U.S. 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: February 28, 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 000-54526

 

VIRTUS OIL AND GAS CORP.

(Name of Small Business Issuer in its charter)

 

Nevada		46-0524121
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

 

1517 San Jacinto Street, Houston, Texas 77002

(Address of principal executive offices)

 

(281) 806-5000

Issuer’s telephone number

 

The Gas Tower, 555 West 5th Street, 31st Floor, Los Angeles, California 90013

(Former name, former address and former

fiscal year, if changed since last report)

 

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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

 

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 definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer	o		Accelerated filer	o
Non-accelerated filer (Do not check if a smaller reporting company)	o		Smaller reporting company	x

 

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

 

State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: As of April 2, 2015, the issuer had 50,794,920 shares of common stock, par value $0.001, issued and outstanding.

 

 

VIRTUS OIL AND GAS CORP.

QUARTERLY REPORT ON FORM 10-Q

FOR THE PERIOD ENDED FEBRUARY 28, 2015

 

TABLE OF CONTENTS

 

PART I - FINANCIAL INFORMATION

 

		PAGE #
Item 1.	Financial Statements
	Condensed Balance Sheets as of February 28, 2015 and November 30, 2014 (Unaudited)	3
	Condensed Statements of Operations for the Three Months ended February 28, 2015 and 2014 (Unaudited)	4
	Condensed Statements of Cash Flows for the Three Months ended February 28, 2015 and 2014 (Unaudited)	5
	Notes to Condensed Financial Statements (Unaudited)	6-11
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	12-15
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	16
Item 4.	Controls and Procedures	16
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	17
Item 1A.	Risk Factors	17
Item 2.	Unregistered Sales of Securities and Use of Proceeds	17
Item 3.	Defaults Upon Senior Securities	17
Item 4.	Mine Safety Disclosures	17
Item 5.	Other Information	17
Item 6.	Exhibits	17
	Signatures	18

 

 

 

PART I - FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

VIRTUS OIL AND GAS CORP.

CONDENSED BALANCE SHEETS

(Unaudited)

 

		February 28,				November 30,
		2015				2014
ASSETS
Current assets
Cash		$	–			$	175,869
Total current assets			–				175,869
Property and equipment, net			2,702				2,873
Oil and gas properties, net			706,717				659,331
Total assets		$	709,419			$	838,073
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses		$	509,113			$	346,398
Total current liabilities			509,113				346,398
Commitments
Stockholders' equity:
Common stock, $0.001 par value, 150,000,000 shares authorized 50,794,920 and 50,110,064 shares issued and outstanding at February 28, 2015 and November 30, 2014, respectively			50,795				50,110
Additional paid-in capital			3,520,249				3,025,102
Stock subscription payable			60,000				310,000
Accumulated deficit			(3,430,738	)			(2,893,537	)
Total stockholders' equity			200,306				491,675
Total liabilities and stockholders' equity		$	709,419			$	838,073

 

See Accompanying Notes to Financial Statements.

 

 

VIRTUS OIL AND GAS CORP.

CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)

 

		For the Three Months
		Ended February 28,
		2015				2014
Revenue		$	–			$	–
Operating expenses:
General and administrative			433,672				651,633
Professional fees			103,529				46,344
Total operating expenses			537,201				697,977
Net operating loss			(537,201	)			(697,977	)
Other income (expense):
Interest expense			–				(2,362	)
Total other income (expense)			–				(2,362	)
Net loss		$	(537,201	)		$	(700,339	)
Weighted average number of common shares outstanding - basic and fully diluted			50,310,337				47,979,775
Net loss per share - basic and fully diluted		$	(0.01	)		$	(0.01	)

 

 

See Accompanying Notes to Financial Statements.

 

 

VIRTUS OIL AND GAS CORP.

CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

 

		For the Three
		Months Ended February 28,
		2015				2014
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss		$	(537,201	)		$	(700,339	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation expense			171				72
Share based compensation expense			245,832				566,667
Decrease (increase) in assets:
Prepaid expenses			–				374
Increase (decrease) in liabilities:
Accounts payable			162,715				(33,664	)
Accrued expenses			–				24,675
Accrued expenses, related party			–				2,362
Net cash used in operating activities			(128,483	)			(139,853	)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of oil and gas properties			(47,386	)			(97,734	)
Net cash used in investing activities			(47,386	)			(97,734	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of common stock			–				300,000
Net cash provided by financing activities			–				300,000
NET CHANGE IN CASH			(175,869	)			62,413
CASH AT BEGINNING OF PERIOD			175,869				486
CASH AT END OF PERIOD		$	–			$	62,899
SUPPLEMENTAL INFORMATION:
Interest paid		$	–			$	–
Income taxes paid		$	–			$	–

 

See Accompanying Notes to Financial Statements.

