ITEM 1. BUSINESS
Background
Virtus Oil & Gas Corp. (“the Company”, “we”, “us” or “our”), formerly known as Curry Gold Corp., was incorporated in the state of Nevada on September 30, 2009 (“Inception”). The Company was originally formed 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, that we would market 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, in August 2013, the Company entered the oil and gas exploration and production business and acquired mineral interests as described below.
On July 5, 2012, the Company’s former CEO, Soenke Timm sold 28,000,000 shares of the Company’s common stock, $0.001 par value (“Common Stock”), representing sixty percent (60%) of the issued and outstanding shares of Common Stock and all of Mr. Timm’s ownership in the Company, to Daniel M. Ferris. Mr. Ferris was responsible for moving the Company’s focus to the exploration of oil and gas opportunities. However, in July 2014, Mr. Ferris resigned from his position as the sole director of the Company and appointed Rupert Ireland as the sole director of the Company to fill the vacancy created by Ferris’ resignation, effective as of July 11, 2014. Ireland has continued to serve as the sole director of the Company since that time. Mr. Ferris resigned as a director of the Company in connection with the transactions contemplated by a Stock Purchase Agreement, dated as of June 20, 2014, by and between Mr. Ferris and Mr. Ireland. Pursuant to such agreement, Mr. Ireland acquired from Mr. Ferris an aggregate 28,000,000 shares of Common Stock for a purchase price of $2,000,000, effective as of June 26, 2014. The shares acquired by Mr. Ireland represented approximately 57.4% of the issued and outstanding shares of Common Stock as of that date.
Effective August 30, 2013, the shareholders of the Company approved (i) a forward stock split (the “Stock Split”) of the issued and outstanding shares of the common stock, $0.001 par value (“Common Stock”), in which each outstanding share of Common Stock would be exchanged for fourteen (14) new shares of Common Stock, and (ii) the change of the Company’s name to “Virtus Oil and Gas Corp.,” as reflected in the Amended and Restated Articles of Incorporation filed with the Secretary of State of Nevada on July 25, 2013 (as amended, the “Restated Articles”). The Restated Articles also increased the number of authorized shares of the Company’s Common Stock from 75,000,000 to 150,000,000. All share numbers disclosed in this Annual Report give effect to the Stock Split.
Since the Company’s formation, we have not generated any revenues from our operations, and we have incurred a cumulative net loss of $2,893,537 during our existence. Our fiscal year end is November 30.
The Company is a domestic oil and gas exploration and development company focused on the acquisition and exploration of oil and natural gas properties in Utah and other areas of the Western United States. The Company implements this business focus by pursuing interests in oil and natural gas properties through strategic lease acquisition activities. We currently lease the mineral rights on 55,477.5 net acres in Southern Utah, which we acquired in the transactions described below.
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 net 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 retained a 12.5% working interest in the Tidewater Leases, the Company 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 was originally required 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 Tidewater Leases to Tidewater, along with the purchase price and any other costs or fees paid under the Tidewater Agreement. On October 14, 2014, the Company paid $17,274 to Tidewater for reimbursement of costs. In addition to the payments made under the Tidewater Agreement, the Company incurred $171,584 in capitalized exploration costs for a total of $491,116.
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 net 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.
Our primary business strategy includes the drilling of at least two exploratory wells on the mineral rights that we control in Southern Utah. The first well is expected to be drilled to a total depth of approximately 7,000 feet. The second well is expected to be drilled to a total depth of 12,000 feet.
Competitive Conditions
The oil and natural gas industry is highly competitive. We compete with private and public companies in all facets of the oil and natural gas business. Numerous independent oil and gas companies, oil and gas syndicators, and major oil and gas companies actively seek out and bid for oil and gas prospects and properties as well as for the services of third-party providers, such as drilling companies, upon which we rely. Many of these companies not only explore for, produce and market oil and natural gas, but also carry out refining operations and market the resulting products worldwide. Most of our competitors have longer operating histories and substantially greater financial and other resources than we do.
Competitive conditions may be affected by various forms of energy legislation and/or regulation considered from time to time by the governments of the United States and the State of Utah, as well as factors that we cannot control, including international political conditions, overall levels of supply and demand for oil and gas, and the markets for synthetic fuels and alternative energy sources.
Government Regulation
Our current and future operations and exploration activities are or will be subject to various laws and regulations in the United States and in the State of Utah. These laws and regulations govern the protection of the environment, conservation, prospecting, development, energy production, taxes, labor standards, occupational health and safety, toxic substances, chemical products and materials, waste management and other matters relating to the oil and gas industry. Permits, registrations or other authorizations may also be required to maintain our operations and to carry out our future oil and gas exploration and production activities, and these permits, registrations or authorizations will be subject to revocation, modification and renewal.
Governmental authorities have the power to enforce compliance with lease conditions, regulatory requirements and the provisions of required permits, registrations or other authorizations, and violators may be subject to civil and criminal penalties including fines, injunctions, or both. The failure to obtain or maintain a required permit may also result in the imposition of civil and criminal penalties, and third parties may have the right to sue to enforce compliance.
We expect to be able to comply with all applicable laws and regulations and do not believe that such compliance will have a material adverse effect on our competitive position. We have obtained and intend to obtain all environmental permits, licenses and approvals required by all applicable regulatory agencies to maintain our current oil and gas operations and to carry out our future exploration activities. We are not aware of any material violations of environmental permits, licenses or approvals issued with respect to our operations, and we believe that the operators of the properties in which we have an interest comply with all applicable laws and regulations. We intend to continue complying with all environmental laws and regulations, and at this time we do not anticipate incurring any material capital expenditures to do so.
