UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

___________________________

 

Form 10-Q

 

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2014

 

☐ 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. ☒ Yes   ☐ 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 ☐     No ☒

 

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 ☐	Accelerated filer ☐
Non-accelerated filer  ☐	Smaller reporting company ☒

(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 ☐    No ☒

 

The number of shares outstanding of the issuer's common stock, $0.0001 par value per share, was 32,338,826 as of August 4, 2014.

 

  

  

DELTA INTERNATIONAL OIL & GAS INC.

 

INDEX

 

	Page
Part I.  Financial Information	1
Item 1. Financial Statements.	1
Consolidated Balance Sheets as of June 30, 2014 (unaudited) and December 31, 2013 (unaudited)	2
Consolidated Statements of Operations for the three and six months ended June 30, 2014 and 2013 (unaudited)	3
Consolidated Statements of Cash Flows for the six months ended June 30, 2014 and 2013 (unaudited)	5
Notes to Unaudited Consolidated Financial Statements	6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.	8
Item 3. Quantitative and Qualitative Disclosures About Market Risk.	11
Item 4. Controls and Procedures.	12
Part II. Other Information	13
Item 6.  Exhibits.	13
Signatures	14

 

 

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. 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, 2013.

  

The results of operations for the three and six months ended June 30, 2014 and 2013 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)

 

		June 30,				December 31,
		2014				2013
ASSETS
Current Assets:
Cash		$	1,486,052			$	1,833,407
Receivable from sale of bidding rights and oil and gas properties			3,500,042				3,500,042
Total current assets			4,986,094				5,333,449
Investment in mineral properties			94,062				117,351
Investments in unproved oil and gas properties			1,290,398				1,609,889
Investment in oil refinery			87,731				109,452
Property and equipment			58,492				61,698
Other assets			7,864				8,234
TOTAL ASSETS		$	6,524,641			$	7,240,073
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable		$	17,040			$	1,744
Accrued expenses			182,043				144,000
Notes payable			75,000				75,000
Liabilities for uncertain tax positions			60,298				75,228
Total current liabilities			334,381				295,972
Long-term deferred tax liability			633,590				633,590
Long-term debt payable to related parties			150,655				150,655
Total liabilities			1,118,626				1,080,217
Commitments and Contingencies
Stockholders' Equity:
Preferred stock $0.0001 par value-authorized 10,000,000 shares; no shares issued and outstanding at June 30, 2014 and December 31, 2013, respectively			-				-
Common stock $0.0001 par value - authorized 250,000,000 shares; 32,338,826 shares issued and outstanding at June 30, 2014 and December 31, 2013, respectively			3,233				3,233
Additional paid-in capital			7,070,232				7,021,482
Accumulated deficit			(1,104,291	)			(398,344	)
Accumulated other comprehensive loss			(563,159	)			(466,515	)
Total stockholders' equity			5,406,015				6,159,856
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY		$	6,524,641			$	7,240,073

 

The accompanying notes are an integral part of the consolidated financial statements

 

DELTA INTERNATIONAL OIL & GAS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

		Three months ended June 30,								Six months ended June 30,
		2014				2013				2014				2013
Costs and Expenses:
General and administrative		$	199,096			$	177,671			$	440,931			$	359,001
			199,096				177,671				440,931				359,001
Loss from operations			(199,096	)			(177,671	)			(440,931	)			(359,001	)
Other Income (Expense):
Foreign exchange gain (loss)			(29,451	)			73,386				(258,540	)			(53,544	)
Interest expense			(3,238	)			(12,597	)			(6,476	)			(25,195	)
Life insurance proceeds			-				1,000,249				-				1,000,249
Other Income (expense)			(32,689	)			1,061,038				(265,016	)			921,510
Income (loss) before income taxes			(231,785	)			883,367				(705,947	)			562,509
Provision for income taxes			-				-				-				-
Net Income (loss)		$	(231,785	)		$	883,367			$	(705,947	)		$	562,509
Net income (loss) per common share:
Basic		$	(0.01	)		$	0.03			$	(0.02	)		$	0.02
Diluted		$	(0.01	)		$	0.03			$	(0.02	)		$	0.02
Weighted average common shares - Basic			32,338,826				32,086,826				32,338,826				32,080,528
Weighted average common shares - Diluted			32,338,826				32,428,557				32,338,826				32,389,517

 

The accompanying notes are an integral part of the consolidated financial statements

 

  

DELTA INTERNATIONAL OIL & GAS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

 

