011-11, the amendments in this update
will be effective for fiscal periods beginning on, or after January 1, 2013. The adoption of ASU 2013-01 is not expected to have
a material impact on our financial position or results of operations.
In October 2012, FASB issued Accounting Standards
Update ASU 2012-04,
Technical Corrections and Improvements
. The amendments in this update cover a wide range of Topics
in the Accounting Standards Codification. These amendments include technical corrections and improvements to the Accounting Standards
Codification and conforming amendments related to fair value measurements. The amendments in this update will be effective for
fiscal periods beginning after December 15, 2012. The adoption of ASU 2012-04 is not expected to have a material impact on our
financial position or results of operations.
In August 2012, FASB issued ASU 2012-03,
Technical
Amendments and Corrections to SEC Sections: Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin (SAB) No. 114,
Technical Amendments Pursuant to SEC Release No. 33-9250, and Corrections Related to FASB Accounting Standards Update 2010-22 (SEC
Update)
. This update amends various SEC paragraphs pursuant to the issuance of SAB No. 114. The adoption of ASU 2012-03 is
not expected to have a material impact on our financial position or results of operations.
In July 2012, FASB issued ASU 2012-02,
Intangibles
– Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment
. This update amends ASU 2011-08,
Intangibles – Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment and permits an entity
first to assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is
impaired as a basis for determining whether it is necessary to perform the quantitative impairment test in accordance with Subtopic
350-30, Intangibles - Goodwill and Other - General Intangibles Other than Goodwill. The amendments are effective for annual and
interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted, including
for annual and interim impairment tests performed as of a date before July 27, 2012, if a public entity’s financial statements
for the most recent annual or interim period have not yet been issued or, for nonpublic entities, have not yet been made available
for issuance. The adoption of ASU 2012-02 has not had a material impact on our financial position or results of operations.
Note 2 – Going Concern
As shown in the accompanying financial
statements, the Company has no revenues, incurred net losses from operations resulting in an accumulated deficit of $1,385,455,
and used net cash in operating activities of $273,347 from inception. These factors raise substantial doubt about the Company’s
ability to continue as a going concern. Management is actively pursuing oil and gas production opportunities on the Leases. To
that end, the Company has developed an initial exploration plan to identify new drilling locations on the West Ranch Prospect.
In addition, the Company is currently in search of additional sources of capital to fund short term operations. The Company, however,
is dependent upon its ability to secure equity and/or debt financing and there are no assurances that the Company will be successful;
therefore, without sufficient financing it would be unlikely for the Company to continue as a going concern.
The financial statements do not include
any adjustments that might result from the outcome of any uncertainty as to the Company’s ability to continue as a going
concern. The financial statements also do not include any adjustments relating to the recoverability and classification of recorded
asset amounts, or amounts and classifications of liabilities that might be necessary should the Company be unable to continue
as a going concern.
Note 3 – Related Party Transactions
Management Changes
On May 31, 2013, the Company’s then
majority stockholder, Viatcheslav Gelshteyn, entered into a stock purchase agreement with Lawrence Pemble pursuant to which Mr.
Gelshteyn sold 7,000,000 shares of common stock, $0.001 par value per share, of the Company to Mr. Pemble and forgave $8,363 in
stockholder loans he had made to the Company in consideration for $50,000 in cash from Mr. Pemble. This transaction is referred
to as the “Change in Control.” As a result of the Change in Control, Mr. Gelshteyn no longer owns any shares of common
stock. As of March 31, 2014, Mr. Pemble held approximately 51.2% of the issued and outstanding shares of common stock. As part
of the Change in Control, Mr. Gelshteyn resigned from his positions as the sole director and officer of the Company, and Mr. Pemble
was appointed as the Company’s sole director and as its Chief Executive Officer, President, Treasurer and Secretary.
Notes Payable
The Company has received short term loans
from officers as disclosed in Note 6 below.
Common Stock
On June 10, 2013, the Company entered
into an Agreement for Redemption of Shares of Common Stock, pursuant to which the Company redeemed 37,600,000 shares of common
stock held by Mr. Pemble. As a result of this redemption, on June 10, 2013, Mr. Pemble’s shareholdings decreased from 7,000,000
shares to 2,300,000 shares, which represented approximately 53% of the total shares of common stock then issued and outstanding.