Compliance with environmental requirements, including financial assurance requirements and the costs associated with the cleanup of any spill, could have a material adverse effect on our capital expenditures, earnings or competitive position. Our failure to comply with any laws and regulations may result in the assessment of administrative, civil and criminal penalties, the imposition of injunctive relief, or both. Legislation affecting the oil and gas industry is subject to constant review, and the regulatory burden frequently increases. Changes in any of the laws and regulations could have a material adverse effect on our business, and in view of the many uncertainties surrounding current and future laws and regulations, including their applicability to our operations, we cannot predict their overall effect on our business.
Environmental laws provide for, among other things, restrictions and prohibitions on spills, releases, or emissions of various substances produced in association with oil and gas operations. The laws also require that wells and facility sites be operated, maintained, abandoned, and reclaimed to the satisfaction of the applicable regulatory authorities. Compliance with such laws can require significant expenditures and a breach may result in the imposition of fines and penalties, some of which may be material. Environmental legislation is evolving in a manner expected to result in stricter standards and enforcement, larger fines and liability, and potentially increased capital expenditures and operating costs. The discharge of oil or gas or other pollutants into the air, soil, or water may give rise to liabilities to governments and third parties and may require the operator to incur costs to remedy such discharge. In addition, the operator could incur fines, penalties or significant liability for damages, clean-up costs, and penalties in the event of discharges into the environment, environmental damage caused by the operator or previous owners of the property, or non-compliance with environmental laws or regulations. In addition to actions brought by governmental agencies, the operator could face actions brought by private parties or citizens groups. There can be no assurance that the forgoing will not increase the cost of production, development, or exploration activities for the operator or otherwise adversely affect the payment of royalties on the property.
Environmental Regulation
The operator of our future oil and gas interests will be subject to numerous federal, state and local laws and regulations governing the discharge of materials into the environment or otherwise relating to environmental protection. Applicable U.S. federal environmental laws include, but are not limited to, the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”), the Clean Water Act (“CWA”) and the Clean Air Act (“CAA”). These laws and regulations govern environmental cleanup standards, require permits for air, water, underground injection, solid and hazardous waste disposal and set environmental compliance criteria. In addition, state and local laws and regulations set forth specific standards for drilling wells, the maintenance of bonding requirements in order to drill or operate wells, the spacing and location of wells, the method of drilling and casing wells, the surface use and restoration of properties upon which wells are drilled, the plugging and abandoning of wells, and the prevention and cleanup of pollutants and other matters. Typically, operators maintain insurance against costs of clean-up operations, but may not be fully insured against all such risks. Additionally, Congress and federal and state agencies frequently revise the environmental laws and regulations, and any changes that result in delay or more stringent and costly permitting, waste handling, disposal and clean-up requirements for the oil and gas industry could have a significant impact on the operator’s costs, resulting in a negative impact on payment of royalties.
The environmental laws and regulations that could have a material impact on the oil and natural gas exploration and production industry, including on the operators of our future oil and gas interests, thereby indirectly impacting our business, including the following:
Hazardous Substances and Wastes. CERCLA, also known as the “Superfund law,” imposes liability, without regard to fault or the legality of the original conduct, on certain classes of persons that are considered to be responsible for the release of a “hazardous substance” into the environment. These persons include the owner or operator of the disposal site or sites where the release occurred and companies that transported or disposed or arranged for the transport or disposal of the hazardous substances found at the site. Persons who are or were responsible for releases of hazardous substances under CERCLA may be subject to joint and several liability for the costs of cleaning up the hazardous substances that have been released into the environment and for damages to natural resources, and it is not uncommon for neighboring landowners and other third parties to file corresponding common law claims for personal injury and property damage allegedly caused by the hazardous substances released into the environment.
Waste Discharge. The CWA and analogous state laws impose restrictions and strict controls with respect to the discharge of pollutants, including spills and leaks of oil and other substances, into waters of the United States. The discharge of pollutants into regulated waters is prohibited, except in accordance with the terms of a permit issued by the United States Environmental Protection Agency (“EPA”) or an analogous state agency. The CWA and regulations implemented thereunder also prohibit the discharge of dredge and fill material into regulated waters, including jurisdictional wetlands, unless authorized by an appropriately issued permit. Spill prevention, control and countermeasure requirements of federal laws require appropriate containment beams and similar structures to help prevent the contamination of navigable waters by a petroleum hydrocarbon tank spill, rupture or leak. In addition, the CWA and analogous state laws require individual permits or coverage under general permits for discharges of storm water runoff from certain types of facilities. Federal and state regulatory agencies can impose administrative, civil and criminal penalties as well as other enforcement mechanisms for noncompliance with discharge permits or other requirements of the CWA and analogous state laws and regulations.
Air Emissions. The CAA and associated state laws and regulations restrict the emission of air pollutants from many sources, including oil and gas operations. New facilities may be required to obtain permits before construction can begin, and existing facilities may be required to obtain additional permits and incur capital costs in order to remain in compliance. More stringent regulations governing emissions of toxic air pollutants and greenhouse gases (“GHGs”) have been developed by the EPA and may increase the costs of compliance for some facilities.
Oil Pollution Act. The Oil Pollution Act of 1990, as amended (“OPA”) and regulations thereunder impose a variety of requirements on “responsible parties” related to the prevention of oil spills and liability for damages resulting from such spills in United States waters. A “responsible party” includes the owner or operator of an onshore facility, pipeline or vessel, or the lessee or permittee of the area in which an offshore facility is located. OPA assigns liability to each responsible party for oil cleanup costs and a variety of public and private damages. While liability limits apply in some circumstances, a party cannot take advantage of liability limits if the spill was caused by gross negligence or willful misconduct or resulted from violation of a federal safety, construction or operating regulation. If the party fails to report a spill or to cooperate fully in the cleanup, liability limits likewise do not apply. Few defenses exist to the liability imposed by OPA. OPA imposes ongoing requirements on a responsible party, including the preparation of oil spill response plans and proof of financial responsibility to cover environmental cleanup and restoration costs that could be incurred in connection with an oil spill.
