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 x No o
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 x No o (The Registrant does not maintain a website.)
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
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 each of the Registrants classes of common equity, as of the latest practicable date:
This Quarterly Report on Form 10-Q, Financial Statements and Notes to Financial Statements contain forward-looking statements that discuss, among other things, future expectations and projections regarding future developments, operations and financial conditions. All forward-looking statements are based on managements existing beliefs about present and future events outside of managements control and on assumptions that may prove to be incorrect. If any underlying assumptions prove incorrect, our actual results may vary materially from those anticipated, estimated, projected or intended.
See accompanying notes to these unaudited condensed consolidated financial statements.
See accompanying notes to these unaudited condensed consolidated financial statements.
See accompanying notes to these unaudited condensed consolidated financial statements.
Dala Petroleum Corp.
Notes to Condensed Consolidated Financial Statements
December 31, 2014
NOTE 1 ORGANIZATION
Dala Petroleum Corp. (the Company or Dala), formerly known as Westcott Products Corporation, was incorporated as Light Tech, Inc. under the laws of the State of Nevada on May 24, 1984. A subsidiary in the name Westcott Products Corporation was organized by us under the laws of the State of Delaware on June 24, 1986, for the purpose of changing our name and domicile to the State of Delaware. On June 27, 1986, we merged with the Delaware subsidiary, with the survivor being Westcott Products Corporation, a Delaware corporation.
NOTE 2 MERGER
On June 2, 2014, the Company, its newly formed and wholly-owned subsidiary, Dala Acquisition Corp., a Nevada corporation (Merger Subsidiary), and Dala Petroleum Corp., a Nevada corporation (Dala), executed and delivered an Agreement and Plan of Merger (the Merger Agreement), whereby Merger Subsidiary merged with and into Dala, and Dala was the surviving company under the merger and became a wholly-owned subsidiary of Westcott (the Merger) on the closing of the Merger.
Effective June 2, 2014, the respective Boards of Directors of Westcott and Dala, along with Westcott, as the sole stockholder of Merger Subsidiary, and Dalas sole stockholder Chisholm Partners II, LLC, a Louisiana limited liability company (Chisholm II) owning 100% of the outstanding voting securities of Dala approved the Merger by written consent, and the Articles of Merger were filed with the Secretary of State of the State of Nevada on such date, which was the effective date of the Merger. Accordingly, Westcott issued 10,000,000 shares of its common stock in exchange for all of the outstanding shares of common stock of Dala, which was distributed to Dala Petroleums sole shareholder and was then distributed on a pro rata basis to its members.
Immediately after the Merger, there were 12,500,000 outstanding shares of Westcott common stock, with pre-Merger Westcott stockholders owning 2,500,000 of these shares or approximately 20% of the outstanding voting securities of Westcott; and the members of Dalas sole stockholder owning approximately 10,000,000 of these shares or approximately 80% of these outstanding voting securities of Westcott.
Several conditions precedent as set forth in the Merger Agreement were completed prior to the Merger. One critical condition precedent set forth in the Merger Agreement was that Westcott would raise no less than $2,000,000 (the minimum offering) from persons who are accredited investors in consideration of the issuance (or the conversion) of a minimum of 2,000 shares up to a maximum of 2,500 shares of its Series A 6% Convertible Preferred Stock at the offering price of $1,000 per unit.
On June 3, 2014, the Company sold 2,025 units in the offering. Each unit consisted of one share of Series A 6% Convertible Preferred Stock that is convertible at any time at the option of the Holder into common stock at the conversion price of $0.70 per common share based on the total dollar amount invested and 1,429 warrants to purchase common shares of the Company at an exercise price of $1.35 with a life of three years as of the Effective Date, defined as the earliest date of the following to occur: (a) the initial registration statement required by the Offering Documents has been declared effective by the United States Securities and Exchange Commission (the SEC), (b) all of the underlying shares have been sold pursuant to SEC Rule 144 or may be sold pursuant to SEC Rule 144 without the requirement for the Company to be in compliance with the current public information required under SEC Rule 144 and without volume or manner-of-sale restrictions or (c) following the one year anniversary of June 3, 2014.
