NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
AS
OF AND FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
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. Currently, Delta is under contract to sell its oil and gas concessions in Argentina and transfer its subsidiary, SAHF,
LLC out of the Company.
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 made the initial investment into a company
that holds the patents for this technology in the first quarter of 2016.
Delta’s strategy for 2017 is to acquire tech-based
companies (telecommunications or software-focused are primary targets) that have a long history of revenues with positive operating
cash flow. The next two acquisitions are already under a letter of intent and are expected to close in the second quarter of 2017.
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, 2016 AND 2015
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, 2016 AND 2015
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.
As
of December 31, 2016, the Valle de Lerma concession had an impairment of $191,236, bringing the book value to $0.
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.
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.
At
December 31, 2016 and 2015, the Company has approximately $0 and $0, 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, 2016 and 2015, 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, 2016 and 2015, due to our operating losses, and therefore, have not been included in the calculation of earnings
per share.
DELTA
INTERNATIONAL OIL & GAS INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
AS
OF AND FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
FOREIGN
CURRENCY TRANSLATION
In
2016 and 2015, 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 Argentina 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.
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, 2016 and 2015, there were no financial assets or liabilities that required disclosure.
DELTA
INTERNATIONAL OIL & GAS INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
AS
OF AND FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
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, 2016, 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.
In
July 2016, PPL, Delta, and SAHF cancelled all of their agreements with no further obligation on either side as a condition for
an agreement that was signed between SAHF, Delta, and High Luck Group.
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.
This property is expected to remain in SAHF when it transfers out of Delta to a third party.
4.
INVESTMENT IN UNPROVED OIL AND GAS PROPERTIES
As
of December 31, 2016, 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. Subsequently, all contracts with PPL were cancelled and
SAHF retained an 18% interest in the Tartagal and Morillo concessions.
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. During 2016, the oil concession known as Valle de Lerma was
completely impaired and as of December 31, 2016, it had a carrying value of $0. The concession is expected to transfer out of
Delta along with SAHF in April of 2017.
DELTA
INTERNATIONAL OIL & GAS INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
AS
OF AND FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
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 January 3, 2017, High Luck Group Limited had accepted
an offer from the Company for the sale of 18% of the Tartagal and Morillo concessions.
|
|
Concession Investments
|
|
|
Exploration Rights
|
|
|
Total
|
|
At January 1, 2015
|
|
$
|
0
|
|
|
$
|
336,383
|
|
|
$
|
336,383
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation gain (loss)
|
|
|
0
|
|
|
|
(114,503
|
)
|
|
|
(114,503
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2015
|
|
$
|
--
|
|
|
$
|
221,880
|
|
|
$
|
221,880
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve for Impairment
|
|
|
0
|
|
|
|
(191,236
|
)
|
|
|
(191,236
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation gain (loss)
|
|
|
0
|
|
|
|
(30,644
|
)
|
|
|
(30,644
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2016
|
|
$
|
--
|
|
|
$
|
0
|
|
|
$
|
0
|
|
5.
PROPERTY AND EQUIPMENT
Property
and equipment consists of:
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Oilfield equipment
|
|
$
|
---
|
|
|
$
|
---
|
|
|
|
|
|
|
|
|
|
|
Furniture and equipment
|
|
|
1,912
|
|
|
|
16,386
|
|
Less accumulated depreciation
|
|
|
(1,912
|
)
|
|
|
(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. All fully depreciated furniture was donated during 2016 when Delta moved to fully-furnished executive offices.
The only equipment that is left is fully depreciated computers.
6.
DEBT
|
|
December 31,
|
|
Short – term debt
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Note payable to third party, interest at 6%, due August 10, 2011
|
|
|
15,000
|
|
|
|
15,000
|
|
Total
|
|
$
|
15,000
|
|
|
$
|
15,000
|
|
During
the year 2016, the Company did not pay off any debt and did not raise any more capital via debt instruments.
DELTA
INTERNATIONAL OIL & GAS INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
AS
OF AND FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
7.
INCOME TAXES
The
Company has not made provision for income taxes in the years ended December 31, 2016 and 2015, respectively, since the Company
has the benefit of net operating losses carried forward in these periods.
Deferred
income tax assets consist of:
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Net operating loss carry-forwards
|
|
$
|
2,013,467
|
|
|
$
|
1,862,771
|
|
|
|
|
|
|
|
|
|
|
Less valuation allowance
|
|
|
(2,013,467
|
)
|
|
|
(1,862,771
|
)
|
|
|
|
|
|
|
|
|
|
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 $2,013,467 and $1,862,771 attributable to the future utilization of the approximately
$4,793,970 and $4,435,168 in eligible net operating loss carry-forwards as of December 31, 2016 and 2015, 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 2021 to 2035.
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. There are currently no tax returns being examined by the IRS. The tax return filings for years 2013
through 2015 are still open for examination.
8.
STOCKHOLDERS’ EQUITY
Preferred
Stock
As
of December 31, 2016 the board of directors had not authorized the issuance of any series of preferred stock.
