UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30,
2015
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ______________
to _______________
Commission file number 000-30563
DELTA INTERNATIONAL OIL & GAS INC.
(Exact Name of Registrant as Specified in Its
Charter)
Delaware |
|
14-1818394 |
(State or Other Jurisdiction of Incorporation or Organization) |
|
(I.R.S. Employer Identification No.) |
8655 East Via de Ventura, Suite F127, Scottsdale, AZ |
|
85258 |
(Address of principal executive offices) |
|
(Zip Code) |
(480) 483-0420
(Registrant's Telephone Number, Including Area
Code)
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. x Yes
o No
Indicate by check mark whether the registrant
has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such files). Yes o
No x
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. (Check One):
Large accelerated filer o |
Accelerated filer o |
Non-accelerated filer o |
Smaller reporting company x |
(Do
not check if a smaller reporting company)
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o
No x
The number of shares outstanding of the issuer's
common stock, $0.0001 par value per share, was 32,338,826 as of November 16, 2015.
DELTA INTERNATIONAL OIL & GAS INC.
INDEX
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Page |
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Part I. Financial Information |
1 |
|
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Item 1. Financial Statements. |
1 |
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Consolidated Balance Sheets as of September 30, 2015 (unaudited) and December 31, 2014 |
2 |
|
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Consolidated Statements of Operations for the three and nine months ended September 30, 2015 and 2014 (unaudited) |
3 |
|
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Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2015, and 2014 (unaudited) |
4 |
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Consolidated Statements of Cash Flows for the nine months ended September 30, 2015 and 2014 (unaudited) |
5 |
|
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Notes to Unaudited Consolidated Financial Statements |
6 |
|
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
8 |
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Item 3. Quantitative and Qualitative Disclosures About Market Risk. |
13 |
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Item 4.Controls and Procedures. |
13 |
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Part II. Other Information |
14 |
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Item 6. Exhibits. |
14 |
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Signatures |
15 |
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Certain information and
footnote disclosures required under accounting principles generally accepted in the United States of America have been condensed
or omitted from the following consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange
Commission. In the opinion of management, all material adjustments that are necessary for a fair presentation for the periods
presented have been reflected. It is suggested that the following consolidated financial statements be read in conjunction with
the year-end consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for
the year ended December 31, 2014.
The results of operations for the nine and three months ended September 30, 2015 and 2014 are not
necessarily indicative of the results for the entire fiscal year or for any other period.
DELTA INTERNATIONAL OIL & GAS INC. AND SUBSIDIARIES |
CONSOLIDATED BALANCE SHEETS |
(Unaudited) |
| |
September 30, 2015 | | |
December 31, 2014 | |
ASSETS | |
| | |
| |
| |
| | |
| |
Current Assets: | |
| | |
| |
Cash | |
$ | 775,083 | | |
$ | 1,206,177 | |