 

 

VIRTUS OIL AND GAS CORP.

Notes to Condensed Financial Statements

(Unaudited)

 

Note 1 - Nature of Business and Significant Accounting Policies 

 

Nature of Business

Virtus Oil and Gas Corp. (“the Company”) was incorporated in the state of Nevada on September 30, 2009 (“Inception”). The Company was originally formed as Curry Gold Corp to become an operator and franchisor of fast-casual food catering vans that capitalize on the growing trend of food to go (convenience food) with its Currywurst product, a product native to Germany, and market it through Switzerland and into major metropolitan US cities. On July 17, 2012, however, the Company abandoned its plans to enter into the catering van business and is now an oil and gas exploration and production company.

 

We are an oil and gas exploration company and have not significantly commenced our planned principal operations. Our operations to date have been devoted primarily to startup and development activities, which include forming our entity, developing our business plan, registering with the SEC and listing our Common Stock on the OTCBB exchange under the symbol, “VOIL”. In October 2013, the Company acquired an interest in an oil and gas property and is focusing its efforts on developing this property and identifying additional properties in which to invest.

 

Our properties are located in Iron County in southern Utah. 

 

Basis of Presentation

The financial statements included herein, presented in accordance with United States generally accepted accounting principles and is stated in US currency have been prepared by the Company pursuant to the rules and regulations of the SEC and should be read in conjunction with the audited financial statements and notes thereto contained in the Company's annual report for the year ended November 30, 2014 filed with the SEC on Form 10-K. 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 ended November 30, 2014 as reported in form 10-K have been omitted.

 

The Company has adopted a fiscal year end of November 30.

 

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

Cash and Cash Equivalents

We maintain cash balances in non-interest-bearing accounts, which do not currently exceed federally insured limits. For the purpose of the statements of cash flows, all highly liquid investments with an original maturity of three months or less are considered to be cash equivalents.

 

Stock Based Compensation

Stock-based awards to non-employees are accounted for using the fair value method.

 

The Company adopted provisions which require that we measure and recognize compensation expense at an amount equal to the fair value of share-based payments granted under compensation arrangements.

 

The Company has adopted the “modified prospective” method, which results in no restatement of prior period amounts. This method would apply to all awards granted or modified after the date of adoption. In addition, compensation expense must be recognized for any unvested stock option awards outstanding as of the date of adoption on a straight-line basis over the remaining vesting period. The Company will calculate the fair value of options using a Black-Scholes option pricing model. The Company does not currently have any outstanding options subject to future vesting therefore no charge is required for the periods presented. Our method also requires the benefits of tax deductions in excess of recognized compensation expense to be reported in the Statement of Cash Flows as a financing cash inflow rather than an operating cash inflow. In addition, our method required a modification to the Company’s calculation of the dilutive effect of stock option awards on earnings per share. For companies that are using the “modified prospective” method, disclosure of pro forma information for periods prior to adoption must continue to be made.

 

 

VIRTUS OIL AND GAS CORP.

Notes to Condensed Financial Statements

(Unaudited)

 

Note 1 - Nature of Business and Significant Accounting Policies (cont’d)

 

Accounting for Oil and Gas Properties

The Company utilizes the full cost method to account for its investment in oil and gas properties.  Accordingly, all costs associated with acquisition, exploration and development of oil and gas reserves, including such costs as leasehold acquisition costs, professional fees incurred for the lease acquisitions, capitalized interest costs relating to properties, geological expenditures, and tangible and intangible development costs (including direct internal costs), are capitalized into the full cost pool. When the Company commences production from established proven oil and gas reserves, capitalized costs, including estimated future costs to develop the reserves and estimated abandonment costs, will be depleted on the units-of-production  method using estimates of proven reserves. Investments in unproved properties and major development projects, including capitalized interest if any, are not depleted until proven reserves associated with the projects can be determined.  If the future exploration of unproven properties is determined to be uneconomical, the amount of such properties is added to the capital costs to be depleted.  As of February 28, 2015 and November 30, 2014, the Company's oil and gas properties consisted of capitalized acquisition and exploration costs for unproved mineral rights.

 

Fair Value of Financial Instruments

Financial instruments consist principally of cash, trade and related party payables and accrued liabilities. The carrying amounts of such financial instruments in the accompanying balance sheets approximate their fair values due to their relatively short-term nature. It is management’s opinion that the Company is not exposed to significant currency or credit risks arising from these financial instruments.

 

Basic and Diluted Loss per Share

The basic net loss per common share is computed by dividing the net loss by the weighted average number of common shares outstanding. Diluted net loss per common share is computed by dividing the net loss adjusted on an “as if converted” basis, by the weighted average number of common shares outstanding plus potential dilutive securities. For the periods presented, potential dilutive securities had an anti-dilutive effect and were not included in the calculation of diluted net loss per common share.