On June 18, 2013, the Company received
approval from FINRA to conduct an 8:1 forward stock split of the issued and outstanding shares of common stock whereby each outstanding
share of common stock was exchanged for eight new shares of common stock. On June 20, 2013, the Company effected the stock split,
which increased the number of issued and outstanding shares of common stock from 4,320,000 shares to 34,560,000 shares.
Employment Agreement
On July 8, 2013, the Company entered
into an Employment Agreement with Lawrence Pemble regarding his position as President and Chief Executive Officer of the
Company. The Employment Agreement was effective as of May 31, 2013, the date on which Mr. Pemble acquired a controlling
interest in the Company. The Employment Agreement has an initial term of three years and will automatically renew for
successive one-year periods until terminated by either party in accordance with its terms. Mr. Pemble will be paid a base
salary of $120,000 per year. Mr. Pemble will also be entitled to receive 3,000,000 shares of common stock, which will be
issued in increments of 1,000,000 shares on May 31 in 2014, 2015 and 2016. The first tranche of 1,000,000 shares were issued
June 20, 2014. The Employment Agreement may be terminated (i) at any time by the Company for “cause”, (ii) upon
60 days’ written notice by either party for any reason, (iii) at any time by Mr. Pemble for “good reason”,
or (iv) by either party at the end of the initial term or any subsequent terms. The Employment Agreement also
terminates immediately upon Mr. Pemble’s death or disability. If Mr. Pemble’s employment is terminated
for “cause” by the Company, or if he voluntarily resigns without “good reason”, then he will forfeit
any shares of common stock that have not vested as of the date of such termination or resignation. If Mr.
Pemble’s employment is terminated for any other reason, he will be entitled to receive three months of his then-current
base salary and the full 3,000,000 shares of common stock.
Related-Party Notes Payable
A portion of the operating capital was
provided personally by our Chief Executive Officer, Lawrence Pemble. The loans and repayments are shown in Note 6 below.
Note 4 – Oil and Gas Properties
On December 2, 2013, the Company completed
the acquisition of 22 separate oil and gas leases issued by the BLM pursuant to a Lease Purchase Agreement with FFMJ. The leased
land comprises 32,723 acres in the Butte Valley Oil Play Region in North Central Nevada and excludes well or lease bonds in place
with the Nevada Division of Minerals and/or the BLM. The expiration dates of the Leases range from March 31, 2016 to July 31,
2017. The Company has a 100% working interest and an 82% net revenue interest in the Leases. The Company also agreed to assume
all rental payments due on the Leases starting on July 5, 2013. The aggregate purchase price of the Leases was $250,000. The Company
made the final payment of $75,000 into escrow on October 23, 2013 and requested approval from the BLM to the assignment of the
Leases from FFMJ to the Company. On December 2, 2013, the Company received confirmation of the BLM’s approval of the assignment
of the Leases. At that time, the money was released from escrow and the lease purchase was consummated. The Company’s entry
into the Lease Purchase Agreement was previously reported in Item 1.01 of the Current Report on Form 8-K, filed on July 10, 2013.
Pursuant to the Lease Purchase Agreement,
the Company was responsible for all filing and recording fees for BLM and relevant county recorder offices. The Lease Purchase
Agreement also provides that the Company must drill a test well with a surface and bottom hole location on the Leases for the
purpose of hydrocarbon exploration and production which must achieve a depth of 6,000 feet, or a depth as otherwise agreed to
between the Company and FFMJ. If the Company does not begin drilling with a rig capable of total depth on or before July 5, 2015,
the Leases will be reassigned to FFMJ.
We have recorded the $250,000 cash paid
to FFMJ to “Oil and Gas Properties”. In addition to the cash costs paid to acquire the Leases, we also included in
the acquisition cost a payment in the amount of $1,870 to the Office of Natural Resources Revenue of the State of Nevada, which
represents the state fee for transferring title to the property. Additionally, we capitalized into the purchase price of the Leases
$154,500 associated with the issuance of 150,000 shares of common stock to a broker as a finder’s fee (See Note 7).