		Three Months ending June 30,								Six Months ending June 30,
		2014				2013				2014				2013
Net earnings (loss)		$	(231,785	)		$	883,367			$	(705,947	)		$	562,509
Other comprehensive income (loss):
Foreign currency translation adjustment			(4,337	)			(196,670	)			(96,644	)			(154,246	)
Net change in other comprehensive income (loss)			(4,337	)			(154,246	)			(96,644	)			(154,246	)
Comprehensive income (loss)		$	(236,122	)		$	408,263			$	(802,591	)		$	408,263

 

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)

 

		Six Months ending June 30,
		2014				2013
Cash flows from Operating Activities:
Net income (loss)		$	(705,947	)		$	562,509
Warrants issued for services		$	48,750			$	16,250
Adjustments to reconcile net earnings (loss) to net cash used in operating activities:
Changes in operating assets and liabilities			53,339				(213,279	)
Net cash provided (used) in operating activities			(603,858	)			365,480
Cash flows from investing activities:
Oil and gas properties exploration and development costs			-				(28,389	)
Proceeds from sales of oil and gas properties and bidding rights			-				500,000
Net cash provided by investing activities			-				471,611
Cash flows from financing activities:
Settlement of notes payable to related parties			-				(623,970	)
Net cash provided by financing activities			-				(623,970	)
Effect of Exchange Rates on Cash			256,503				38,342
Net increase in cash			(347,355	)			251,463
Cash - Beginning of period			1,833,407				1,949,896
Cash - End of period		$	1,486,052			$	2,201,359
Changes in operating assets and liabilities consists of:
Increase (decrease) in accounts payable and accrued expenses		$	53,339			$	(213,279	)
Changes in assets and liabilities		$	53,339			$	(213,279	)
Supplemental disclosure of cash flow information:
Cash paid for interest		$	-			$	130,686
Cash paid for income taxes		$	-			$	-
Supplementary information:
Non cash financing and investing activities:		$	-			$	-

 

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, 2013. 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, 2013 as reported on Form 10-K, have been omitted.

 

2. Reclassifications

 

Certain prior year amounts in the consolidated financial statements have been reclassified to conform to the current year presentation. 

 

3. 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 three and six months ended June 30, 2014 and 2013, there were 0, 0, 0 and 308,989, respectively of potentially dilutive common shares outstanding.

 

4. 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 has 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 and Selva Maria (the San Salvador and Libertador 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 (Selva Maria is pending for approval from the government, which is standard procedure in Argentina).

 

As of December 31, 2012, the Company had received deposits in the amount of $3,499,958 from PPL on account of remainder of the proceeds has been recorded as a $4.0 million receivable from the sale of bidding rights and oil and gas properties. 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 within the time frame as required for concession financial commitments. In 2013, the Company received an additional payment of $500,000 .   During the third quarter of 2014, the Company received an additional payment of $200,000.

 

5. RELATED PARTY TRANSACTIONS

 

As of June 30, 2014 and December 31, 2013, the Company owes three shareholders $150,655.  

 

 

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.  The number of shares of common stock as to which the warrant is exercisable vests in 24 monthly installments on the final day of each month during the term of the warrant, commencing May 31, 2013, and is vested in full as of April 30, 2015.  If Mr. Smith ceases to be an active member of the Company’s Board of Directors at any time in the two-year period May 1, 2013 through April 30, 2015, vesting will cease as of the last full month during which he was an active member of the Board.  The fair value of these warrants was $195,000 on the date of grant determined using the Black-Scholes option pricing model with the following inputs:  Exercise price of $0.20, expected term of 5 years, stock price of $0.20, volatility of 195%, discount rate of 5% and no expected dividends.  During the six months ended June 30, 2014 and 2013, the Company expensed $48,750 and $16,250, respectively, related to this award.

 

7.  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

 

The Company entered into a lease agreement in February 2012 for 3,551 square feet of office space for its principal office in Arizona.  The lease expired in February 2013 and the Company has moved and has a two-year lease expiring in February 2015.

 

Rent expense was $17,157 and $38,781 for the six months ended June 30, 2014 and 2013, respectively.

 

EMPLOYMENT AGREEMENTS

 

On April 26, 2010, the Company’s Board of Directors approved five-year term executive employment agreements (“Employment Agreements”) between the Company and Dr. Daniel R. Peralta, the Company’s former Chairman and Chief Executive Officer, and Malcolm W. Sherman, the Company’s Executive Vice President.  Mr. Sherman’s Employment Agreement was effective March 23, 2010, and provides for a fixed annual salary of $300,000, which is limited by agreement of the executive and the Board to $235,000. Under the Employment Agreement, he is eligible for participation in a bonus pool with other senior executives, the quarterly bonus amounts being based on financial performance comparisons with prior fiscal quarters, beginning with the quarterly reports of the Company for the year 2006 and each subsequent year during the respective terms of each of the Employment Agreements. Such bonus will be pooled with those of other senior executives and computed based on a total bonus pool equal to 15% of the net profits of the Company as set forth in the Company’s SEC filings.