Dala possesses rights to engage in oil and natural gas exploration and development on approximately 300 leases in north central Kansas, with total acreage of approximately 80,000 acres (the Property). Dala is operating as an early-stage oil exploration company focused on the Property, which has oil potential at depths of less than 6,000 feet. With the Merger, the Company now has these rights.
Prior to the Merger, Westcott was considered a shell company, as defined in SEC Rule 12b-2. Therefore, for financial reporting purposes, the Merger is being accounted for as a reverse-merger and recapitalization of Dala.
NOTE 3 BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements have been prepared without audit, pursuant to the rules and regulations of the SEC, in accordance with accounting principles generally accepted in the United States of America. The interim financial statements reflect all adjustments, consisting of normal recurring adjustments, which, in the opinion of management, are necessary to present a fair statement of the results for the period.
As discussed above in Note 2, the Company merged with Dala Petroleum Corp., a Nevada corporation (Dala) on June 2, 2014 (the Merger). Dala is focused on the acquisition and development of oil and natural gas resources in the United States. Prior to the Merger, Westcott was considered a shell company, as defined in SEC Rule 12b-2. For financial reporting purposes, the Merger represents a reverse merger rather than a business combination. Consequently, the assets and liabilities and the operations that are reflected in the historical financial statements are those of Dala immediately following the consummation of the reverse merger.
As Dalas date of Inception was January 17, 2014 (Inception), the Condensed Consolidated Balance Sheet as of September 30, 2014 includes the activity for Dala since that date and the activity of Westcott since June 2, 2014. Financial statements are not presented for comparative purposes for the Condensed Consolidated Statements of Operations and Condensed Consolidated Statement of Cash Flow, as Dala was not in existence in the comparative prior year period. All share and per-share amounts in these financial statements have been recast to reflect the continuing entity common stock.
Use of Estimates
The timely preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ significantly from those estimates.
Fair Value of Financial Instruments
Fair value is defined 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. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The Company uses a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value which are the following:
Level 1 Unadjusted quoted prices in active markets that are accessible at measurement date for identical assets or liabilities.
Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities and less observable from objective sources.
Oil and Natural Gas Properties
The Company follows the full cost method of accounting for oil and natural gas operations whereby all costs related to the exploration and development of oil and natural gas properties are initially capitalized into a single cost center (full cost pool). Such costs include land acquisition costs, a portion of employee salaries related to property development, seismic costs, geological and geophysical expenses, carrying charges on non-producing properties, costs of drilling directly related to acquisition, and exploration activities. Internal salaries are capitalized based on employee time allocated to the acquisition of leaseholds and development of oil and natural gas properties. The Company did not capitalize interest for the period ended December 31, 2014.
Proceeds from property sales will generally be credited to the full cost pool, with no gain or loss recognized, unless such a sale would significantly alter the relationship between capitalized costs and the proved reserves attributable to these costs. During the three months ended December 31, 2014, the Company sold one leased property for $4,000, for which no gain or loss was recognized.
The Company assesses all items classified as unproved property on a quarterly basis for possible impairment or reduction in value. 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 an impairment, the cumulative drilling costs incurred to date for such property and all or a portion of the associated leasehold costs are transferred to the full cost pool and are then subject to depletion and amortization. The costs of drilling exploratory dry holes are included in the amortization base immediately upon determination that the well is dry.
Capitalized costs associated with impaired properties and properties having proved reserves, estimated future development costs, and asset retirement costs under Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 410-20-25 are depleted and amortized on the unit-of-production method based on the estimated gross proved reserves. The costs of unproved properties are withheld from the depletion base until such time as they are developed, impaired, or abandoned.