 

Recent Accounting Pronouncements

Management does not anticipate that the recently issued but not yet effective accounting pronouncements will materially impact the Company’s financial condition.

 

Note 2 - Going Concern

 

As shown in the accompanying financial statements, the Company has no revenues and has incurred continuous losses from operations, had an accumulated deficit of $3,430,738 and a working capital deficit of $509,113 at February 28, 2015. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management is actively pursuing new ventures to increase revenues. In addition, the Company is currently seeking additional sources of capital to fund short term operations. The Company, however, is dependent upon its ability to secure equity and/or debt financing and there are no assurances that the Company will be successful, therefore, without sufficient financing it would be unlikely for the Company to continue as a going concern.

 

The financial statements do not include any adjustments that might result from the outcome of any uncertainty as to the Company’s ability to continue as a going concern. The financial statements also do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classifications of liabilities that might be necessary should the Company be unable to continue as a going concern.

 

 

  

VIRTUS OIL AND GAS CORP.

Notes to Condensed Financial Statements

(Unaudited)

  

Note 3 - Related Party

 

On August 1, 2013, the Company entered into an engagement letter with Clear Financial Solutions, Inc., a Texas corporation (Clear Financial). On December 5, 2013, the Company and Clear Financial entered into Amendment No. 1 to Engagement Letter. Under the engagement letter and the amendment (collectively, the “Engagement Letter”) Clear Financial will provide certain financial consulting services to the Company and Mr. Steven M. Plumb, founder and President of Clear Financial, will serve as the Chief Financial Officer of the Company. Clear Financial will, among other things, prepare and review the Company’s financial statements, oversee internal accounting controls and provide advice on generally accepted accounting principles. In addition, As compensation for the services provided, the Company will pay Clear Financial a fee of $4,500 per month and has agreed to issue up to 1,000,000 shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”), to Mr. Plumb. The Engagement Letter has an initial term of one year and will automatically renew for successive one-year periods until terminated by either party upon 60 days’ written notice prior to the end of the then current term. Clear Financial was paid $15,000 for Mr. Plumb’s services during the period ended February 28, 2015. In addition, in February 2015, the Company issued 500,000 shares of the Company’s common stock to Mr. Plumb, having a fair market value of $400,000 on the date of grant, which the Company recorded $366,667 as compensation expense during the year ended November 30, 2014. The Company recognized the remaining $33,333 in compensation expense during the three months ended February 28, 2015. 

 

The Engagement Letter further provides that Clear Financial may from time to time bring oil and gas investment opportunities to the Company’s attention. Pursuant to the Engagement Letter, the Company will assign a 1% carried interest to each of Mr. Plumb and/or Mr. Jerry Walters, a principal of Clear Financial, with respect to each oil and gas investment opportunity that Messrs. Plumb and/or Walters bring to the Company’s attention and in which the Company invests.

 

On May 13, 2014, the Company appointed Rupert Ireland to serve as President, Chief Executive Officer, Secretary and Treasurer of the Company, effective immediately. In connection with Mr. Ireland’s appointment as President and Chief Executive Officer, the Company entered into an Employment Agreement, dated May 13, 2014, with Mr. Ireland. Pursuant to the Employment Agreement, Mr. Ireland will be paid a base salary of $120,000 per year and a signing bonus of $5,000. Mr. Ireland will also be entitled to receive up to 3,000,000 shares of the Company’s common stock, $0.001 par value per share (“Common Stock”), to be issued in increments of 1,000,000 shares on May 13 in 2015, 2016 and 2017, if he continues to be employed. The Employment Agreement has an initial term of three years and will automatically renew for successive one-year periods until earlier terminated. The Employment Agreement may be terminated (i) at any time by the Company for “cause,” (ii) upon no less than 60 days’ written notice by either party for any reason, or (iii) upon no less than 30 days’ written notice by either party at the end of the original 3-year term or any renewal term. The Employment Agreement also terminates immediately upon Mr. Ireland’s death or disability.

 

If Mr. Ireland’s employment is terminated for “cause” by the Company, or if he voluntarily resigns, then he will forfeit any shares of Common Stock that have not yet been issued by the Company as of the date of such termination or resignation. If Mr. Ireland’s employment is terminated for any other reason, he will be entitled to receive the full 3,000,000 shares of Common Stock. The Employment Agreement defines “cause” as the willful and continued failure by Mr. Ireland to perform his duties, the conviction of a felony, or any other material conduct that is contrary to the best interests of the Company or adversely affects the reputation of the Company.

 

The fair market value of Mr. Ireland’s stock award was $2,550,000 on the date of grant. The Company is recognizing $70,833 per month in compensation related expense. The Company recognized $212,499 in expense related to Mr. Ireland’s stock grant during the three months ended February 28, 2015.