 

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 the 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.

 

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.

 

 

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, exploitation, production and exploration activities primarily in Argentina. Our operating policies have been to secure oil and gas properties and concessions which either are producing economical quantities of oil and gas or which demonstrate favorable characteristics for well “workovers” with a history of excellent production.  Our goal has been to target these concessions as compared to concessions which will be exploratory and would require drilling new wells.

 

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, where recently proposed legislation would change the respective roles of the federal and provincial governments in the award of and participation in oil and gas concessions. If enacted these changes could necessitate renegotiation of certain of the concessions in which we have interests, and affect the value of our investments. As of the end of July 2014, Argentina was in technical default on its external debt and, although negotiations to remedy this default are in process, it is likely that this situation, however resolved, will lead the government to impose further restrictions on exports of capital from Argentina.

 

The likelihood of success of the Company must be considered in light of the expenses, difficulties, delays and unanticipated challenges encountered in connection with the operations of oil and gas concessions in Argentina.

 

 

Our Oil and Gas Investments

 

We hold a 60% interest in the Valle de Lerma concession in Northern Argentina, where the joint venture partners are Grasta SA, a local mid-size gasoline refinery located in Buenos Aires, PetroNEXUS and REMSA. We have been actively working in 2012 and 2013 to finalize all governmental approvals for an alternate drilling site. 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 have been made for government approval to override the existing restrictions of the current policy.

 

As of June 30, 2014, the Company, through SAHF, retained 9% 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 and a 10% concession interest in the carryover mode in the Jollin and Tonono oil and gas concessions, all of which properties are located in Northern Argentina.  We do not operate either of these concessions, and have minority positions in respective the joint ventures. The joint ventures are currently developing future plans for continuing the exploration of the concessions.

 

As of June 30, 2014, SAHF owns 20% of the oil and gas exploration rights to five geographically defined areas in the Salta Province of Northern Argentina.  SAHF is designated as the operator of this concession. Exploratory drilling activities commenced in April 2010 on the Guemes Block and in July 2010, SAHF confirmed the potential existence of formations with sufficient hydrocarbons to make the well economically productive. In 2013, the initial majority working interest owner, Ketsal S.A., has sold its share to another firm, which is evaluating whether to proceed further with investments in this concession. SAHF will explore the possibility of selling their 20% interest in the concession to the new owners who control the concession if we determine that there is no reasonable program offered to the government by the controlling partners for opening the well or expanding the field.

 

We owned at June 30, 2014, 33.33% of the Caimancito Refinery, located in the Jujuy Province, Argentina. Due to the cost of required rehabilitation work, currently this refinery is not being operated to produce gasoline or diesel fuel, and the partners have no current plans to activate the refinery.

 

Lithium Production 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 and geological conclusions with a local geological company in order to determine value to the property. We are seeking a purchaser for our concession interest in these properties.

 

RESULTS OF OPERATIONS

 

SIX MONTHS ENDED JUNE 30, 2014 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 2013

 

During the six months ended June 30, 2014, we incurred a net loss of approximately $706,000 as compared to net income of approximately $562,000 for the six months ended June 30, 2013. The difference for the six months ended June 30, 2014 compared to the six months ended June 30, 2013 is primarily due to a gain recognized during the second quarter of 2013 of $1,000,249, from the payment of the proceeds from the Company’s keyman life insurance policy on the life of Daniel R. Peralta, our former Chief Executive Officer. Our loss from operations increased from approximately $359,000 in 2013 to approximately $441,000 in 2014 due to higher general and administrative expenses.

 

THREE MONTHS ENDED JUNE 30, 2014 COMPARED TO THE THREE MONTHS ENDED JUNE 30, 2013

 

During the three months ended June 30, 2014, we incurred a net loss of approximately $232,000 as compared to net income of approximately $883,000 for the three months ended June 30, 2013. The difference for the three months ended June 30, 2014 compared to the three months ended June 30, 2013 is primarily due to a gain of approximately $1,000,000, described above in the six month analysis. Our loss from operations remained approximately constant from 2013 to 2014.