Receivable from sale of bidding rights and oil and gas properties (net of allowance for doubtful accounts of $3,200,069 as of September 30, 2015 and December 31, 2014, respectively) | |
| - | | |
| - | |
Total current assets | |
| 775,083 | | |
| 1,206,177 | |
| |
| | | |
| | |
Investment in mineral properties | |
| 51,451 | | |
| 55,023 | |
Investments in unproved oil and gas properties | |
| 314,545 | | |
| 336,383 | |
Other assets | |
| 6,368 | | |
| 6,368 | |
| |
| | | |
| | |
TOTAL ASSETS | |
$ | 1,147,447 | | |
$ | 1,603,951 | |
| |
| | | |
| | |
LIABILITIES AND STOCKHOLDERS' EQUITY | |
| | | |
| | |
| |
| | | |
| | |
Current Liabilities: | |
| | | |
| | |
Accounts payable | |
$ | 15,248 | | |
$ | 13,679 | |
Accrued expenses | |
| 52,232 | | |
| 57,614 | |
Notes payable | |
| 26,906 | | |
| 15,000 | |
Liabilities for uncertain tax positions | |
| 25,760 | | |
| 27,549 | |
Total current liabilities | |
| 120,146 | | |
| 113,842 | |
Total liabilities | |
| 120,146 | | |
| 113,842 | |
| |
| | | |
| | |
Commitments and Contingencies | |
| | | |
| | |
| |
| | | |
| | |
Stockholders' Equity: | |
| | | |
| | |
Preferred stock $0.0001 par value-authorized 10,000,000 shares; no shares issued and outstanding at September 30, 2015 and December 31, 2014, respectively | |
| - | | |
| - | |
Common stock $0.0001 par value - authorized 250,000,000 shares; 32,338,826 shares issued and outstanding at September 30, 2015 and December 31, 2014, respectively | |
| 3,233 | | |
| 3,233 | |
Additional paid-in capital | |
| 7,151,481 | | |
| 7,118,982 | |
Accumulated deficit | |
| (5,539,293 | ) | |
| (5,100,542 | ) |
Accumulated other comprehensive loss | |
| (588,120 | ) | |
| (531,564 | ) |
Total stockholders' equity | |
| 1,027,301 | | |
| 1,490,109 | |
| |
| | | |
| | |
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | |
$ | 1,147,447 | | |
$ | 1,603,951 | |
The accompanying notes are an integral
part of the unaudited consolidated financial statements
DELTA INTERNATIONAL OIL & GAS
INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| |
Three months ending September 30, | | |
Nine months ending September 30, | |
| |
2015 | | |
2014 | | |
2015 | | |
2014 | |
Costs and Expenses: | |
| | |
| | |
| | |
| |
General and administrative | |
$ | 127,731 | | |
$ | 185,008 | | |
$ | 413,016 | | |
$ | 625,939 | |
Impairment charge | |
| | | |
| 1,119,913 | | |
| | | |
| 1,119,913 | |
| |
$ | 127,731 | | |
| 1,304,921 | | |
| 413,016 | | |
| 1,745,852 | |
Loss from operations | |
$ | (127,731 | ) | |
$ | (1,304,921 | ) | |
| (413,016 | ) | |
| (1,745,852 | ) |
| |
| | | |
| | | |
| | | |
| | |
Other Income (Expense): | |
| | | |
| | | |
| | | |
| | |
Foreign exchange gain (loss) | |
| (18,290 | ) | |
| (37,870 | ) | |
| (25,735 | ) | |
| (296,410 | ) |
Interest expense | |
| - | | |
| (712 | ) | |
| - | | |
| (7,188 | ) |
Other Income (expense) | |
| (18,290 | ) | |
| (38,582 | ) | |
| (25,735 | ) | |
| (303,598 | ) |
Loss before income taxes | |
| (146,021 | ) | |
| (1,343,503 | ) | |
| (438,751 | ) | |
| (2,049,450 | ) |
| |
| | | |
| | | |
| | | |
| | |
Provision (benefit) for income taxes | |
| - | | |
| - | | |
| - | | |
| - | |
| |
| | | |
| | | |
| | | |
| | |
Net Loss | |
$ | (146,021 | ) | |
$ | (1,343,503 | ) | |
$ | (438,751 | ) | |
$ | (2,049,450 | ) |
| |
| | | |
| | | |
| | | |
| | |
Net income (loss) per common share: | |
| | | |
| | | |
| | | |
| | |
Basic and Diluted | |
$ | (0.00 | ) | |
$ | (0.04 | ) | |
$ | (0.01 | ) | |
$ | (0.06 | ) |
| |
| | | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | |
Weighted average
common shares – Basic | |
| 32,338,826 | | |
| 32,338,826 | | |
| 32,338,826 | | |
| 32,338,826 | |
Weighted average
common shares – Diluted | |
| 32,338,826 | | |
| 32,338,826 | | |
| 32,338,826 | | |
| 32,338,826 | |
The
accompanying notes are an integral part of the unaudited consolidated financial statements