Under the full cost method of accounting, capitalized oil and natural gas property costs less accumulated depletion, net of deferred income taxes, may not exceed a ceiling amount equal to the present value, discounted at 10%, of estimated future net revenues from proved oil and natural gas reserves plus the cost of unproved properties not subject to amortization (without regard to estimates of fair value), or estimated fair value, if lower, of unproved properties that are subject to amortization. Should capitalized costs exceed this ceiling, which is tested on a quarterly basis, an impairment is recognized. The present value of estimated future net revenues is computed by applying prices based on a 12-month unweighted average of the oil and natural gas prices in effect on the first day of each month, less estimated future expenditures to be incurred in developing and producing the proved reserves (assuming the continuation of existing economic conditions), less any applicable future taxes.
During the three months ended December 31, 2014, the Company incurred $101,134 related to G&G cost directly related to the properties owned and added to our cost pool for the period of unproved oil and gas properties. During the three months ended December 31, 2014, the Company incurred $362,470 in oil and natural gas expenditures, which is comprised of approximately $75,472 in professional consulting fees, $63,297 in costs related to due diligence on prospective properties which as of the end of the quarterly period have yet to be acquired and $122,567 in dry hole costs related to exploration efforts directly related to our leased properties. The $75,472 and $63,297 in expenses were properly capitalized, however, were subsequently impaired as the costs could not be directly associated with any specific unevaluated properties owned. Under the full cost method of accounting, if G&G costs cannot be directly associated with specific unevaluated properties owned, they shall be included in the amortization base as incurred. Additionally, the cost associated with the dry holes were also impaired and written off during the current period. As the Company has no proved reserves as of December 31, 2014, any balance in the amortization base is effectively impaired under the ceiling test. These costs were classified as impaired as of December 31, 2014 and are included within operating expenses in the statement of operations.
As of December 31, 2014, the Companys oil and natural gas properties of $1,996,081 million were all classified as unproved.
The Company recognizes oil and natural gas revenues from our interests in producing wells when production is delivered to, and title has transferred to, the purchaser and to the extent the selling price is reasonably determinable.
The Company uses the sales method of accounting for balancing of natural gas production and would recognize a liability if the existing proven reserves were not adequate to cover the current imbalance situation. As of the three months ending December 31, 2014, no revenue has been recognized as all wells are still unproved and non-producing.
Asset Retirement Obligation
Asset retirement obligation (ARO) reflects the estimated present value of the amount of dismantlement, removal, site reclamation and similar activities associated with the Company's oil and natural gas properties. Inherent in the fair value calculation of the ARO are numerous assumptions and judgments including the ultimate settlement amounts, inflation factors, credit adjusted discount rates, timing of settlement and changes in the legal, regulatory, environmental and political environments. As of December 31, 2014, the Company had no ARO liability as no wells have been established.
The Company records stock based compensation in accordance with the guidance in ASC 718 which requires the Company to recognize expenses related to the fair value of its employee stock option awards. This requires that such transactions be accounted for using a fair-value-based method. The Company recognizes the cost of all share-based awards on a graded vesting basis over the vesting period of the award.
The Company accounts for equity instruments issued in exchange for the receipt of goods or services from other than employees in accordance with ASC 718-10 and the conclusions reached by the ASC 505-50. Costs are measured at the estimated fair market value of the consideration received or the estimated fair value of the equity instruments issued, whichever is more reliably measurable. The value of equity instruments issued for consideration other than employee services is determined on the earliest of a performance commitment or completion of performance by the provider of goods or services as defined by ASC 505-50.
The Company follows ASC Topic 740 for recording the provision for income taxes. Deferred tax assets and liabilities are computed based upon the difference between the financial statement and income tax basis of assets and liabilities using the enacted marginal tax rate applicable when the related asset or liability is expected to be realized or settled. Deferred income tax expenses or benefits are based on the changes in the asset or liability each period. If available evidence suggests that it is more likely than not that some portion or all of the deferred tax assets will not be realized, a valuation allowance is required to reduce the deferred tax assets to the amount that is more likely than not to be realized. Future changes in such valuation allowance are included in the provision for deferred income taxes in the period of change.