National Environmental Policy Act. Oil and natural gas exploration and production activities on federal lands are subject to the National Environmental Policy Act (“NEPA”). NEPA requires federal agencies, including the Department of Interior, to evaluate major agency actions having the potential to significantly impact the environment. The process involves the preparation of either an environmental assessment or environmental impact statement depending on whether the specific circumstances surrounding the proposed federal action will have a significant impact on the human environment. The NEPA process involves public input through comments which can alter the nature of a proposed project either by limiting the scope of the project or requiring resource-specific mitigation. NEPA decisions can be appealed through the court system by process participants. This process may result in delaying the permitting and development of projects, increase the costs of permitting and developing some facilities and could result in certain instances in the cancellation of existing leases.
Worker Safety. The Occupational Safety and Health Act (“OSHA”) and comparable state statutes regulate the protection of the health and safety of workers. The OSHA hazard communication standard requires maintenance of information about hazardous materials used or produced in operations and provision of such information to employees. Other OSHA standards regulate specific worker safety aspects. Failure to comply with OSHA requirements can lead to the imposition of penalties.
Safe Drinking Water Act. The Safe Drinking Water Act and comparable state statutes restrict the disposal, treatment or release of water produced or used during oil and gas development. Subsurface emplacement of fluids (including disposal wells or enhanced oil recovery) is governed by federal or state regulatory authorities that, in some cases, includes the state oil and gas regulatory authority or the state’s environmental authority. These regulations may increase the costs of compliance for some facilities.
Effect of Existing or Probable Governmental Regulations on our Business
We are subject to the following regulations of the SEC and applicable securities laws, rules and regulations:
Smaller Reporting Company. We are subject to the reporting requirements of Section 13 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and subject to the disclosure requirements of Regulation S-K of the SEC, as a “smaller reporting company.” That designation will relieve us of some of the informational requirements of Regulation S-K applicable to larger companies.
Sarbanes/Oxley Act. Except Section 302 and 404, we are also subject to the Sarbanes/Oxley Act of 2002. The Sarbanes/Oxley Act created a strong and independent accounting oversight board to oversee the conduct of auditors of public companies and strengthens auditor independence. It also requires steps to enhance the direct responsibility of senior members of management for financial reporting and for the quality of financial disclosures made by public companies; establishes clear statutory rules to limit, and to expose to public view, possible conflicts of interest affecting securities analysts; creates guidelines for audit committee members’ appointment, compensation and oversight of the work of public companies’ auditors; management's assessment of our internal controls; prohibits certain insider trading during pension fund blackout periods; requires companies to evaluate internal controls and procedures; and establishes a federal crime of securities fraud, among other provisions. Compliance with the requirements of the Sarbanes/Oxley Act has and will continue to substantially impact our legal and accounting costs.
Competition
The Company is competing with other oil companies for oil and gas leases and concessions. The oil and gas industry is highly competitive in all of its phases, with competition for favorable producing royalties, overriding royalties, and good oil and gas leases being particularly intense. The Company believes that the exploration program, promised expenditures, geological and geophysical skill, and familiarity with an area of operations are the primary competitive factors in the identification, selection, and acquisition of desirable leases. When attempting to purchase interests in such properties, the Company competes with independent operators and major oil companies, any of companies that possess and employ financial resources that allow them to obtain substantially greater technical and personnel resources than ours. Competitors may be able to evaluate and purchase a greater number of mineral rights or royalty interests than our financial or personnel resources permit. Competitors may also be able to pay more for prospects than we are able or willing to pay. If we are unable to compete successfully in these areas in the future, our future growth may be diminished or restricted.
EMPLOYEES
We have one (1) full time employee, M. Rupert Ireland, our President and director. Steven Plumb, our Chief Financial Officer and Mr. Brett Murray, our Chief Operating Officer, have agreed to serve in those capacities on a part-time basis. See Item 10, Directors, Executive Officers and Corporate Governance.
AVAILABLE INFORMATION - REPORTS TO SECURITY HOLDERS
Our website address is www.virtusoilandgas.com. Except as otherwise provided herein, the contents of our website are not a part of this Annual Report. We make available on this website, free of charge, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports after we electronically file those materials with, or furnish those materials to, the SEC. These filings are also available to the public at the SEC’s Public Reference Room at 100 F Street, NE, Room 1580, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Electronic filings with the SEC are also available on the SEC internet website at www.sec.gov.
ITEM 1A.
ITEM 1A. RISK FACTORS
An investment in our Common Stock involves a high degree of risk. In addition to the other information in this Annual Report, the following risk factors should be considered carefully in evaluating the Company and our business. We have sought to identify what we believe to be the most significant risks to our business, but we cannot predict whether, or to what extent, any of such risks may be realized nor can we guarantee that we have identified all possible risks that might arise. Investors should carefully consider all of such risk factors before making an investment decision with respect to our Common Stock. If you decide to buy our Common Stock, you should be able to afford a complete loss of your investment.
RISKS RELATED TO OUR BUSINESS:
There is substantial doubt as to whether we will continue operations. If we discontinue operations, we will go out of business, and you could lose your investment.