DELTA INTERNATIONAL OIL & GAS INC. AND
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME (LOSS)
(Unaudited)
| |
Three months ending September 30, | | |
Nine months ending September 30, | |
| |
2015 | | |
2014 | | |
2015 | | |
2014 | |
| |
| | |
| | |
| | |
| |
Net earnings (loss) | |
$ | (146,021 | ) | |
$ | (1,343,503 | ) | |
$ | (438,751 | ) | |
$ | (2,049,450 | ) |
Other comprehensive income (loss): | |
| | | |
| | | |
| | | |
| | |
Foreign currency translation adjustment | |
| (14,758 | ) | |
| (4,337 | ) | |
| (56,556 | ) | |
| (96,654 | ) |
Net change in other comprehensive income (loss) | |
| (14,758 | ) | |
| (4,337 | ) | |
| (56,556 | ) | |
| (96,654 | ) |
Comprehensive income (loss) | |
$ | (160,779 | ) | |
$ | (1,347,840 | ) | |
$ | (495,307 | ) | |
$ | (2,146,104 | ) |
The accompanying
notes are an integral part of the unaudited consolidated financial statements
DELTA INTERNATIONAL OIL & GAS
INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| |
Nine months ending September 30, | |
| |
2015 | | |
2014 | |
| |
| | |
| |
Cash flows from Operating Activities: | |
| | |
| |
Net income (loss) | |
$ | (438,751 | ) | |
$ | (2,049,450 | ) |
Warrants issued for services | |
| 32,499 | | |
| 48,750 | |
Reserve for impairment | |
| - | | |
| 1,119,913 | |
Adjustments to reconcile net earnings (loss) to net cash used in operating activities: | |
| | | |
| | |
Changes in operating assets and liabilities | |
| (3,814 | ) | |
| (6,258 | ) |
Net cash used in operating activities | |
| (410,066 | ) | |
| (887,045 | ) |
Cash flows from investing activities: | |
| | | |
| | |
Proceeds from sales of oil and gas properties and bidding rights | |
| - | | |
| 200,000 | |
Net cash provided by investing activities | |
| - | | |
| 200,000 | |
| |
| | | |
| | |
Cash flows from financing activities: | |
| | | |
| | |
Settlement of notes payable to related parties | |
| | | |
| (150,655 | ) |
Proceeds from notes payable | |
| 12,000 | | |
| - | |
Net cash provided by financing activities | |
| 12,000 | | |
| (150,655 | ) |
Effect of Exchange Rates on Cash | |
| (33,028 | ) | |
| 255,962 | |
Net increase (decrease) in cash | |
| (431,094 | ) | |
| (581,738 | ) |
Cash - Beginning of period | |
| 1,206,177 | | |
| 1,833,407 | |
Cash - End of period | |
$ | 775,083 | | |
$ | 1,251,669 | |
| |
| | | |
| | |
Changes in operating assets and liabilities consists of: | |
| | | |
| | |
(Increase) decrease in other assets | |
| - | | |
| 370 | |
Increase (decrease) in accounts payable and accrued expenses | |
$ | (3,814 | ) | |
$ | (6,628 | ) |
Changes in assets and liabilities | |
$ | (3,814 | ) | |
$ | (6,258 | ) |
| |
| | | |
| | |
Supplemental disclosure of cash flow information: | |
| | | |
| | |
Cash paid for interest | |
$ | - | | |
$ | 76,681 | |
Cash paid for income taxes | |
$ | - | | |
$ | - | |
The accompanying
notes are an integral part of the unaudited consolidated financial statements.
DELTA INTERNATIONAL OIL & GAS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited interim consolidated
financial statements of Delta International Oil & Gas Inc. (“Delta” or the “Company”) have been prepared
in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and
Exchange Commission, and should be read in conjunction with the audited consolidated financial statements and notes thereto contained
in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014. In the opinion of management, all adjustments,
consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations
for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily
indicative of the results to be expected for the full year. Notes to the financial statements which would substantially duplicate
the disclosure contained in the audited financial statements for the most recent fiscal year end December 31, 2014 as reported
on Form 10-K, have been omitted.