 

 

 

 

VIRTUS OIL AND GAS CORP.

Notes to Condensed Financial Statements

(Unaudited)

  

Note 4 - Oil and gas properties, net

 

Oil and gas properties consist of the following at February 28, 2015 and November 30, 2014, respectively:

 

		February 28,				November 30,
		2015				2014
Oil and gas properties:
Beaver County, Utah Prospect		$	30,000			$	30,000
Iron County, Utah Prospect			706,717				659,331
Total oil and gas properties			736,717				689,331
Less impairment			(30,000	)			(30,000	)
Oil and gas properties, net		$	706,717			$	659,331

 

Tidewater Agreement

 

On August 19, 2014, Virtus Oil & Gas Corp. completed the acquisition of oil and gas leases issued by the U.S. Bureau of Land Management (the “BLM”) covering approximately 36,787 acres in Iron County, Utah (the “Tidewater Leases”) pursuant to a letter agreement entered into with Tidewater Oil & Gas Company, LLC (“Tidewater”) as of November 13, 2013 (as amended, the “Tidewater Agreement”).  The acreage subject to the Tidewater Leases is located in an area known as the Parowan Prospect in the Central Utah Overthrust region of southwestern Utah. Virtus acquired an 87.5% working interest and an 80% net revenue interest in the Leases.

 

The aggregate purchase price of the Leases was $290,000, which was paid in installments beginning in December 2013. Virtus made the final payment of the purchase price on August 1, 2014, and thereafter the Company and Tidewater subsequently prepared and executed the appropriate assignments and other forms required by the BLM and the county clerk to reflect the assignment of the Leases from Tidewater to Virtus. Tidewater’s sale of the leases was subject to the approval of the U.S. District Court for the District of Colorado (the “Bankruptcy Court”), which is presiding over Tidewater’s Chapter 11 bankruptcy proceedings. The Bankruptcy Court approved the sale of the leases on December 11, 2013.

 

The Tidewater Agreement contemplates the drilling of an initial 12,000 foot vertical test well in the Jurassic-Navajo, Permian-Kaibab formation on the leases. Although Tidewater will retain a 12.5% working interest in the leases, the Company has agreed to pay 100% of the cost of drilling and completing this test well, which is estimated to be approximately $2.5 million. The Company has agreed to pre-pay such costs at least 30 days prior to the spud date, which is expected to be no later than February 3, 2015. However, the Company and Tidewater extended the date to September 1, 2015, by a First Amendment to Letter Agreement dated May 6, 2014. If the Company fails to prepay such costs, it will forfeit its interests in the oil and gas leases and Tidewater will retain the purchase price.

 

During the three months ended February 28, 2015, the Company made payments of $37,386 on expiring leases covered by the Tidewater Agreement, $10,000 for a survey for a drilling location, for a total of $47,386.  

 

 

VIRTUS OIL AND GAS CORP.

Notes to Condensed Financial Statements

(Unaudited)

 

Note 4 - Deposit on Oil and gas properties (cont’d) 

 

TJBB Agreement

 

On September 22, 2014, the Company, made the last payment ($75,000) required for the acquisition of BLM oil and gas leases covering approximately 18,690.50 acres in Iron County, Utah (the “TJBB Leases”) pursuant to a letter agreement with Tom Johnson and Bill Berryman (“TJBB”), dated May 6, 2014 (the “TJBB Agreement”). The total purchase price for the TJBB Leases was $168,215. The acreage subject to the TJBB Leases is also located in an area known as the Parowan Prospect in the Central Utah Overthrust region of southwestern Utah.

 

Pursuant to the TJBB Agreement, the purchase price for the leases was $168,215, which was paid in installments from May through September of 2014. The Company acquired an 87.5% working interest and an 80% net revenue interest in the TJBB Leases. TJBB retained a 12.5% working interest in the TJBB Leases, although the Company agreed to pay 100% of the cost of drilling and completing a 12,000 foot vertical test well in the Jurassic-Navajo, Permian-Kaibab formation by September 1, 2015. The Company’s requirement to drill the initial test well is contained in both the Tidewater Agreement and the TJBB Agreement, and by drilling one well in the noted formation, the Company believes it will have satisfied its initial test well drilling obligation under each of those agreements. If the Company fails to drill and complete the initial test well in the Jurassic-Navajo, Permian-Kaibab formation by the deadline under the TJBB Agreement, the Company will forfeit its interest in the leases covered by both the TJBB Agreement and the Tidewater Agreement.

