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, 2016 and 2015
NOTE 1 - ORGANIZATION AND BUSINESS
OPERATIONS
Pacific Oil Company (the “Company”)
was originally incorporated in Nevada on December 5, 2005 (“inception’) as Kat Racing, Inc. On January 4, 2013, the
Articles of Incorporation of the Company were amended to change the name of the Company to Prairie West Oil & Gas, Ltd. On
July 26, 2013, the Company’s Articles of Incorporation were amended to change the name of the registrant to Pacific Oil Company.
From the Company’s inception until
the Company’s transition into the oil and natural gas business in early 2013, Kat Racing’s business plan was to design,
manufacture, market, sell and distribute custom off-road racing and recreational vehicles and provide marketing and lead services.
Kat Racing never generated any revenue from this proposed business plan.
As the market for high end off road
vehicles suffered due to the downturn in the economy, Kat Racing sought to arrange the purchase of certain oil and gas properties
which were owned by Prairie West Oil and Gas Ltd., a Canadian company, through a share exchange. Pursuant to this transaction,
the Company changed its name from Kat Racing to Prairie West Oil and Gas Ltd. This transaction was never completed. When it was
determined the acquisition would not be completed, the Company did not want to continue with the Prairie West name and changed
its name to Pacific Oil Company.
On October 1, 2013, the Company issued
a newly appointed officer and director 190,500 shares of common stock of the Company to retain his services to attempt to secure
certain assets the Company needs to launch its oil and gas operations.
On May 6, 2015, the Company entered
into a purchase and sale agreement with the Emporium Group to purchase certain rights, title, estate, and interest in the unproved
petroleum and natural gas rights, together with certain tangible assets and liabilities, on a 40-acre site located in Saskatchewan,
Canada. The purchase consideration for this transaction was part stock and part debt. The Company issued to Emporium Group 140,000
shares of its common stock, valued at $1,400, based on the market price of $0.01 per share of our shares on the date the transaction
was completed, along with a convertible note payable in the amount of $125,000 with a 6% cumulative interest rate, due and payable
in 3 years, with the right to convert into 6,250,000 shares of our commons stock at $0.02 per share. The lease acquired has not
been in operation since 2011 and we have been advised that we will need to spend approximately $75,000 to $100,000 to get the well
back into production. Effective September 30, 2015, the Company and Emporium Group cancelled the above agreement. Under the terms
of the cancelation, Emporium Group took back all assets and liabilities in exchange for canceling the note payable and associated
interest and Emporium Group retained the 140,000 shares of the Company’s common stock.
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
accumulated deficit of $825,148 through March 31, 2016 and had a working capital deficit of $122,480 at March 31, 2016. Accordingly,
there is substantial doubt about the Company’s ability to continue as a going concern. The ability of the Company to continue
as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it becomes profitable.
If the Company is unable to obtain adequate capital, it could be forced to cease operations.
In order to continue as a going concern,
the Company will need, among other things, additional capital resources. Management's plan is to obtain such resources for the
Company by obtaining capital from management and significant shareholders sufficient to meet its minimal operating expenses and
seeking equity and/or debt financing. However management cannot provide any assurances that the Company will be successful in accomplishing
any of its plans.
The ability of the Company to continue
as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and
eventually secure other sources of financing and attain profitable operations. The accompanying financial statements do not include
any adjustments that might be necessary if the Company is unable to continue as a going concern.
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, 2016, 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, 2015 audited financial statements. The results
of operations for the three and six month periods ended March 31, 2016 and 2015 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.
Use of Estimates and Assumptions
The preparation of financial statements
in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management
to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting
period. The Company regularly evaluates estimates and assumptions related to the deferred income tax asset valuation allowances.
The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes
to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of
assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results
experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material
differences between the estimates and the actual results, future results of operations will be affected.
Fair Value Measurements
The Company adopted ASC No. 820-10 (ASC
820-10), Fair Value Measurements. ASC 820-10 relates to financial assets and financial liabilities.