Deferred income taxes may arise from temporary differences resulting from income and expense items reported for financial accounting and tax purposes in different periods. Deferred taxes are classified as current or non-current, depending on the classification of assets and liabilities to which they relate. Deferred taxes arising from temporary differences that are not related to an asset or liability are classified as current or non-current depending on the periods in which the temporary differences are expected to reverse.
The Company applies a more-likely-than-not recognition threshold for all tax uncertainties. ASC Topic 740 only allows the recognition of those tax benefits that have a greater than fifty percent likelihood of being sustained upon examination by the taxing authorities. As of December 31, 2014, the Company reviewed its tax positions and determined there were no outstanding, or retroactive tax positions with less than a 50% likelihood of being sustained upon examination by the taxing authorities, therefore this standard has not had a material effect on the Company.
Loss per Share
The Company follows ASC Topic 260 to account for the loss per share. Basic loss per common share calculations are determined by dividing net loss by the weighted average number of shares of common stock outstanding during the period. Diluted loss per common share calculations are determined by dividing net loss by the weighted average number of common shares and dilutive common share equivalents outstanding. During periods when common stock equivalents, if any, are anti-dilutive they are not considered in the computation. As the Company has incurred losses for the period ended December 31, 2014, the potentially dilutive shares totaling 6,362,296 are anti-dilutive and are thus not added into the loss per share calculations.
NOTE 4 RECENT ACCOUNTING PRONOUNCEMENTS
In May 2014, the FASB issued Accounting Standards Update No. 2014-09 (ASU No. 2014-09), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in GAAP when it becomes effective. The new standard is effective for annual reporting periods beginning after December 15, 2016. Early application is not permitted. The standard permits the use of either the retrospective or cumulative effect transition method. The Company is evaluating the effect that ASU 2014-09 will have on its consolidated financial statements and related disclosures. The Company has not yet selected a transition method nor has it determined the effect of the standard on its ongoing financial reporting.
In June 2014, the FASB issued Accounting Standards Update No. 2014-10 (ASU No. 2014-10), which eliminated the definition of a Development Stage Entity and the related reporting requirements. ASU No. 2014-10 is effective for annual reporting periods beginning after December 15, 2014, with early adoption allowed. The Company chose to adopt ASU No. 2014-10 early, effective in its financial statements for the year ended September 30, 2014.
In August 2014, the FASB issued Accounting Standards Update No. 2014-15, (ASU No. 2014-15). The guidance requires management to perform an evaluation each annual and interim reporting period of whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entitys ability to continue as a going concern within the one year period after the date that the financial statements are issued. If such conditions are identified, the guidance requires an entity to provide certain disclosures about the principal conditions or events that gave rise to the substantial doubt about the entitys ability to continue as a going concern, managements evaluation of the significance of those conditions or events in relation to the entitys ability to meet its obligations and managements plans to alleviate or mitigate substantial doubt about the entitys ability to continue as a going concern. The guidance is effective for the first annual period ending after December 15, 2016 and interim periods thereafter. The Company currently does not expect the adoption of ASU No. 2014-15 to have a material impact on its financial statements and does not anticipate early adoption of this pronouncement.