 

Pioneer Agreement

 

On October 19, 2013, the Company entered into a Purchase Agreement with Pioneer Oil and Gas, pursuant to which the Company agreed to purchase two separate oil and gas leases issued by the BLM covering approximately 4,150 acres in Beaver County, Utah, for an aggregate purchase price of $460,000. The Company made an initial payment of $30,000 to Seller on October 25, 2013, but did not make any subsequent payments because it chose not to pursue development of those leases. On December 23, 2013, the Company delivered written notice to Seller of the Company’s intention to terminate the purchase agreement. As a result, the agreement was terminated by seller in December 2013, and the Company forfeited its initial payment and any rights to the subject leases.

 

Seismic Exchange

 

On July 1, 2014, the Company engaged Seismic Exchange, Inc., a Louisiana corporation (“SEI”), to provide certain two-dimensional seismic data covering approximately 47.44 square miles for an aggregate purchase price of $98,434. The seismic data includes geophysical and geological information along the Parowan Prospect in Iron County, Utah, where the Company had acquired its working interest in oil and gas leases covering an aggregate 55,477.50 acres. The License Agreement has a term of seven years from the effective date of June 12, 2014, subject to earlier termination by SEI upon a material breach by the Company. The term of the Supplemental Agreement attached to the License Agreement will end 20 years after the effective date. The seismic data acquired from SEI is intended to provide the Company with a greater understanding of the subsurface geology and aid its geologists in selecting the optimal location to drill its first well. The Company has had the data reprocessed and integrated with its existing seismic data to outline potential drilling prospects. The Company has selected a drilling location for the first well that it expects to drill in the Parowan Prospect and has applied for a permit to drill this well.

 

Note 5 - Stockholders’ Equity

 

The Company has authorized 150,000,000 shares of $0.001 par value common stock. The Company had 50,794,920 and 50,110,064 shares issued and outstanding at February 28, 2015 and November 30, 2014, respectively.

 

Stock Compensation

The Company has stock based compensation agreements with its senior executives, Rupert Ireland, Brett Murray and Steven Plumb. During the three months ended February 28, 2015, the Company recognized $212,500, $115,102 and $33,333, respectively, as compensation to each executive. Of the total compensation expense of $360,936, $245,832 was recorded as a charge to additional paid in capital and $115,103 was recorded as accrued expense.

 

On January 21, 2015, the Company issued 184,856 to Mablewood Investments, pursuant to the October 30, 2014 Securities Purchase Agreement with Mablewood Investments. The proceeds were received on November 7, 2014, but the shares were not issued until January 21, 2015. The proceeds were recorded as a stock payable as of November 30, 2014.

 

On February 7, 2015, the Company issued 500,000 shares of its $0.001 par value common stock to its chief financial officer per his contract.

 

 

 

Note 6 - Subsequent Events

 

On January 26, 2015, the Company entered into a Securities Purchase Agreement with Mablewood Investments, pursuant to which the Company agreed to issue 187,794 shares of Common Stock to the investor for an aggregate purchase price of $100,000, or $1.88 per share. The proceeds were received on March 9, 2015.

 

On March 23, 2015, the Company created a new subsidiary, Virtus Operations, Inc., a Utah corporation, to act as an operator for its oil and gas properties in Iron County in southern Utah. As of the date of this filing, the subsidiary has no operations or assets.

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

OVERVIEW AND OUTLOOK

 

We are in the oil and gas exploration and production business.

 

We are an oil and gas exploration company and have not significantly commenced our planned principal operations. Our operations to date have been devoted primarily to startup and development activities, which include forming our entity, developing our business plan, registering with the SEC and listing our Common Stock on the OTCBB exchange under the symbol, “VOIL”. In October 2013, the Company acquired an interest in an oil and gas property and is focusing its efforts on developing this property and identifying additional properties in which to invest.

 

We were incorporated in the State of Nevada on September 30, 2009. Our principal administrative office is located at 1517 San Jacinto, Houston, Texas 77002. Our telephone number is (281) 806-5000. Our fiscal year end is November 30.

 

In order for us to commence substantive operations, we will require additional capital. It was our expectation that registration with the SEC and subsequent public listing of our Common Stock might facilitate our efforts in attracting additional capital. Thus far we have been unsuccessful in identifying credible sources of financing despite our efforts.

 

Since the Company’s inception on September 30, 2009 to February 28, 2015, we have not generated any substantive revenues and have incurred a cumulative net loss of $3,430,738.

 

Results of Operations for the Three Months Ended February 28, 2015 and 2014:

 

The following table summarizes selected items from the statements of operations for the three month periods ended February 28, 2015 and 2014.