In addition to the costs associated with
obtaining the Leases, we have incurred $141,108 in geological and geophysical costs associated with the completion of a Phase
II of an independent assessment of the oil and gas exploration potential of the West Ranch Prospect and surrounding areas. To
date, we have been provided historic magnetic and gravity geological mapping data across the entire West Ranch Prospect, an independent
technical and economic due diligence report to help determine the oil and gas potential, and five miles of historic 2D seismic
data with the West Ranch Prospect.
The Company assesses exploration and evaluation
assets for impairment when facts and circumstances suggest that the carrying amount of an asset may exceed its recoverable amount,
which is generally defined as its future discounted cash flows. At March 31, 2014, we have not yet conducted an evaluation of
the potential oil and gas reserves, if any, that may exist in the West Ranch Prospect, and therefore cannot estimate future cash
flows. Management is therefore unable to determine whether the carrying value of the West Ranch Prospect exceeds its recoverable
amount and have recorded an impairment expense against the full carrying value of the West Ranch Prospect. The amount of this
impairment was $602,919.
Note 5 – Fair Value of Financial
Instruments
The Company adopted FASB ASC 820-10 upon
inception at September 22, 2011. Under FASB ASC 820-10-5, fair value is defined 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 (an exit price).
The standard outlines a valuation framework and creates a fair value hierarchy in order to increase the consistency and comparability
of fair value measurements and the related disclosures. Under GAAP, certain assets and liabilities must be measured at fair value,
and FASB ASC 820-10-50 details the disclosures that are required for items measured at fair value.
The Company has certain financial instruments
that must be measured under the new fair value standard. The Company’s financial assets and liabilities are measured using
inputs from the three levels of the fair value hierarchy. The three levels are as follows:
Level 1 - Inputs are unadjusted
quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement
date.
Level 2 - Inputs include quoted
prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets
that are not active, inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates, yield
curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other
means (market corroborated inputs).
Level 3 - Unobservable inputs
that reflect our assumptions about the assumptions that market participants would use in pricing the asset or liability.
The following schedule summarizes the valuation
of financial instruments at fair value on a recurring basis in the balance sheets as of March 31, 2014 and 2013, respectively:
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
MARCH 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
7,419
|
|
|
$
|
–
|
|
|
$
|
–
|
|
Total assets
|
|
|
7,419
|
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes payable, related party
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
Total liabilities
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MARCH 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
447
|
|
|
$
|
–
|
|
|
$
|
–
|
|
Total assets
|
|
|
447
|
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes payable, related party
|
|
$
|
–
|
|
|
$
|
8,124
|
|
|
$
|
–
|
|
Total liabilities
|
|
|
–
|
|
|
|
8,124
|
|
|
|
–
|
|
The fair values of our related party debts are deemed to approximate
book value and are considered Level 2 inputs as defined by ASC Topic 820-10-35.
There were no transfers of financial assets or liabilities
between Level 1, Level 2 and Level 3 inputs for the years ended March 31, 2014 or 2013.
Note 6 – Notes Payable, Related Party
The following transactions affected Notes Payable, Related
party from March 31, 2013 to March 31, 2014:
Transactions with Previous Chief Executive Officer
|
|
|
|
|
Due to former Chief Executive Officer at March 31, 2013
|
|
$
|
8,124
|
|
Cash loans and expenses paid by previous CEO
|
|
|
672
|
|
Partial repayment of loans to previous CEO
|
|
|
(433
|
)
|
Forgiveness of debt by previous CEO
|
|
|
(8,363
|
)
|
Balance due officer at point of change in control
|
|
|
–
|
|
|
|
|
|
|
Transactions with Current Chief Executive Officer
|
|
|
|
|
Cash advances
|
|
|
701
|
|
Expenses paid on behalf of the Company
|
|
|
33,063
|
|
Loan repayments
|
|
|
(33,764
|
)
|
Balance March 31, 2014
|
|
$
|
–
|
|
The Company recorded interest expense
in the amount of $1,436 and $-0- for the years ended March 31, 2014 and 2013, respectively, related to these related-party balances.
During the year ended March 31, 2014, the Company repaid Mr. Pemble a total of $36,252, including $1,817 of accrued interest.
Note 7 – Stockholders’ Equity
The Company has authorized 75,000,000
shares of common stock, $0.001 par value per share.