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 March 31, 2015, the Company had received
deposits in the amount of $4,299,891 from PPL on account of remainder of the proceeds was recorded as a $3,200,069 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 the Company is
in discussions with PPL to ensure that all payments provided for under the Cooperation Agreement are made. Because of PPL’s
payment default, the Company has not transferred the Valle de Lerma, Tartagal, and Morillo interests. The Company, however, did
incorporate High Luck Group (a subsidiary of New Times Energy) into the official UTE for Valle de Lerma, as per PPL’s request.
As of November 16, 2015, the Company was working
on an understanding of sale and settlement terms with PPL and a third party. The settlement terms would apply to all previous
agreements signed with PPL. The timeline for the completion of this agreement remains uncertain.
3. NOTE PAYABLE
On July 24, 2015, SAHF borrowed $12,000 from
an Argentine citizen. The short-term note was for 15 days without interest. The Company was going to repay the $12,000 by bank
transfer, but it has not received the bank transfer information yet. It is expected that the note will be fully paid back at the
end of the fourth quarter of 2015 with no penalty.
SAHF used the funds of $12,000 to pay for corporate
taxes and minimum presumed income taxes in Argentina.
4. RELATED PARTY TRANSACTIONS
During the third quarter, Pablo Peralta, a
major shareholder of the Company and the SAHF Coordinator, was awarded a $2,314 bonus for his third quarter performance. These
quarterly performance bonuses can be expected every quarter.
5. POTENTIAL MANAGER BONUS
On July 16, 2015, the Company, through
SAHF, LLC, made a commitment to give a bonus to Alberto Mac Mullen of up to $500,000 in the event of the completion of a sale of
Tartagal, Morillo, and Valle de Lerma. The final amount of the bonus will be determined by the selling price of the properties.
6. EQUITY
On May 10, 2013, the Board of Directors of the Company authorized the issuance of a common stock purchase
warrant effective May 1, 2013, to purchase 1,000,000 shares of common stock, on or before April 30, 2018, at an exercise price
of $0.20 per share, to Phillips W. Smith, a director of the Company. Dr.
Smith completed his two-year term with the Company on April 30, 2015 and his board membership was not renewed. The remaining warrants
were expensed at the $32,499 as they were fully vested as of September 30, 2015.
ITEM 2. |
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The following discussion of our consolidated
financial condition and results of operations should be read in conjunction with the consolidated financial statements and notes
thereto and the other financial information included elsewhere in this report.
Certain statements contained in this report,
including, without limitation, statements containing the words "believes," "anticipates," "expects"
and words of similar import, constitute "forward looking statements" within the meaning of the Private Securities Litigation
Reform Act of 1995. Such forward-looking statements involve known and unknown risks and uncertainties. Our actual results may differ
materially from those anticipated in these forward-looking statements as a result of certain factors, including our ability to
create, sustain, manage or forecast our growth; our ability to attract and retain key personnel; changes in our business strategy
or development plans; competition; business disruptions; adverse publicity; and international, national and local general economic
and market conditions.
GENERAL
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 the merger with a wholly-owned Delaware subsidiary, where the sole change resulting
from the merger was the change of the Company’s name to Delta International Oil & Gas Inc. In 2003, we established
business operations focused on providing environmental and construction technologies and services. Our operations in
the Far East (Indonesia) and our construction operations in Puerto Rico were discontinued in 2008.
Effective March 4, 2008, we acquired 100%
of the issued and outstanding membership interests in the parent of South American Hedge Fund LLC, a Delaware limited liability
company (sometimes herein referred to as “SAHF”). For accounting purposes, the transaction was treated
as a recapitalization of the Company as of March 4, 2008, with the parent of SAHF as the acquirer. SAHF maintains a branch office
in Argentina, where it has made investments in oil and gas exploration and development activities.
Overview
We are an independent oil and gas company,
with the SIC Code classification 1311 (oil and gas production) for SEC filing purposes, engaged in oil and gas acquisition and
exploration activities in Argentina. Our operating policies have been to secure oil and gas properties and concessions which are
either producing economical quantities of oil and gas or which demonstrate favorable characteristics for well “workovers”
with a history of excellent production.