ASC 820-10 defines fair value, establishes
a framework for measuring fair value in accounting principles generally accepted in the United States of America (GAAP), and expands
disclosures about fair value measurements. The provisions of this standard apply to other accounting pronouncements that require
or permit fair value measurements and are to be applied prospectively with limited exceptions.
ASC 820-10 defines fair value as the
price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants
at the measurement date. This standard is now the single source in GAAP for the definition of fair value, except for the fair value
of leased property. ASC 820-10 establishes a fair value hierarchy that distinguishes between (1) market participant assumptions
developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions,
about market participant assumptions that are developed based on the best information available in the circumstances (unobservable
inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices
in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three
levels of the fair value hierarchy under ASC 820-10 are described below:
Level 1. Observable inputs such as quoted
prices in active markets;
Level 2. Inputs, other than the quoted
prices in active markets, that are observable either directly or indirectly; and
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 and accrued expenses, advances payable, advances payable – related party and note payable and convertible note payable
related party approximates their fair value due to the short-term maturity of these financial instruments.
Income Taxes
Income taxes are accounted for using
the asset and liability method. Under this method, deferred income tax assets and liabilities are recognized for the future tax
consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities
and their respective tax bases. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply
to taxable income in the years in which these temporary differences are expected to be recovered or settled. The effect on deferred
tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation
allowance would be provided for those deferred tax assets for which if it is more likely than not that the related benefit will
not be realized. The Company classifies tax-related penalties and interest as a component of income tax expense for financial statement
presentation.
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 potentially dilutive
debt instruments outstanding in the form of a 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, the basic and diluted loss per share were identical for the three
and six months ended March 31, 2016 and 2015.
Stock-based Compensation
The Company has share-based compensation
plans under which employees, consultants, suppliers and directors may be granted restricted stock, as well as options and warrants
to purchase shares of Company common stock at the fair market value at the time of grant. Stock-based compensation cost to employees
is measured by the Company at the grant date, based on the fair value of the award, over the requisite service period under ASC
718. For options issued to employees, the Company recognizes stock compensation costs utilizing the fair value methodology over
the related period of benefit. Grants of stock to non-employees and other parties are accounted for in accordance with the ASC
505.
Reclassifications
Certain amounts in the prior periods
may have been reclassified to conform to the current period presentation.
Recent Accounting Pronouncements
The Company does not believe that other
than disclosed above, recently issued, but not yet adopted, accounting pronouncements will have a material impact on its financial
position, results of operations or cash flows.
NOTE 4 – ADVANCES PAYABLE AND
ADVANCES PAYABLE, RELATED PARTY TRANSACTIONS
In support of the Company’s efforts
and cash requirements, it may rely on advances from related parties and non-related parties until such time that the Company can
support its operations or attains adequate financing through sales of its equity or traditional debt financing. There is no formal
written commitment for continued support by shareholders. Amounts represent advances or amounts paid in satisfaction of liabilities.
The advances are considered temporary in nature and have not been formalized by a promissory note.
The Company received $23,488 as of March
31, 2016 and September 30, 2015, as advances from a related party to fund ongoing operations.
In addition, as of March 31, 2016 and
September 30, 2015, the Company had received advances totaling $75,383 and $60,883, respectively, from a former officer and majority
shareholder and her spouse.
All of the related party and non-related
party accounts and notes payable are non-interest bearing, unsecured and due upon demand.
NOTE 5 – COMMON STOCK
The authorized share capital of the
Company consists of 300 million shares of $0.001 par value common stock and no shares of preferred stock.
On February 19, 2015, the board of directors
authorized a further reverse stock split of 1 for 200.
All share amounts have been adjusted
retroactively, and reflect both stock splits as if they had occurred at the beginning of all periods presented.
On May 6, 2015, the Company includes
consideration 140,000 shares of common stock for the acquisition of an unproved oil and gas property, certain equipment and liabilities.
On September 30, 2015, we unwound this transaction. The seller retained these shares per the agreement but has not been issued
as of September 30, 2015. We recognized an expense at fair value of $42,000 associated with this transaction. The 140,000 shares
were issued during the six months ended March 31, 2016.
As of March 31, 2016, there were 440,949 shares of common
stock were issued and outstanding.