Our independent accountant's report to our audited financial statements for the year ended November 30, 2015 indicates that there are a number of factors that raise substantial doubt about our ability to continue as a going concern. Such factors identified in the report are our accumulated deficit since inception, our failure to attain profitable operations and our dependence upon obtaining adequate financing to pay our liabilities. If we are not able to continue as a going concern, it is likely investors will lose their investments.
The Company is a start-up with a history of operating losses, and we expect to continue to realize losses in the near future, so an investment in Virtus Oil and Gas Corp. is considered a high risk investment whereby you could lose your entire investment. The Company currently has no operations that are producing revenue, and currently relies on investments by third parties to fund its business. Even when the Company begins to generate revenues from operations, the Company may not become profitable or be able to sustain profitability.
We have not yet commenced operations and, therefore, we are considered a "start-up" or "development stage" company. We will incur significant expenses in order to implement our business plan. As an investor, you should be aware of the difficulties, delays and expenses normally encountered by an enterprise in its development stage, many of which are beyond our control, including unanticipated developmental expenses, inventory costs, employment costs, and advertising and marketing expenses. We cannot assure you that our business will prove successful, or that we will ever be able to operate profitably. If we cannot operate profitably, you could lose your entire investment.
Our lack of any operating history makes it difficult for us to evaluate our future business prospects and make decisions based on those estimates of our future performance.
We do not have any material operating history, which makes it impossible to evaluate our business on the basis of historical operations. Furthermore, the Company has abandoned its original business plan and is still in the process of selecting a new direction for the Company’s business. Therefore, our business carries both known and unknown risks. As a consequence, our past results may not be indicative of future results. Although this is true for any business, it is particularly true for us because of our lacking any material operating history.
If we do not obtain additional financing, our business will fail.
Our current operating funds are less than necessary to complete all intended objectives and therefore we will need to obtain additional financing in order to continue our business. We currently do not have any operations and we have no income.
We do not currently have any arrangements for financing and we can provide no assurance to investors that we will be able to find such financing if required. Obtaining additional financing would be subject to a number of factors, including investor acceptance of our business model and general market conditions. These factors may make the timing, amount, terms or conditions of additional financing unavailable to us.
The most likely source of future funds presently available to us is through the sale of equity capital in one or more negotiated private sale transactions. Any sale of share capital will result in dilution to existing shareholders.
Our business will rely heavily upon our President and CEO, Mr. Rupert Ireland.
We have been heavily dependent upon the expertise and management of Mr. M. Rupert Ireland, our Chief Executive Officer and President, and our future performance will depend upon his continued services. The loss of the services of Mr. Ireland’s services could seriously interrupt our business operations, and could have a very negative impact on our ability to fulfill our business plan and to carry out our existing operations. We currently do not maintain key man life insurance on this individual. There can be no assurance that a suitable replacement could be found for him upon retirement, resignation, inability to act on our behalf, or death.
Our future growth may require recruitment of qualified employees.
In the event of our future growth, we may have to increase the depth and experience of our management team by adding new members. Our future success will depend to a large degree upon the active participation of our sole officer. There is no assurance that we will be able to employ qualified persons on acceptable terms. Lack of qualified employees may adversely affect our business development.
The possibility of a global financial crisis may significantly impact our business and financial condition for the foreseeable future.
The credit crisis and related turmoil in the global financial system may adversely impact our business and our financial condition, and we may face challenges if conditions in the financial markets do not improve. Our ability to access the capital markets may be restricted at a time when we would like, or need, to raise financing, which could have a material negative impact on our flexibility to react to changing economic and business conditions. The economic situation could have a material negative impact on our lenders or customers, causing them to fail to meet their obligations to us. We will need additional capital and financing to fund our fiscal 2015 operating forecast. There is no assurance that additional capital or financing will be available to us on terms that are acceptable to us or at all. The decline in the price of crude oil during the last quarter of 2014 and the continued decline in 2015 have impacted our drilling plans and our ability to raise capital.
Our majority shareholder has the ability to significantly influence any matters to be decided by the shareholders.
Mr. Ireland currently owns approximately 32.9% of our Common Stock. As a result, he can determine the outcome of any corporate matter that requires the approval of the holders of a majority of the shares of our Common Stock, including the election of directors, a merger or acquisition.
Risks Related to the Industry in Which We Compete
Current volatile market conditions and significant fluctuations in energy prices may continue indefinitely, negatively affecting our business prospects and viability.
The oil and gas markets are very volatile, and we cannot predict future oil and natural gas prices. Historically, oil and natural gas prices have been volatile and are subject to fluctuations in response to changes in supply and demand, market uncertainty and a variety of additional factors that are beyond our control. Any substantial decline in the price of oil and natural gas will likely have a material adverse effect on our planned operations and financial condition. The amount of any royalty payment we receive, if any, from the production of oil and gas from our oil and gas interests will depend on numerous factors beyond our control. These factors include, but are not limited to, the following:
o changes in global supply and demand for oil and natural gas by both refineries and end users;
o the ability of the members of the Organization of Petroleum Exporting Countries to agree to and maintain oil price and production controls;
o the price and volume of imports of foreign oil and natural gas;
o political and economic conditions, including embargoes, in oil-producing countries or affecting other oil-producing activity;
o the level of global oil and gas exploration and production activity;
o the level of global oil and gas inventories;
o weather conditions;
o technological advances affecting energy consumption;
o domestic and foreign governmental regulations and taxes;
o proximity and capacity of oil and gas pipelines and other transportation facilities;
o the price and availability of competitors’ supplies of oil and gas in captive market areas;
o the introduction, price and availability of alternative forms of fuel to replace or compete with oil and natural gas;
o import and export regulations for LNG and/or refined products derived from oil and gas production from the US;
o speculation in the price of commodities in the commodity futures market;
o the availability of drilling rigs and completion equipment; and
o the overall economic environment.