The Company's business is subject to the risks
of its oil and gas investments in South America. Our investments at this time are in the oil and gas sector in Argentina. Argentina
is in technical default on its external debt and, although negotiations to remedy this default are in process, it not certain how
and when this situation will be resolved.
In October 2015, the Argentinean presidential
elections took place. Daniel Scioli from the Judalist Party (part of the Peronista movement) narrowly won the elections. Considering
the small margin of Scioli’s victory, Argentina will have a second presidential election in November 2015 that takes place
between the top two candidates. The second top candidate of the October election was Mauricio Macri of the PRO Party (a center-right
political party). In the November elections, Mauricio Macri is expected to emerge as the victor.
If this is the case, then Argentina is expected
to devalue its currency allowing for the discrepancy between its official dollar rate and its “dollar blue” rate to
narrow- maybe even down to zero. Another expectation in the case of Macri’s victory is that the economy will open up and
become more business-friendly, attracting FDI from across the world because of Argentina’s natural resources and educated
workforce. As such, with an Argentina led by Macri, it is expected that Argentina’s macroeconomic and political indicators
will improve drastically from the past eight years.
In regards to oil and gas, Argentina poses
an interesting opportunity for producers. The global oil price (as measured by the WTI or Brent Crude indices) fluctuates in the
$40-50 per barrel range. In contrast, Argentina’s fixed internal oil price is US$77 per barrel. While this price is not sustainable
in the long run, producers can take advantage of this price for the foreseeable future.
The gas industry has a similar story. The price
per thousand cubic feet of natural gas in the United States is currently around $2.50. In contrast, Argentine government subsidies
are helping pay for an artificial $7.50 per thousand cubic feet of natural gas. This price is to incentivize local gas explorers
and producers to maintain high levels of production in order to keep the electric grid operating. The alternative for Argentina
is to import natural gas from abroad in priced in US dollars. The problem that Argentina is having is that its reserves are at
only $33 billion. Overall, Argentina’s strategy is to push more companies to drill into the Vaca Muerta shale gas formation
and turn the country into a net energy exporter once again. The primary estimated effect that these industry and economic indicators
will have is that there will most likely be an increase in FDI in oil and gas in Argentina.
The likelihood of success of the Company must
be considered in light of the capital requirements, expenses, difficulties, delays and unanticipated challenges encountered in
connection with the operations of oil and gas concessions in Argentina.
Our Oil and Gas Investments
As of September 30, 2015, 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. Currently, High Luck Group (subsidiary of New Times Energy) is the operator of Tartagal and Morillo.
High Luck Group is looking to extend the joint venture’s working commitment deadline and drill two exploratory wells in
Morillo. If High Luck Group does not succeed in extending the working commitment deadline for one more year, then the joint venture’s
interest in the concession will have a high probability of being stripped by the government.
We hold a 60% 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, but due to payment defaults, the Company has not transferred
the 29.4% interest by government decree. As per PPL’s request, High Luck Group was placed in the official joint venture
for Valle de Lerma. While High Luck ’s working capital commitment to the Valle de Lerma joint venture is still in place,
High Luck has defaulted in this as well. Currently, SAHF has paid 100% of the costs, but High Luck Group is liable for 50% of
those.
The exploration terms for Valle de Lerma 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 targeted existing well site is constrained by law, since the location
of the well was within the city limits of Salta. Requests made for government approval to override the existing restrictions of
the current policy have been rejected. The Company is looking to sell its full stake in Valle de Lerma. Currently, the Company
is finalizing the terms of the sale; however, there is uncertainty regarding the time frame given the past experience with selling
properties.
Even though the Company is not currently pursuing
any of its own operating activities on its oil and gas properties that are not in a carry-over mode, it is still evaluating all
options to assure the most optimal scenario regarding the concession known as Valle de Lerma.