On June 18, 2013, the Company received
approval from FINRA to conduct an 8:1 forward stock split of the issued and outstanding shares of common stock whereby each outstanding
share of common stock was exchanged for eight new shares of common stock. On June 20, 2013, the Company effected the stock split,
which increased the number of issued and outstanding shares of common stock from 4,320,000 shares to 34,560,000 shares. The stock
split has been applied retrospectively as presented in these financial statements and all related disclosures.
Common Stock Issuances
On June 10, 2013, the Company entered
into an Agreement for Redemption of Shares of Common Stock, pursuant to which the Company redeemed 37,600,000 shares of common
stock held by Mr. Pemble, as adjusted for the 8:1 forward stock split completed on June 20, 2013. As a result of this redemption,
Mr. Pemble’s adjusted shareholdings decreased from 56,000,000 shares to 18,400,000 shares, which represented approximately
53% of the total shares of common stock then issued and outstanding.
During the fiscal year ended March 31,
2014, the Company issued 1,230,000 shares to a single investor in a series of transactions for an aggregate of $730,000 in cash.
On December 13, 2013, we issued 150,000
shares of common stock to a broker as a finder’s fee in exchange for services associated with our acquisition of the West
Ranch Prospect. We valued the shares at their fair values on the grant date and increased the acquisition price and carrying value
of the West Ranch Prospect by $153,000.
Contributed Capital
On May 31, 2013, the Company’s then
majority stockholder, Viatcheslav Gelshteyn, entered into a stock purchase agreement with Lawrence Pemble pursuant to which Mr.
Gelshteyn sold 7,000,000 shares of common stock to Mr. Pemble and forgave $8,363 in stockholder loans he had made to the Company.
The debt forgiveness related to the loans was recognized as contributed capital.
Common Stock Payable
On July 8, 2013, the Company entered
into an Employment Agreement with Lawrence Pemble regarding his position as President and Chief Executive Officer of the
Company. Pursuant to the Employment Agreement, Mr. Pemble will be entitled to receive 3,000,000 shares of common stock, which
will be issued in increments of 1,000,000 shares on May 31 in each of 2014, 2015 and 2016. The first tranche of 1,000,000
shares were issued June 20, 2014. We valued these shares at their fair values on the grant date, and we valued the total of
the 3,000,000 shares at $1,500,000. We are amortizing the value of these shares at the greater of the amount vesting or
straight line (which, in this case, is the same). Through March 31, 2014, we have charged general and administrative expense
with $364,386 associated with Mr. Pemble’s Employment Agreement. The unamortized portion is included on the balance
sheet as Common Stock Payable.
Note 8 – Income Taxes
The Company accounts for income taxes
under FASB ASC 740-10, which requires use of the liability method. FASB ASC 740-10-25 provides that deferred tax assets and liabilities
are recorded based on the differences between the tax bases of assets and liabilities and their carrying amounts for financial
reporting purposes, referred to as temporary differences.
For the years ended March 31, 2014 and
2013, the Company incurred net operating losses and, accordingly, no provision for income taxes has been recorded. In addition,
no benefit for income taxes has been recorded due to the uncertainty of the realization of any tax assets. At March 31, 2014 and
2013, the Company had approximately $1,021,069 and $316,456 of federal net operating losses, respectively. The net operating loss
carry forwards, if not utilized, will begin to expire in 2032.
The components of the Company’s
deferred tax asset are as follows:
|
|
March 31,
|
|
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
|
|
Net operating loss carry-forwards
|
|
$
|
409,787
|
|
|
$
|
316,456
|
|
|
|
|
|
|
|
|
|
|
Deferred tax asset
|
|
|
143,425
|
|
|
|
110,760
|
|
Valuation allowance
|
|
|
(143,425
|
)
|
|
|
(110,760
|
)
|
Net deferred tax asset
|
|
$
|
–
|
|
|
$
|
–
|
|
Note 9 – Subsequent Events
On April 11, 2014, we sold 96,000 shares of common stock for
$80,000 in cash.
On June 20, 2014, we issued 1 million shares to Lawrence Pemble
pursuant to his employment agreement.
On May 29, 2014, the board of directors engaged Randall Newton
to serve as Chief Financial Officer. The details of the employment agreement and compensation are included in form 8-K, filed June
2, 2014 and is herein incorporated by reference.