Further, oil and natural gas prices do not necessarily fluctuate in direct relationship to each other. The price of oil has been extremely volatile, and we expect this volatility to continue for the foreseeable future. Recent volatility in 2015 has seen WTI oil prices drop from a high of $65.94 on November 30, 2014, to a low of $38.22 on August 24, 2015 during the fiscal year ended November 30, 2015. This near term volatility may affect future prices in 2017 and beyond. The volatility of the energy markets makes it difficult to predict future oil and natural gas price movements with any certainty.
Exploration for oil and natural gas is risky and may not be commercially successful, impairing our ability to generate revenues.
Oil and natural gas exploration involves a high degree of risk. These risks are more acute in the early stages of exploration. We may not discover oil or natural gas in commercially viable quantities, if at all. It is difficult to project the costs of implementing an exploratory drilling program due to the inherent uncertainties of drilling in unknown formations, the costs associated with encountering various drilling conditions, such as over pressured zones and tools lost in the hole, and changes in drilling plans, locations as a result of prior exploratory wells or additional seismic data and interpretations thereof, and final commercial terms negotiated with partners. Developing exploratory oil and gas properties requires significant capital expenditures and involves a high degree of financial risk. The budgeted costs of drilling, completing, and operating exploratory wells are often exceeded and can increase significantly when drilling costs rise. Drilling may be unsuccessful for many reasons, including title problems, weather, cost overruns, equipment shortages, and mechanical difficulties. There is no assurance that we will successfully complete any wells or if successful, that the wells would be economically successful. Moreover, the successful drilling or completion of any oil or gas well does not ensure a profit on investment. Exploratory wells bear a much greater risk of loss than development wells. We cannot assure you that our exploration, exploitation and development activities will result in profitable operations, the result of which will materially adversely affect our business.
Oil and gas operations are subject to comprehensive regulation which may cause substantial delays or require capital outlays in excess of those anticipated, causing an adverse effect on the Company.
Oil and gas operations are subject to national and local laws relating to the protection of the environment, including laws regulating removal of natural resources from the ground and the discharge of materials into the environment. Oil and gas operations are also subject to national and local laws and regulations which seek to maintain health and safety standards by regulating the design and use of drilling methods and equipment. Environmental standards imposed by national or local authorities may be changed and any such changes may have material adverse effects on our potential royalties. Moreover, compliance with such laws may cause substantial delays or require capital outlays in excess of those anticipated, thus causing an adverse effect on any potential revenue to us.
We will be dependent upon the third party operator of our oil and gas interests.
If and when our prospects proceed to drilling, third parties will act as the operators of our oil and gas wells, and control the drilling and operating activities to be conducted on our properties. Therefore, we may have limited control over certain decisions related to activities on our properties relating to the timing, costs, procedure, and location of drilling or production activities, which could affect the Company’s results.
We may not be able to develop oil and gas reserves on an economically viable basis.
To the extent that we succeed in discovering oil and/or natural gas reserves on our prospects, we cannot assure that these reserves will be capable of production levels we project or in sufficient quantities to be commercially viable. Our future reserves, if any, will depend not only on our ability to develop then-existing properties, but also on our ability to identify and acquire additional suitable producing properties or prospects, to find markets for the oil and natural gas we develop and to effectively distribute our production into markets.
Future oil and gas exploration may involve unprofitable efforts, not only from dry wells, but from wells that are productive but do not produce sufficient net revenues to return a profit after drilling, operating and other costs. Completion of a well does not assure a profit on the investment or recovery of drilling, completion and operating costs. In addition, drilling hazards or environmental damage could greatly increase the cost of operations and various field operating conditions may adversely affect the production from successful wells. These conditions include delays in obtaining governmental approvals or consents, shut-downs of wells resulting from extreme weather conditions, problems in storage and distribution and adverse geological and mechanical conditions. While we will endeavor to effectively manage these conditions, we cannot be assured of doing so optimally, and we will not be able to eliminate them completely in any case. Therefore, these conditions could adversely impact our operations.
RISKS RELATED TO OUR COMMON STOCK
The market price of our Common Stock is, and is likely to continue to be, highly volatile and subject to wide fluctuations.
The market price of our Common Stock is likely to continue to be highly volatile and could be subject to wide fluctuations in response to a number of factors, some of which are beyond our control, including but not limited to:
·dilution caused by our issuance of additional shares of Common Stock and other forms of equity securities;
·announcements of new acquisitions, expansions or other business initiatives by us or our potential competitors;
·our ability to take advantage of new acquisitions, expansions or other business initiatives;
·quarterly variations in our revenues and operating expenses;
·changes in the valuation of similarly situated companies, both in our industry and in other industries;
·challenges associated with timely SEC filings;
·illiquidity and lack of marketability by being an OTC quoted stock;
·changes in analysts’ estimates affecting our company, our competitors and/or our industry;
·changes in the accounting methods used in or otherwise affecting our industry;
·additions and departures of key personnel;
·announcements of technological innovations or new products;
·fluctuations in interest rates and the availability of capital in the capital markets; and
·significant sales of our Common Stock, including sales by selling shareholders following the registration of shares under a prospectus.
These and other factors are largely beyond our control, and the impact of these risks, singly or in the aggregate, may result in material adverse changes to the market price of our Common Stock and our results of operations and financial condition.
Because the SEC imposes additional sales practice requirements on brokers who deal in our shares which are penny stocks, some brokers may be unwilling to trade them. This means that you may have difficulty reselling your shares and this may cause the price of the shares to decline.
A penny stock is generally a stock that is not listed on a national securities exchange or NASDAQ, is listed in the "pink sheets" or on the OTC Bulletin Board, has a price per share of less than $5.00, and is issued by a company with net tangible assets less than $5 million.