Pending negotiations with PPL, we are currently
working on potential contracts with other buyers. SAHF signed a limited power of attorney in July 2015 to initiate the purchase/sale
process with other potential buyers. Agreements forming new partnerships, and partial sales, were expected to happen in the third
quarter of 2015, but have been delayed until the fourth quarter of 2015.
Lithium Mining Property
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. Delta is not expecting a sale of the lithium property within the next year due to 1) the current price of lithium, 2)
lithium’s abundance in the surrounding area, and 3) Delta’s primary focus on other projects.
The Company does not currently hold any interest
in any other mining concession.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2015 COMPARED
TO THE NINE MONTHS ENDED SEPTEMBER 30, 2014
During the nine months ended September 30,
2015, we incurred a net loss of approximately $439,000, as compared to net loss of approximately $2.0 million for the nine months
ended September 30, 2014. The decrease in the net loss for the nine months ended September 30, 2015 compared to the nine months
ended September 30, 2014 is primarily due to: higher general and administrative expense of approximately $626,000 in 2014, compared
to approximately $413,000 in 2015; a non-recurring impairment charge of approximately $1.1 million in the third quarter of 2014;
and a foreign exchange loss of approximately $296,000 in 2014 versus a foreign exchange loss of approximately $26,000 in 2015.
THREE MONTHS ENDED SEPTEMBER 30, 2015 COMPARED
TO THE THREE MONTHS ENDED SEPTEMBER 30, 2014
During the three months ended September 30,
2015, we incurred a net loss of approximately $146,000, compared to net loss of approximately $1.3 million for the three months
ended September 30, 2014. The decrease in the net loss for the three months ended September 30, 2015 compared to the three months
ended September 30, 2014 is primarily due to: a non-recurring impairment charge of approximately $1.1 million in the third quarter
of 2014, lower general and administrative expenses in 2015 and lower foreign exchange losses in 2015.
LIQUIDITY AND CAPITAL REQUIREMENTS
At September 30, 2015, we had a working capital
surplus of approximately $655,000 compared with a working capital surplus of approximately $1.1 million at December 31, 2014.
At September 30, 2015, we had total assets
of approximately $1.2 million compared to total assets of approximately $1.6 million at December 31, 2014. Net cash used in operating
activities in the nine months ended September 30, 2015 was approximately $410,000, as compared with net cash used in operating
activities of $887,000 in 2014; net cash generated by investing activities was $200,000 in 2014 and $- in 2015; and net cash generated
from financing activities was $-0- in 2014 and approximately $12,000 in 2015.
Effective March 30, 2012, we entered into an
Asset Purchase and Cooperation Agreement (the “Cooperation Agreement”) with Principle Petroleum Limited (“PPL”),
headquartered in the British Virgin Islands. Under the Cooperation Agreement, we agreed to sell to PPL, for a price of $7,000,000
certain exploration and exploitation rights to oil and gas deposits and certain bidding rights held by SAHF 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. The San Salvador, Libertador, and Selva Maria concessions have since been awarded by the government
to another party. Pursuant to a separate Agreement dated March 31, 2012, we 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 US$500,000.
PPL had also agreed in an Undertaking to provide funds to the operating entity of Valle de Lerma (and the other concessions, if
our bid had been approved) in the aggregate amount of up to US $10,000,000.
As part of PPL’s obligations under the
Cooperation Agreement, PPL made partial payments of $2,000,000 in our 2012 first fiscal quarter, $999,979 in the second quarter
and $499,979 in the third quarter towards the full amount of $7,000,000 provided under the Cooperation Agreement. Both
parties are working to execute the full amount of PPL’s payment obligations as agreed. Further payments of $500,000, $50,000,
$150,000, and $99,973 were made in January 2013, July 2014, August 2014, and November 2014, respectively. The interests in the
Tartagal, Morillo, and Valle de Lerma concessions have not yet been transferred to PPL due to PPL’s payment defaults in all
agreements.
For the past year, we have been in talks with
PPL and a third party to settle the Cooperation Agreement as well as potentially sell a larger stake in our properties. In the
third quarter of 2015, one of the negotiating parties underwent a change of upper management, causing the talks to deteriorate.