In November 2014, the FASB issued Accounting Standards Update No. 2014-16, (ASU No. 2014-16). This update amends existing guidance with the objective to eliminate the use of different methods in practice with respect to the consideration of redemption features in relation to other features when determining whether the nature of a host contract is more akin to debt or equity and thereby reduce existing diversity under GAAP in accounting for hybrid financial instruments issued in the form of a share. The amendments clarify how current GAAP should be interpreted in evaluating the economic characteristics and risks of a host contract in a hybrid financial instrument that is issued in the form of a share. The amendments clarify that no single term or feature would necessarily determine the economic characteristics and risks of a host contract, but rather, the nature of the host contract depends upon the economic characteristics and risks of the entire hybrid financial instrument. In addition, the amendments in this update clarify that, in evaluating the nature of a host contract, an entity should assess the substance of the relevant terms and features when considering how to weight those terms and features. The guidance applies to all entities that are issuers of, or investor in, hybrid instruments that are issued in the form of a share. The effects of initially adopting the amendments in this update should be applied on a modified retrospective basis to existing hybrid financial instruments issued in the form of a share as of the beginning of the fiscal year for which the amendments are effective. Retrospective application is permitted to all relevant prior periods. The updates in this pronouncement are effective for public entities for fiscal years, and interim periods within those years, beginning after December 15, 2015. The Company is currently evaluating the adoption of ASU No. 2014-16 and the impact of the updates upon the Company. The Company plans on adopting the pronouncement for periods beginning after December 15, 2015 and does not anticipate early adoption of this pronouncement.
In January 2015, the FASB issued Accounting Standards Update No. 2015-01, (ASU No. 2015-01). This update eliminates from GAAP the concept of extraordinary items, reduces complexity in accounting standards and alleviates uncertainty for preparers, auditors, and regulators by eliminating the need to evaluate the appropriate treatment of an unusual and/or infrequent item. The presentation and disclosure guidance for items that are unusual in nature and occur infrequently is retained and is expanded upon within this guidance to include items that are both unusual in nature and infrequent. Retrospective application is permitted to all relevant prior periods. The amendments in this update are effective for fiscal years, and interim periods within those years, beginning after December 15, 2015. The Company is currently evaluating the adoption of ASU No. 2015-01 and the impact of the updates upon the Company. The Company plans on adopting the pronouncement for periods beginning after December 15, 2015 and does not anticipate early adoption of this pronouncement.
The company has evaluated all other recent accounting pronouncements and believes that none of them will have a significant effect on the companys financial statement.
NOTE 5 RELATED PARTY TRANSACTIONS
On June 2, 2014, the Company issued 10,000,000 shares of its common stock to Chisholm II, Dalas sole stockholder prior to the Merger, in exchange for oil and natural gas assets. As the leases were transferred to the Company by the sole shareholder of the Company, the leases were recorded based on the historical cost basis of the contributing shareholder of $1,898,947.
The Company has a service agreement with Chisholm II to use its existing technical exploration team for general and administrative-type services on behalf of the Company. The Company is obligated to pay Chisholm II $25,000 per month plus expenses for these services. For the three months ended December 31, 2014, the Company paid approximately $75,000 for its services.
NOTE 6 PREFERRED CONVERTIBLE STOCK AND WARRANTS
As discussed above in Note 2, the Company has sold 2,025 units of Series A 6% Convertible Preferred Stock and related warrants at the price of $1,000 per unit. Proceeds received totaled $1,990,000 (net of offering costs of $35,000). Each unit consisted of one share of Series A 6% Convertible Preferred Stock that is convertible at any time at the option of the holder into common stock at the conversion price of $0.70 per common share based on the total dollar amount invested (subject to adjustment) and 1,429 warrants to purchase common shares of the Company at an exercise price of $1.35 for three years of the Effective Date, defined as the earliest date of the following to occur: (a) the initial registration statement required by the Offering Documents has been declared effective by the United States Securities and Exchange Commission (the SEC), (b) all of the underlying shares have been sold pursuant to SEC Rule 144 or may be sold pursuant to SEC Rule 144 without the requirement for the Company to be in compliance with the current public information required under SEC Rule 144 and without volume or manner-of-sale restrictions or (c) following the one year anniversary of June 3, 2014. A total of 2,008 warrants, exercisable into 2,868,571 shares of common stock, remain issued and outstanding as of December 31, 2014. The 6% per annum dividends are cumulative and payable quarterly in cash or, at the Companys option, in shares of the Companys common stock.