The penny stock trading rules impose additional duties and responsibilities upon broker-dealers and salespersons effecting purchase and sale transactions in Common Stock and other equity securities, including determination of the purchaser's investment suitability, delivery of certain information and disclosures to the purchaser, and receipt of a specific purchase agreement before effecting the purchase transaction.
Many broker-dealers will not affect transactions in penny stocks, except on an unsolicited basis, in order to avoid compliance with the penny stock trading rules. In the event our Common Stock becomes subject to the penny stock trading rules:
·such rules may materially limit or restrict the ability to resell our Common Stock, and
·the liquidity typically associated with other publicly traded equity securities may not exist.
Because of the significant restrictions on trading penny stocks, a public market may never emerge for our securities. If this happens, you may never be able to publicly sell your shares.
Our operating results will fluctuate significantly, and these fluctuations may cause the price of our Common Stock to decline.
Our operating results will likely vary in the future primarily as the result of fluctuations in our revenues and operating expenses, including the expansion of our operations, capital expenditures that we expect to incur, the prices of products and services, and other factors. If our results of operations do not meet the expectations of current or potential investors, the price of our Common Stock may decline.
We do not expect to pay dividends in the foreseeable future.
We do not intend to declare dividends for the foreseeable future, as we anticipate that we will reinvest any future earnings in the development and growth of our business. Therefore, investors will not receive any funds unless they sell their Common Stock, and shareholders may be unable to sell their shares on favorable terms or at all. Investors cannot be assured of a positive return on investment or that they will not lose the entire amount of their investment in our Common Stock.
We may issue additional stock without shareholder consent.
Our board of directors, consisting solely of our CEO, Mr. M. Rupert Ireland, has authority, without action or vote of the shareholders, to issue all or part of our authorized but unissued shares. Additional shares may be issued in connection with future financing, acquisitions, employee stock plans, or otherwise. Any such issuance will dilute the percentage ownership of existing shareholders.
ITEM 1B.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2.
ITEM 2. PROPERTIES
Headquarters
Our principal administrative office is located at 1517 San Jacinto, Houston, Texas 77002. The Company does not currently have any other physical office location, or lease property of any kind, other than our mineral leases. The Company owns the domain www.virtusoilandgas.com.
Parowan Prospect
As a result of the Tidewater and TJBB Agreements, Virtus acquired 116 separate oil and gas leases covering approximately 64,380.40 gross acres (55,477.50 net acres) in Iron County, Utah. The expiration date of the Tidewater and TJBB Leases range from June 2015 to April 2018. The combined acreage is known generally as the Parowan Prospect. The area is easily accessible by existing roads. We have completed a seismic analysis of the acreage and selected a drilling location.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
On October 28, 2015, Energy Services, LLC and Energy Drilling, LLC filed a suit against the Company in the 5th Judicial District Court for Iron County as Civil No. 150500183 for collection of invoices totaling $307,418 and $605,305, respectively. The case has just begun the discovery phase. This is a suit for the payment for services claimed to be incurred in the drilling of a well in Iron County Utah. The Company disputes the validity of these invoices and will mount a vigorous defense of the issues. The suit alleges a verbal contract and thereby the breach by failure of payment. The company believes it has meritorious defenses against the suit, the ultimate resolution of which will likely result in substantial offsets.
On February 29, 2016, Energy Drilling, LLC, filed suit against the Company United States District Court in the District of Wyoming as case No. 16CV040MLC for the collection of outstanding invoices. The Company disputes the validity of these invoices and will mount a vigorous defense of the issues. We believe we will obtain a favorable outcome.
ITEM 4.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Since October 18, 2011, shares of our Common Stock have been quoted on the OTC QB under the symbol “VOIL.” Our stock began trading on April 9, 2013.
Effective August 30, 2013, the shareholders of the Company approved (i) a forward stock split (the “Stock Split”) of the issued and outstanding shares of Common Stock, in which each outstanding share of Common Stock would be exchanged for fourteen (14) new shares of Common Stock, and (ii) the change of the Company’s name to “Virtus Oil and Gas Corp.,” as reflected in the Amended and Restated Articles of Incorporation filed with the Secretary of State of Nevada on July 25, 2013 (as amended, the “Restated Articles”). The Restated Articles also increased the number of authorized shares of the Company’s Common Stock from 75,000,000 to 150,000,000.
The following table sets forth the approximate high and low bid prices for our common stock as reported by the OTCBB for the periods indicated. The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.
Holders
As of March 4, 2016, there were approximately 7,600 record holders of our Common Stock.
Dividends
There are no restrictions in our articles of incorporation or bylaws that restrict us from declaring dividends. The Nevada Revised Statutes, however, do prohibit us from declaring dividends where, after giving effect to the distribution of the dividend:
1. we would not be able to pay our debts as they become due in the usual course of business; or
2. our total assets would be less than the sum of our total liabilities, plus the amount that would be needed to satisfy the rights of shareholders who have preferential rights superior to those receiving the distribution.
We have not declared any dividends. We do not plan to declare any dividends in the foreseeable future.
Equity Compensation Plans
The Company has stock based compensation agreements with its senior executives, Rupert Ireland, Brett Murray and Steven Plumb and with its prior CEO, Dan Ferris.
During the year ended November 30, 2014, the Company recognized $460,414, $766,664 and $200,000, for Rupert Ireland, Steven Plumb and Dan Ferris, respectively, as compensation to each executive. Mr. Plumb was issued 500,000 shares in December 2013 in accordance with his contract.