 

		For the Three Months Ended
		February 28,				February 28,				Increase /
		2015				2014				(Decrease)
Revenues		$	–			$	–			$	–
General and Administrative			433,672				651,633				(217,961	)
Professional Fees			103,529				46,344				57,185
Total Operating Expenses			537,201				697,977				(160,776	)
Net Operating Loss			(537,201	)			(697,977	)			160,776
Total Other Income (Expense)			–				(2,362	)			2,362
Net Loss		$	(537,201	)		$	(700,339	)		$	163,138

 

Revenues:

 

The Company was established on September 30, 2009 and had no revenue during the three month periods ended February 28, 2015 and February 28, 2014.

 

General and Administrative:

 

General and administrative expense was $433,672 for the three months ended February 28, 2015 compared to $651,633 for the three months ended February 28, 2014, a decrease of $217,961. Our general and administrative expenses consisted of share based compensation expense, rents, bank fees, postage and delivery, stock services and travel expenses. The decrease in our general and administrative expenses was primarily due to a reduction in share based compensation of $205,734.

 

 

 

Professional Fees:

 

Professional fees expense was $103,529 for the three months ended February 28, 2015 compared to $46,344 for the three months ended February 28, 2014, an increase of $57,185. The increase in our professional fees was a result of increased investor relations fees of $14,000, increased fees paid to our land man and chief operating officer of $27,000 and increased fees paid to our geologist of $15,000, and a reduction in legal fees of $1,250 during the three months ended February 28, 2015.

 

Net Operating Loss:

 

The net operating loss for the three months ended February 28, 2015 was $537,201 or ($0.01) per share, compared to a net operating loss of $697,977, or ($0.01) per share for the three months ended February 28, 2014, a decrease of $160,776. Our net operating loss decreased primarily due to the decreased share based compensation expense and professional fees incurred in the three months ended February 28, 2015 compared to the three months ended February 28, 2014.

 

Other Expense:

 

Other expense was $0 for the three months ended February 28, 2015, compared to $2,362 for the three months ended February 28, 2014, a decrease of $2,362. The decrease was due to higher interest expense incurred in the prior year and a reduction in debt since that time, thus eliminating interest expense.

 

Net Loss:

 

The net loss for the three months ended February 28, 2015 was $537,201, or ($0.01) per share, compared to a net loss of $700,339, or ($0.01) for the three months ended February 28, 2014, a decrease of $163,138. Our net loss decreased primarily due to the decreased share based compensation expense, legal fees associated with our compliance and reporting services, and increased professional fees.

  

Liquidity and Capital Resources

 

The following table summarizes total assets, accumulated deficit, stockholders’ equity and working capital (deficit) at February 28, 2015 compared to November 30, 2014.

 

		February 28,				November 30,
		2015				2014
Total Assets		$	709,419			$	838,073
Accumulated Deficit		$	(3,430,738	)		$	(2,893,537	)
Stockholders’ Equity		$	200,306			$	491,675
Working Capital Deficit		$	(509,113	)		$	(170,529	)

 

Our principal source of operating capital has been provided from private sales of our Common Stock and debt financing. At February 28, 2015, we had a negative working capital position of $(509,113). As we continue to develop our business and attempt to expand operational activities, we expect to continue to experience net negative cash flows from operations in amounts not now determinable, and will be required to obtain additional financing to fund operations through Common Stock offerings and debt borrowings to the extent necessary to provide working capital. We have and expect to continue to have substantial capital expenditure and working capital needs. We do not now have funds sufficient to fund our operations at their current level for the next twelve months. We need to raise additional cash to fund our operations and implement our business plan. We expect that the additional financing will (if available) take the form of a private placement of equity, although we may be constrained to obtain additional debt financing in lieu thereof. We are maintaining an on-going effort to locate sources of additional funding, without which we will not be able to remain a viable entity. No financing arrangements are currently under contract, and there are no assurances that we will be able to obtain adequate financing. If we are able to obtain the financing required to remain in business, eventually achieving operating profits will require substantially increasing revenues or drastically reducing expenses from their current levels or both. If we are able to obtain the required financing to remain in business, future operating results depend upon a number of factors that are outside of our control.

 

 

 

We anticipate that we may incur operating losses in the next twelve months. Our revenues are not expected to exceed our investment and operating costs in the next twelve months. Our prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in their early stage of operations. To address these risks, we must, among other things, seek growth opportunities through investment, implement and successfully execute our business strategy, respond to competitive developments, and attract, retain and motivate qualified personnel. We cannot assure that we will be successful in addressing such risks, and the failure to do so could have a material adverse effect on our business prospects, financial condition and results of operations.

 

Satisfaction of our cash obligations for the next 12 months.

 

As of February 28, 2015, our balance of cash on hand was $0. Our plan for satisfying our cash requirements for the next twelve months is through the sale of shares of our Common Stock.

 

Going concern.