A negotiated agreement is now looking like it has a lower probability than in the past.
Estimated 2015 Capital Requirements
In the case of the Tartagal and Morillo oil and gas properties,
we have carried interests; therefore, no further capital expenditures are required on our part.
Valle de Lerma’s target well, “La Troja,” has
been deemed inside the city limits, and, therefore, unable to be drilled. Given the concession’s limited number of other
potential “workover” drills, and the Company’s strategy to not engage in any exploratory drilling, the cost of
Valle de Lerma for 2015 is expected to be US$100,000 in canons and other obligations. The Company is currently looking for buyers
for the property.
SAHF also has “minimum expected income” tax in Argentina.
In the third quarter of 2015, SAHF has spent about US$12,000 in minimum expected income tax in Argentina to bring all of its tax
positions up-to-date.
In 2015, Delta has considerably lowered its
operating expenses and SG&As in order to look for other opportunities for investment in the oil and gas sector.
USE OF ESTIMATES
The preparation of the financial statements
requires the Company to make estimates and judgments that affect the reported amount of assets, liabilities, and expenses, and
related disclosures of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates, including
those related to oil and gas properties, intangible assets, income taxes and contingencies and litigation. The Company bases its
estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances, the results
of which form the basis for making judgments about carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different assumptions or conditions. In the opinion of management,
all normal recurring adjustments considered necessary for a fair presentation have been included in these financial statements.
Certain amounts for prior periods have been reclassified to conform to the current presentation.
Management believes that it is reasonably possible
that the following material estimates affecting the financial statements could happen in the coming two years:
|
● |
Reserve reports in two of the properties; |
|
|
|
|
● |
Cash flow from exploratory drilling in two of the properties; and |
|
|
|
|
● |
Future exploration and development costs that are carried. |
NEW FINANCIAL ACCOUNTING STANDARDS
For a summary of new financial accounting standards
applicable to the Company, please refer to the notes to the financial statements set forth in our Annual Report on Form 10-K for
the year ended December 31, 2014, filed with the SEC on April 15, 2015.
Critical Accounting Policies and Estimates
The Securities and Exchange Commission recently
issued “Financial Reporting Release No. 60 Cautionary Advice About Critical Accounting Policies” (“FRR 60”),
suggesting companies provide additional disclosures, discussion and commentary on their accounting policies considered most critical
to its business and financial reporting requirements. FRR 60 considers an accounting policy to be critical if it is important to
the Company’s financial condition and results of operations, and requires significant judgment and estimates on the part
of management in the application of the policy.
The Company assesses potential impairment of
its long-lived assets, which include its property and equipment, investments, and its identifiable intangibles such as deferred
charges under the guidance of ASC 144 “Accounting for the Impairment or Disposal of Long-Lived Assets.” The Company
must continually determine if a permanent impairment of its long-lived assets has occurred and write down the assets to their fair
values and charge current operations for the measured impairment.
Investments in non-consolidated affiliates
– These investments consist of the Company’s ownership interests in oil and gas development and exploration rights
in Argentina, net of impairment losses if any.
We evaluate 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 accounts for stock-based compensation
to non-employees under ASC 718, "Compensation-Stock Compensation" ("ASC 718"). The compensation
cost of the awards is based on the grant date fair-value of these awards and recognized over the requisite service period, which
is typically the vesting period. The Company uses the Black-Scholes Option Pricing Model to determine the fair-value
of stock options issued for 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.
Item 3. QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable to smaller reporting companies.
Item 4. CONTROLS AND PROCEDURES
Evaluation of Controls and Procedures
We maintain disclosure controls and procedures
that are designed to ensure that information required to be disclosed in our Securities Exchange Act reports is recorded, processed,
summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated
and communicated to our management, including our chief executive and financial officer, to allow timely decisions regarding required
disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures,
no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as
ours are designed to do, and management necessarily was required to apply its judgment in evaluating the cost- benefit relationship
of possible controls and procedures.