As the Series A 6% Convertible Preferred Stock is contingently redeemable at a fixed price and such redemption would not be solely within the control of the Company, the preferred stock is classified outside of stockholders equity, as temporary equity between liabilities and stockholders equity on the Companys condensed consolidated balance sheet.
On November 17, 2014, one of the Companys shareholders of Series A 6% Convertible Preferred Stock, Chienn Consulting Company, converted 17 shares of its Series A 6% Convertible Preferred Stock into 24,286 shares of the Companys common stock. As of December 31, 2014, 2,008 Convertible Preferred Shares remain outstanding.
NOTE 7 SHAREHOLDERS EQUITY
On June 2, 2014, the Company issued 10,000,000 shares of its common stock to Chisholm II in exchange for oil and natural gas assets recorded at $1,898,947.
As discussed above, the Company completed a reverse merger with Dala, with Dala being the acquirer for financial reporting purposes. At the date of the Merger, Westcott had 2,500,000 shares of common stock outstanding, which are now outstanding for the merged Company. The total amount of shares issued and outstanding post-Merger, as of June 30, 2014 was 12,500,000 shares of common stock.
As discussed above, in November 2014, a shareholder converted 17 shares of Series A 6% convertible preferred shares of common stock into 24,286 common shares. As of December 31, 2014 there are a total of 12,524,286 common shares outstanding.
On June 2, 2014, the Company granted options to acquire common shares to its Chief Executive Officer and two directors, totaling 600,000 options. The options have an exercise price of $0.70 per share for terms of six years. Of the total stock options, 400,000 vest equally over the next four years and 200,000 vest equally over the next two years. The total fair value of these options at the date of grant was estimated to be $400,087, and was determined using the Black-Scholes option pricing model with an expected lives of 4.25 (four-year vesting) and 3.75 years (two-year vesting), a risk-free interest rate of 1.92%, a dividend yield of 0% and expected volatility of 195%. The expected terms were determined using the simplified method. During the period from Inception to December 31, 2014, the Company recorded approximately $33,261 of stock-based compensation expense.
The following is a summary of the status of all of the Companys stock options as of December 31, 2014 and changes during the period ended on that date:
As of December 31, 2014, the intrinsic value of outstanding stock options was $384,000.
The Series A 6% Convertible Preferred Stock issued by the Company have a full-ratchet down-round provision on the exercise price, in which the investors conversion price is adjusted down to the share price of future financings. Therefore, following ASC 815-40, the warrants and the conversion feature of the preferred stock are not considered indexed to our own stock, and as such, the fair value of the embedded derivative liabilities are reflected on the balance sheet and all future changes in the fair value of these warrants and the conversion feature of the preferred stock will be recognized currently in earnings in our consolidated statement of operations under the caption Loss on derivative valuation until such time as the warrants are exercised or expire and until such time as the preferred stock is converted. The fair value of the conversion features of the preferred stock and the warrants was $2,371,970. The fair value of the full-ratchet down-round provision of the preferred stock and warrants was $96,524. The total derivative valuation as of December 31, 2014 was $2,468,494. These amounts were determined using a multi-nominal lattice model with the following assumptions as described below.
Assumption of future stock offerings by the Company of zero in the first six months of the term and 100% in the next twelve months, with zero probability of being a down round
Assumption of future stock offerings by the Company of zero in the first six months of the term and 100% in the next twelve months, with zero probability of being a down round
The Company, as a lessee of oil and gas properties, is subject to various federal, state and local laws and regulations relating to discharge of materials into, and protection of, the environment. These laws and regulations may, among other things, impose liability on the lessee under an oil and gas lease for the cost of pollution clean-up resulting from operations and subject the lessee to liability for pollution damages. We believe our operations are in substantial compliance with existing requirements of governmental bodies.