 

LIQUIDITY AND CAPITAL REQUIREMENTS

 

At June 30, 2014, we had a working capital surplus of approximately $4.7 million compared with a working capital surplus of approximately $5.0 million at December 31, 2013.

 

At June 30, 2014, we had total assets of approximately $6.5 million compared to total assets of approximately $7.2 million at December 31, 2013. Net cash used in operating activities in the six months ended June 30, 2014 was $604,000, as compared with net cash provided by operating activities of approximately $365,000 in 2013; and net cash generated from investing activities was $-0- in 2014, as compared with cash generated of $472,000 in 2013.  Net cash generated by financing activities was $-0- in the six months ended June 30, 2014, as compared with cash used of $624,000 in 2013.

 

Estimated 2014 Capital Requirements

 

In the case of the Jollin and Tonono and Tartagal and Morillo oil and gas properties, we have carried interests; therefore, no further capital expenditures are required on our part.  For the exploration rights in Salta Province, we have completed the drilling and development of one well in Guemes that is expected to begin production testing in 2014.  However, we cannot determine this exact date as it is under the control of the majority owner (80%) of the concession. We are in discussions with the majority owner seeking a resolution of future actions with respect to this property.

 

We estimate that our capital requirements in 2014 to develop the Valle de Lerma (where we have applied for extension of the concession to permit oil production from an existing site) and Selva Maria properties (the award of the Selva Maria concession is pending approval from the government) will approximate $1,350,000 for Selva Maria and $800,000 for Valle de Lerma. Further development of these concessions may be affected if the current proposed legislation concerning centralization of all concession awards in the federal government is enacted, since concession ownership and operating terms may be changed so as to change the investments we are required to make in these two concession. 

 

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 year:

 

	●	Proved oil and gas reserves;
	●	Expected future cash flow from proved oil and gas properties;

 

	●	Future exploration and development costs; and
	●	Future dismantlement and restoration costs.

 

 

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, 2013, filed with the SEC on April 25, 2014.

 

Critical Accounting Policies

 

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. For a summary of the Company’s significant accounting policies, including the critical accounting policies discussed below, please refer to the accompanying notes to the financial statements. Foreign currency risk - The functional currency for some 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 South America is the U.S. dollar. Translation adjustments are recorded in Cumulative Other Comprehensive Income.

 

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 SFAS 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.

 

Item 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

Interest Rate Risk - Interest rate risk refers to fluctuations in the value of a security resulting from changes in the general level of interest rates. Investments that are classified as cash and cash equivalents have original maturities of three months or less. Our interest income is sensitive to changes in the general level of U.S. interest rates.

 

We do not have significant short-term investments, and due to their short-term nature, we believe that there is not a material risk exposure.

 

Credit Risk - Our accounts receivable are subject, in the normal course of business, to collection risks. We regularly assess these risks and have established policies and business practices to protect against the adverse effects of collection risks. As a result we do not anticipate any material losses in this area.

 

Commodity Price Risk – We are exposed to market risks related to price volatility of crude oil and natural gas. The prices of crude oil and natural gas affect our revenues, since sales of crude oil and natural gas from our South American investments comprise nearly all of the components of our revenue.  A decline in crude oil and natural gas prices will likely reduce our revenues, unless there are offsetting production increases. We do not use derivative commodity instruments for trading purposes.

 

 

The prices of the commodities that the Company produces are unsettled at this time.  At times the prices seem to be drift down and then either increase or stabilize for a few days.  Current price movement seems to be slightly up but with the prices of the traditionally marketed products (gasoline, diesel, and natural gas as feed stocks for various industries, power generation, and heating) are not showing material increases.  Although prices are difficult to predict in the current environment, the Company maintains the expectation that demand for crude oil and natural gas will continue to increase for the foreseeable future due to the underling factors that oil and natural gas based commodities are both sources of raw energy and are fuels that are easily portable.

 

Foreign Currency Risk - Our financial results could be affected by factors such as changes in foreign currency exchange rates or weak economic conditions in foreign markets. Because our revenue is reported in U.S. dollars, fluctuating exchange rates of the local currency, when converted into U.S. dollars, may have an adverse impact on our revenue and income. We have not hedged foreign currency exposures related to transactions denominated in currencies other than U.S. dollars. We do not engage in financial transactions for trading or speculative purposes.

 

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 June 30, 2014, 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 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.
	BY:	/s/ Malcolm W. Sherman
		Malcolm W. Sherman
		President, Chief Executive Officer and Principal Financial Officer

 

Dated: August 14, 2014

 

  

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

  

 

15

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