On March 19, 2014, the Company issued 250,000 shares of its $0.001 par value common stock to a consultant as compensation for services rendered. The fair market value of the common stock on the date of issuance was $200,000.
During the year ended November 30, 2015, the Company recognized $850,000, $460,408 and $33,333, respectively, as compensation to each executive. Mr. Ireland was issued 1,000,000 shares in May 14, 2015, Mr. Murray was issued 500,000 shares on June 5, 2015 and Mr. Plumb was issued 500,000 shares in February 2015 in accordance with their contracts.
On September 17, 2015, the Company issued 90,667 shares of its Common Stock to a consultant for professional services rendered. The fair market value of the shares was $18,133 on the date of grant.
During the year ended November 30, 2015, the Company issued 175,000 common shares for services valued at $65,308.
Warrants and Options
None.
Unregistered Issuance of Equity Securities
On October 7, 2013, the Company entered into a Securities Purchase Agreement with Fieldstone Industries, Inc., pursuant to which the Company agreed to issue 250,000 shares of Common Stock to the investor for an aggregate purchase price of $100,000, or $0.3333 per share. 100,000 shares were issued on October 24, 2013, resulting in $60,000 in stock subscription payable as of November 30, 2013. The remaining 150,000 shares were issued on March 19, 2014 and netting the outstanding payable of $60,000 in the year 2014.
On December 10, 2013, the Company entered into a Securities Purchase Agreement with Fieldstone Industries, Inc., pursuant to which the Company agreed to issue 250,000 shares of Common Stock to the investor for an aggregate purchase price of $100,000, or $0.40 per share.
On January 9, 2014, the Company entered into a Securities Purchase Agreement with Fieldstone Industries, Inc., pursuant to which the Company agreed to issue 250,000 shares of Common Stock to the investor for an aggregate purchase price of $100,000, or $0.40 per share.
On February 6, 2014, the Company entered into a Securities Purchase Agreement with Fieldstone Industries, Inc., pursuant to which the Company agreed to issue 250,000 shares of Common Stock to the investor for an aggregate purchase price of $100,000, or $0.40 per share.
On April 20, 2014, the Company entered into a Securities Purchase Agreement with Fieldstone Industries, Inc., pursuant to which the Company agreed to issue 125,000 shares of Common Stock to the investor for an aggregate purchase price of $50,000, or $0.40 per share
On April 25, 2014, the Company entered into a Securities Purchase Agreement with Fieldstone Industries, Inc., pursuant to which the Company agreed to issue 300,000 shares of Common Stock to the investor for an aggregate purchase price of $120,000, or $0.40 per share.
On May 27, 2014, the Company entered into a Securities Purchase Agreement with Fieldstone Industries, Inc., pursuant to which the Company agreed to issue 250,000 shares of Common Stock to the investor for an aggregate purchase price of $100,000, or $0.40 per share. The proceeds were received on June 10, 2014, but only 100,000 shares for $40,000 have been issued as of November 30, 2014. The remaining proceeds of $60,000 are recorded as a stock payable as of November 30, 2014. The remaining 150,000 shares were issued June 10, 2015 and netting the outstanding payable of $60,000 in the year 2015.
On July 2, 2014, the Company entered into a Securities Purchase Agreement with Fieldstone Industries, Inc., pursuant to which the Company agreed to issue 203,776 shares of Common Stock to the investor for an aggregate purchase price of $150,000, or $0.74 per share.
On July 21, 2014, the Company entered into a Securities Purchase Agreement with Fieldstone Industries, Inc., pursuant to which the Company agreed to issue 154,735 shares of Common Stock to the investor for an aggregate purchase price of $150,000, or $0.97 per share.
On July 31, 2014, the Company entered into a Securities Purchase Agreement with Fieldstone Industries, Inc., pursuant to which the Company agreed to issue 140,437 shares of Common Stock to the investor for an aggregate purchase price of $150,000, or $1.07 per share.
On September 9, 2014, the Company entered into a Securities Purchase Agreement with Fieldstone Industries, Inc., pursuant to which the Company agreed to issue 136,116 shares of Common Stock to the investor for an aggregate purchase price of $150,000, or $1.10 per share.
On October 30, 2014, the Company entered into a Securities Purchase Agreement with Mablewood Investments, pursuant to which the Company agreed to issue 184,856 shares of Common Stock to the investor for an aggregate purchase price of $250,000, or $1.35 per share. The proceeds are recorded as a stock payable as of November 30, 2014. The proceeds were received on November 7, 2014, but the 184,856 shares were not issued until January 21, 2015 and crediting the outstanding payable of $250,000 in January 2015.
On March 12, 2015, the Company sold 187,794 shares of its Common Stock to Mablewood Investments for $100,000, pursuant to the January 26, 2015 Securities Purchase Agreement with Mablewood Investments.
On April 16, 2015, the Company sold 116,550 shares of its Common Stock to Mablewood Investments for $50,000, pursuant to the April 16, 2015 Securities Purchase Agreement with Mablewood Investments. These shares were issued on June 17, 2015.
On April 10, 2015, the Company issued 50,000 shares of its Common Stock to the two holders of the TJBB Lease Agreement, valued at $24,750.
On August 13, 2015, the Company issued 250,000 shares of its Common Stock to Himmil Investments for $40,706 pursuant to a conversion on the convertible note.
On August 20, 2015, the Company issued 500,000 shares of its Common Stock to Himmil Investments for $61,750 pursuant to a conversion on the convertible note.
On August 25, 2015, the Company issued 1,021,225 shares of its Common Stock to Himmil Investments for $123,568 pursuant to a conversion on the convertible note.
On September 16, 2015, the Company issued 1,008,462 shares of its Common Stock to Himmil Investments for $104,275 pursuant to a conversion on the convertible note.