Our revenues and future profitability are substantially dependent on our ability to generate revenue from our operations. In order to endeavor to successfully meet our goals the Company plans to execute or implement the following measures. Our plan of operation for the coming year is to implement our business strategy to create value for our shareholders. Key elements of our business strategy will include:
Development and exploration of our existing oil and gas leases in the North American Rift System is our primary objective. Our current acreage position consists of 100% working interest and will require the Company to register as a licensed Oil and Gas Operator within the State of Kansas;
To selectively participate, on a non-operated basis, in seismically driven prospects that correspond geologically with our existing footprint within the state of Kansas;
Explore opportunities in the West Texas Permian Basin and Eddy County, New Mexico, where our aggregation methods will allow us to access oil reserves too small for other operators in the area to attempt to collect;
Our goal is to remain financially strong, yet flexible, through the prudent management of our current limited cash resources;
To complement our organic growth strategy, we will seek to aggregate any future production in order to accelerate the Companys production and reserve profile;
Once the Company has reached net level of daily production of 100 barrels of oil per day, seeking to use a variety of derivatives to lock in current value and hedge against any potential downturn in crude pricing;
Retain qualified personnel to carry out the Companys growth strategy.
During the three months ended December 31, 2014, the Company incurred $362,470 in oil and gas expenditures of which $244,863 were paid in cash and $117,607 were accrued.
The multiple prospects on our position, both operated and non-operated, are all independent from an exploratory point of view, meaning failure or success in one prospect has no bearing on the other prospects. The two major challenges we face when drilling are structure and porosity (stratigraphy). The Nighswonger #9-1 (Graham County, Kansas) was drilled and tested, but it was determined this amount of recovery would likely result in a well that would not pay out the completion costs, so the decision was made to plug and abandon. The Parks #7-1 (Graham County, Kansas) was drilled, however, based upon drilling results, the decision was made also to plug and abandon this well. Dala held a 25% non-operated working interest in both of these wells.
As a result of the dry holes encountered, the Company immediately expensed $122,567 of cost capitalized as impairment expense in the current period. We are not discouraged by the results of these two wells as all prospects have different risk elements, especially our new prospects. We participated in these two wells on a 25% non-operated working interest basis. These wells were located within the Central Kansas Uplift.
Our common stock currently trades on the Over-the-Counter Bulletin Board (OTCBB) under the symbol DALP.
Results of Operations
Three Months Ended December 31, 2014
During the three months ended December 31, 2014, we had no revenues. We incurred $237,677 of general and administrative expenses, which included approximately $80,906 of legal and accounting fees, and $100,493 officer and director compensation expense (to include approximately $33,261 of stock-based compensation expense). Additionally, we paid $30,121 in quarterly dividends on our preferred stock and $91,333 in registration rights payments. As a result, we incurred a net loss attributable to common stock of $(0.02) per share for the three months ended December 31, 2014.
Liquidity and Capital Requirements
We had $610,446 in cash on hand and positive working capital of $449,045 at December 31, 2014. We believe these funds will be sufficient to enable us to fund our principle business operations through at least the next six months. The Company plans to raise additional capital from the sale of its securities (including, without limitation common stock, preferred stock, promissory notes, etc.) and achieve operating revenues with the development of its oil and gas properties.
Cash flow used in operating activities was $296,594 during these months ended December 31, 2014, primarily the result of our $246,626 loss for the period, and the impact of $343,520 related to our gain from our adjustment to the fair value of our derivative warrant liability. Partially offsetting these amounts was $261,336 in impairment charges related to our oil and natural gas activities.
Cash flow used in investing activities was $244,863 in cash during these months ended December 31, 2014, which was the result of additional expenditures related to geological and geophysical, and acquisition cost incurred during the period in our efforts to locate reserves in our oil and gas properties.
Cash flow used in financing activities was $30,121 in cash during these months ended December 31, 2014, related to $30,121 in payments of quarterly dividends on the preferred stock.
Off-Balance Sheet Arrangements
*Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed furnished and not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, or deemed furnished and not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, and otherwise is not subject to liability under these sections.
Pursuant to the requirements of the Securities Exchange Act of 1934 this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.