Common
Stock
For
the years ended December 31, 2016 and 2015, the Company did not issue and new shares.
The
company recorded compensation expense of for the year ended December 31, 2016 and 2015 of $0 and $32,499, respectively. In 2015,
the compensation expense was in the form of warrants for Dr. Phillips Smith for his service as Chairman of the Board for the years
2013-2015.
DELTA
INTERNATIONAL OIL & GAS INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
AS
OF AND FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
A
summary of warrant activity is detailed below:
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
Aggregated
|
|
|
|
Warrants
|
|
|
Exercise
Price
|
|
|
Contractual Term
|
|
|
Intrinsic
Value
|
|
Outstanding, December 31, 2014
|
|
|
9,211,517
|
|
|
$
|
0.21
|
|
|
|
3.65 years
|
|
|
$
|
691,052
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2015
|
|
|
9,211,517
|
|
|
$
|
0.21
|
|
|
|
2.65 years
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2016
|
|
|
9,211,517
|
|
|
$
|
0.21
|
|
|
|
1.65 years
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested, December 31, 2016
|
|
|
9,211,517
|
|
|
$
|
0.21
|
|
|
|
1.65 years
|
|
|
$
|
-
|
|
9. 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
Rent
expense was $14,311 under a month-to-month office lease and $25,483 for the years ended December 31, 2016 and 2015, respectively.
EMPLOYMENT
AGREEMENTS
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. Mr. Peralta has given up his quarterly bonus for the calendar year 2017 in order to
reduce administrative expenses. The contract has an automatic one (1) year renewal, which was renewed originally in 2016, and,
again, in 2017. 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.
DELTA
INTERNATIONAL OIL & GAS INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
AS
OF AND FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
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.
CONTINGENT
BONUSES
The
Company has commitments to one SAHF employee and one ex-SAHF contractor if the sale of Tartagal and Morillo to High Luck materializes.
Upon receipt of the initial payment, Alberto Mac Mullen is expected to be paid $200,000 for his services over the past ten years
to the Company. Enrique Vidal is expected to be paid 3% of the total purchase price of the sale for his crucial role negotiating
the contract with High Luck.
10.
INVESTMENT IN MHD TECHNOILOGY
We
have made an investment of $125,000 in MHD Technology Corporation, a Delaware corporation (“MHD Tech”), for an equity
position of 1,343,750 shares of common stock of MHD Tech (currently, approximately 5.5% of the outstanding shares in the company);
this investment was made through a separate limited liability company owned by Delta and set up specifically for this investment.
In connection with the investment, Santiago Peralta, our Interim Chief Executive Officer and sole director, has joined the Board
of Directors of MHD Tech. The investment that Delta made into MHD Tech will be primarily for research and development purposes.
In November 2016, a simulation company from Florida finished a simulation of the unit for MHD Tech to start selling licenses.
In February 2017, the company finished the first working prototype to demonstrate the technology to potential investors and licensees.
This
investment is accounted for using the cost accounting method. The value of the investment on the balance sheet will be shown at
historical cost and will not be adjusted according to fair market value. If there is evidence that suggests that the fair market
value of the investment is lower than the historical cost, then the investment will be written down to its new fair market value.
11.
SUBSEQUENT EVENTS
On
January 3, 2017, the Company received the acceptance of its offer for the sale of SAHF’s interest in the Tartagal and Morillo
concessions from High Luck Group. The consideration for 18% of Tartagal and Morillo will be US$2,000,000 upon the transfer of
the concessions, and 3% of gross revenues from the production of oil or gas of either concession up to an additional US$2,000,000.
Once the transfer occurs, the companies will sign a mutual release. The release of funds is also contingent on other external
factors. On February 10, 2017, High Luck Group deposited the initial US$2,000,000 in an Escrow account.
On
February 15, 2017, the Company signed a letter of intent with Bayberry Capital for the acquisition of 100% of the outstanding
shares in Naptech Test Equipment, Inc. On March 22, 2017, the Company signed a letter of intent with Cardinal Electronics, Inc.
The transaction with Naptech is expected to have a final agreement before the end of the first quarter and to close in the second
quarter, meanwhile the transaction with Cardinal is expected to have a final agreement and its closing in the second quarter.
On March 22, 2017, Delta signed an agreement with Enrique
Vidal acting as an agent to an undisclosed buyer for the transfer of SAHF. The transaction is expected to close in April, 2017,
after the decree approving the Tartagal and Morillo transfer to High Luck is published. On March 23, 2017, the Company presented
the necessary documentation to the Secretary of Energy to transfer the Tartagal and Morillo concessions to High Luck. The Secretary
of Energy will review the paperwork and upon its approval, it will send its decision to the executive branch of the Province of
Salta, which has the power to issue the transfer decree.
On March 31, 2017, High Luck requested the release of $500,000
from the Escrow Agent to Delta. Even though the decree approving the transfer has not been published, the companies recognized
that many of the closing conditions have been completed and that the presentation to the Secretary of Energy for the transfer of
the properties had been made.