As of September 30, 2015, an evaluation was
performed under the supervision and with the participation of our management, including our Chief Executive Officer and Principal
Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon that
evaluation, our Chief Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were
not effective.
Changes in Internal Controls
There have been no changes in the Company's
internal controls over financial reporting that occurred during the Company's last fiscal quarter to which this report relates
that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
Limitations on the Effectiveness of Controls
A control system, no matter how well conceived
and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of
the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues
and instances of fraud, if any, within a company have been detected. The Company's disclosure controls and procedures are designed
to provide reasonable assurance of achieving its objectives. The Company's chief executive officer and principal financial officer
concluded that the Company's disclosure controls and procedures are effective at that reasonable assurance level.
PART II—OTHER INFORMATION
ITEM 6. EXHIBITS.
31 |
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.* |
|
|
32 |
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.** |
* Filed herewith
** Furnished herewith
Copies of the following documents are included as exhibits to this
report pursuant to Item 601 of Regulation S-K.
SEC Ref. No. |
|
Title of Document |
|
|
|
101.INS |
|
XBRL Instance Document |
101.SCH |
|
XBRL Taxonomy Extension Schema Document |
101.CAL |
|
XBRL Taxonomy Calculation Linkbase Document |
101.DEF |
|
XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB |
|
XBRL Taxonomy Label Linkbase Document |
101.PRE |
|
XBRL Taxonomy Presentation Linkbase Document |
The XBRL related information in Exhibits 101
to this Quarterly Report on Form 10-Q shall not be deemed “filed” or a part of a registration statement or prospectus
for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, and is not filed for purposes of Section 18 of the
Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of those sections.
SIGNATURES
In accordance with the requirements of the
Exchange Act, the Company has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
DELTA INTERNATIONAL OIL & GAS INC. |
|
|
Dated: November 16, 2015 |
BY: |
/s/ Santiago Peralta |
|
|
|
Santiago Peralta |
|
|
Interim President and Chief Executive Officer, and
Principal Financial Officer |
EXHIBIT INDEX
31 |
Certification of Chief Executive Officer and Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
32 |
Certification of Chief Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
SEC Ref. No. |
|
Title of Document |
101.INS |
|
XBRL Instance Document |
101.SCH |
|
XBRL Taxonomy Extension Schema Document |
101.CAL |
|
XBRL Taxonomy Calculation Linkbase Document |
101.DEF |
|
XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB |
|
XBRL Taxonomy Label Linkbase Document |
101.PRE |
|
XBRL Taxonomy Presentation Linkbase Document |
16
EXHIBIT 31
CERTIFICATION
PURSUANT TO
18
U.S.C. SECTION 1350
AS
ADOPTED PURSUANT TO SECTION 302
OF
THE SARBANES OXLEY ACT OF 2002
I,
Santiago Peralta, certify that:
1.
I have reviewed this Quarterly Report on Form 10-Q of Delta International Oil & Gas Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect
to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4.
I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
a.
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
b.
designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles;
c.
evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on
such evaluation; and
d.
disclosed
in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth quarter in the case of an annual report) that has materially affected, or
is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant's auditors
and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a.
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information;
and
b.
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's
internal control over financial reporting;
DATE: November
16, 2015 |
/s/ Santiago
Peralta |
|
Santiago Peralta,
Interim Chief Executive Officer and |
|
Principal Financial
Officer |
EXHIBIT
32
CERTIFICATION
PURSUANT TO
18
U.S.C. SECTION 1350
AS
ADOPTED PURSUANT TO
SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002
In connection
with the Quarterly Report of Delta International Oil & Gas Inc. (the "Company") on Form 10-Q for the nine months
ended September 30, 2015 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I,
Santiago Peralta, Interim Chief Executive Officer and Principal Financial Officer of the Company, certify, pursuant to 18 U.S.C.
section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge: (1) The
Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information
contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
November
16, 2015 |
/s/ Santiago Peralta |
|
Santiago Peralta |
|
Interim Chief Executive Officer and |
|
Principal Financial Officer |
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