 

Our financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern, which contemplate the realization of assets and liquidation of liabilities in the normal course of business. We incurred continuous losses from operations, had an accumulated deficit of $3,430,738 and $2,893,537 at February 28, 2015 and November 30, 2014, respectively, and a working capital deficit of $509,113 and $170,529 at February 28, 2015 and November 30, 2014, respectively. In addition, we do not currently have the cash resources to meet our operating commitments for the next twelve months. The Company’s ability to continue as a going concern must be considered in light of the problems, expenses, and complications frequently encountered by entrance into established markets and the competitive nature in which we operate.

 

Our ability to continue as a going concern is dependent on our ability to generate sufficient cash from operations to meet our cash needs and/or to raise funds to finance ongoing operations and repay debt. There can be no assurance, however, that we will be successful in our efforts to raise additional debt or equity capital and/or that our cash generated by our future operations will be adequate to meet our needs. These factors, among others, indicate that we may be unable to continue as a going concern for a reasonable period of time.

 

Contractual obligations and commitments.

 

As of February 28, 2015, we lease an office for $500 per month. The lease terms are on a month to month basis.

 

On August 1, 2013, the Company, entered into an engagement letter with Clear Financial Solutions, Inc., a Texas corporation (Clear Financial). On December 5, 2013, the Company and Clear Financial entered into Amendment No.1 to Engagement Letter. Under the engagement letter and the amendment (collectively, the “Engagement Letter”) Clear Financial will provide certain financial consulting services to the Company and Mr. Steven M. Plumb, founder and President of Clear Financial, will serve as the Chief Financial Officer of the Company. Clear Financial will, among other things, prepare and review the Company’s financial statements, oversee internal accounting controls and provide advice on generally accepted accounting principles. In addition, As compensation for the services provided, the Company will pay Clear Financial a fee of $4,500 per month.

 

On November 14, 2013, the Company, entered into a purchase agreement (the “Tidewater Agreement”) with Tidewater Oil & Gas Company LLC (“Tidewater”) pursuant to which the Company agreed to purchase an 87.5% working interest in oil and gas leases covering approximately 36,787 acres in Iron County, Utah. Tidewater has agreed to deliver the leases to the Company with an 80% net revenue interest. Tidewater’s sale of the leases was subject to the approval of the U.S. District Court for the District of Colorado (the “Bankruptcy Court”), which is presiding over Tidewater’s Chapter 11 bankruptcy proceedings. The Bankruptcy Court approved the sale of the leases on December 11, 2013.

 

Pursuant to the Tidewater Agreement, the purchase price for the leases is $290,000 and is payable by the Company as follows: $45,000 on or before December 21, 2013, $45,000 on or before February 4, 2014, $100,000 on or before May 5, 2014 and $100,000 on or before August 3, 2014. The Company made the initial $45,000 payment on December 17, 2013. The leases will not be transferred to the Company until the purchase price has been paid in full. The Company has also agreed to assume its proportionate share of all rental payments due on the leases, beginning immediately. If the Company fails to pay timely any rental payment, it will lose its interest in the underlying lease.

 

The Tidewater Agreement contemplates the drilling of an initial 12,000 foot vertical test well in the Jurassic-Navajo, Permian-Kaibab formation on the leases. Although Tidewater will retain a 12.5% working interest in the leases, the Company has agreed to pay 100% of the cost of drilling and completing this test well, which is estimated to be approximately $2.5 million. The Company has agreed to pre-pay such costs at least 30 days prior to the spud date, which is expected to be no later than February 3, 2015. If the Company fails to prepay such costs, it will forfeit its interests in the oil and gas leases and Tidewater will retain the purchase price. On January 30, 2014, the Company paid $52,734 to Tidewater, for reimbursement for costs of $7,734 and the second installment of the purchase price of $45,000.

 

 

 

On May 6, 2014, the Company entered into a letter agreement (the “TJBB Agreement”) with Tom Johnson and Bill Berryman (“TJBB”), pursuant to which the Company agreed to purchase an 87.5% working interest in oil and gas leases covering approximately 18,690.50 acres in Iron County, Utah. The subject acreage is located in an area known as the Parowan Prospect, along the same structure where the leases covered by the Tidewater Agreement are located. TJBB have agreed to deliver the leases to the Company with an 80% net revenue interest. TJBB will retain a 12.5% working interest in the leases, although the Company has agreed to pay 100% of the cost of drilling and completing a 12,000 foot vertical test well in the Jurassic-Navajo, Permian-Kaibab formation by September 1, 2015. The Company’s requirement to drill the initial test well is contained in both the Tidewater Agreement and the TJBB Agreement, and by drilling one well in the noted formation, the Company will have satisfied its initial test well drilling obligation under each agreement.

 

Pursuant to the TJBB Agreement, the purchase price for the leases is $168,215 and is payable by the Company as follows: $43,000 on or before May 16, 2014, $50,215 on or before June 30, 2014 and $75,000 on or before September 28, 2014. The leases will not be transferred to the Company until the purchase price has been paid in full. After the final payments have been made under both the TJBB Agreement and the Tidewater Agreement, the Company will have an 87.5% working interest in oil and gas leases covering a total of 55,477.50 acres in Iron County, Utah. The Company has also agreed to assume its proportionate share of all rental payments due on the leases. If the Company fails to pay timely any rental payment, it will lose its interest in the underlying lease. Additionally, if the Company fails to drill and complete the initial test well in the Jurassic-Navajo, Permian-Kaibab formation by September 1, 2015, the Company will forfeit its interest in the leases covered by both the TJBB Agreement and the Tidewater Agreement.

 

On June 6, 2014, the Company made the first payment of $43,000 pursuant to the TJBB Agreement.

 

On May 13, 2014, the Company appointed Rupert Ireland to serve as President, Chief Executive Officer, Secretary and Treasurer of the Company, effective immediately. In connection with Mr. Ireland’s appointment as President and Chief Executive Officer, the Company entered into an Employment Agreement, dated May 13, 2014, with Mr. Ireland. Pursuant to the Employment Agreement, Mr. Ireland will be paid a base salary of $120,000 per year and a signing bonus of $5,000.

 

Summary of product and research and development that we will perform for the term of our plan.

 

We are currently engaged in the process of analyzing the seismic data covering our leases.

 

Expected purchase or sale of plant and significant equipment.

 

We do not anticipate the purchase of significant property and equipment in the near future.

 

Off-balance sheet arrangements.

 

None.

 

Recently issued accounting standards.

 

In April 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-08,  Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360) - Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity  (“ASU 2014-08”). The amendments in ASU 2014-08 change the criteria for reporting discontinued operations while enhancing disclosures in this area. Under the new guidance, only disposals representing a strategic shift in operations should be presented as discontinued operations. The new guidance is effective in the first quarter of 2015 for public organizations with calendar year ends. Early adoption is permitted. The adoption of the new guidance did not have a material impact on the Company.

 

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (“ASU 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. ASU 2014-09 will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard is effective for the Company on January 1, 2017. 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. Because the Company has no revenues, the new guidance is not expected to have a material impact on its financial statements and related disclosures.

 

The Company has elected to adopt early application of Accounting Standards Update No. 2014-10, Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements; it no longer presents or discloses inception-to-date information and other remaining disclosure requirements of Topic 915.

 

 

 

 

 

Item 3. Quantitative and Qualitative Disclosure About Market Risk.

 

This item in not applicable as we are currently considered a smaller reporting company.

 

Item 4. Controls and Procedures

 

Pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (“Exchange Act”), the Company carried out an evaluation, with the participation of the Company’s officers and directors, of the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(f) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, in consideration of the fact that the Company has no employees besides the President, the President concluded that the Company’s disclosure controls and procedures are not effective at February 28, 2015 or November 30, 2014. Through the use of external consultants, the Company believes that the financial statements and the other information presented herewith are not materially misstated.

 

Management’s Report on Internal Controls over Financial Reporting

 

We carried out an evaluation of the effectiveness of our disclosure controls and procedures as of February 28, 2015 (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)). Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of the end of the period covered in this report, our disclosure controls and procedures were not effective to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the required time periods.

 

The Company’s officers and directors do not expect that the Company’s disclosure controls and procedures or the Company’s internal controls will prevent all errors and all fraud. 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. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of the controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.

 

Changes in Internal Control over Financial Reporting

 

There were no changes in our internal control over financial reporting during the quarter ended February 28, 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 

 

 

 

PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings

 

There are no known legal proceedings pending or threatened against us.

 

Item 1A. Risk Factors

 

As a smaller reporting company, we are not required to provide the information required by this item. 

 

Item 2. Unregistered sales of Equity securities and Use of Proceeds

 

None.

  

Item 3. Defaults Upon Senior Securities

 

None. 

 

Item 4. Mine Safety Disclosures

 

Not Applicable.

 

Item 5. Other Information

 

None.

 

Item 6. Exhibits

 

Exhibit		Description
31.1		Section 302 Certification of Chief Executive Officer
31.2		Section 302 Certification of Chief Financial Officer
32.1		Section 906 Certification of Chief Executive Officer
32.2		Section 906 Certification of Chief Financial Officer
101.INS		XBRL Instance Document
101.SCH		XBRL Schema Document
101.CAL		XBRL Calculation Linkbase Document
101.DEF		XBRL Definition Linkbase Document
101.LAB		XBRL Labels Linkbase Document
101.PRE		XBRL Presentation Linkbase Document

 

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

VIRTUS OIL AND GAS CORP

 

 

By:	/s/ Rupert Ireland
	Rupert Ireland
	President
	Dated: April 2, 2015