On October 15, 2015, the Company issued 497,550 shares of its Common Stock to Himmil Investments for $38,461 pursuant to a conversion on the convertible note.
On October 28, 2015, the Company issued 580,435 shares of its Common Stock to Himmil Investments for $27,339 pursuant to a conversion on the convertible note.
On November 6, 2015, the Company issued 535,000 shares of its Common Stock to Himmil Investments for $22,042 pursuant to a conversion on the convertible note.
On November 20, 2015, the Company issued 577,335 shares of its Common Stock to Himmil Investments for $15,704 pursuant to a conversion on the convertible note.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
Since we are “a smaller reporting company,” as defined by SEC regulation, we are not required to provide the information required by this item.
ITEM 7.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our financial statements and notes to those statements. In addition to historical information, the following discussion and other parts of this Annual Report contain forward-looking information that involves risks and uncertainties.
OVERVIEW AND OUTLOOK
Our Business
We are an oil and gas exploration company. We currently lease the mineral rights on 55,477.5 acres in Southern Utah. On November 13, 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. 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. On May 6, 2014, the Company, entered into the First Amendment to Letter Agreement (the “Tidewater Amendment”) with Tidewater, which amends the Tidewater Agreement by requiring the Company to drill an initial 12,000 foot vertical test well in the Jurassic-Navajo, Permian-Kaibab formation on the leases no later than September 1, 2015. 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.
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.
Since the Company’s inception on September 30, 2009 to November 30, 2015, we have not generated any revenues and have incurred a cumulative net loss of $8,364,921.
Application of Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to impairment of property, plant and equipment, intangible assets, deferred tax assets and fair value computation using the Black Scholes option pricing model. We base our estimates on historical experience and on various other assumptions, such as the trading value of our Common Stock and estimated future undiscounted cash flows, that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe that our estimates, including those for the above-described items, are reasonable.
Accounting Policies
Our financial statements are presented in conformity with accounting principles generally accepted in the United States of America, as reported on our fiscal years ending on November 30, 2015 and 2014. We have summarized our most significant accounting policies.
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.
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.
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 November 30, 2015 and 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 notes receivables, 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.
RESULTS OF OPERATIONS FOR THE YEARS ENDED NOVEMBER 30, 2015 AND 2014:
Fiscal year ended November 30, 2015
Revenues:
The Company was established on September 30, 2009 and had no operations during the years ended November 30, 2015 and 2014, as such there were no revenues.
General and Administrative:
General and administrative expense was $1,779,947 for the year ended November 30, 2015 compared to $2,210,040 for the year ended November 30, 2014, a decrease of $430,093 or approximately 19%. The decrease is due to a reduction in stock based compensation of approximately $200,000 and an increase in travel and entertainment expenses of $35,800.
Impairment:
In November 2015, the Company determined that further drilling operations at the drilling location would be abandoned. Accordingly, the Company recorded an additional impairment charge of $2,712,403, equal to the remaining capitalized costs related to the Iron County operations.
Professional Fees:
Professional fees were $584,815 for the year ended November 30, 2015 compared to $296,454 for the year ended November 30, 2014, an increase of $288,361 or approximately 97%. Professional fees consisted of legal, accounting and auditing costs necessary to prepare our public filings, and oil and gas consulting fees. The increase in professional fees expense for the year ended November 30, 2015 compared to 2014 was primarily due to increases in accounting fees of $45,800 due to increased audit related fees, oil and gas consulting fees of $170,233 due to costs incurred to identify and drill an oil and gas well, and legal fees of $72,329 due to costs associated with private placements, oil and gas leases and general corporate matters.
Net Operating Loss:
Net operating loss for the year ended November 30, 2015 was $5,077,165, or ($0.10) per share, compared to a net operating loss of $2,506,494, or ($0.05) per share, for the year ended November 30, 2014, an increase of $2,570,671 or 103%. Net operating loss increased primarily due to the impairment of our oil and gas properties offset by a decrease in general and administrative expenses, including stock based compensation.
Other Expense:
Other expense was $394,219 for the year ended November 30, 2015 compared to $3,572 for the year ended November 30, 2014, an increase of $390,647, or approximately 10936%. Other expenses for 2014 consisted of interest expense. The increase in other expense for the year ended November 30, 2015 compared to 2014 was due to note discount amortization of $204,808, change in derivative liability of $244,338, an increase in interest expense of $36,078 and the recognition of $94,577 in income upon the extinguishment of debt related to conversions of notes payable.
Net Loss:
Net loss for the year ended November 30, 2015 was $5,471,384, or ($0.10) per share, compared to a net loss of $2,510,066, or ($0.05) per share, for the year ended November 30, 2014, an increase of $2,961,318 or 118%. Net loss increased primarily due to the impairment charge.
Fiscal year ended November 30, 2014
Revenues:
The Company was established on September 30, 2009 and had no operations during the years ended November 30, 2014 and 2013, as such there were no revenues.
General and Administrative:
General and administrative expense was $2,210,040 for the year ended November 30, 2014 compared to $139,842 for the year ended November 30, 2013, an increase of $2,070,198 or approximately 1,480%. General and administrative expenses consisted of bank fees of $1,972, SEC filing costs of $20,849, website development costs of $35,503, officer’s salary of $115,000, rent of $8,807, stock based compensation of $1,627,078, travel of $111,504, telephone of $2,297 and other expenses of $9,826. The increase in general and administrative expense for the year ended November 30, 2014 compared to 2013 was primarily due to stock based compensation and increased officer salary and web design expense.
Professional Fees:
Professional fees were $296,454 for the year ended November 30, 2014 compared to $97,533 for the year ended November 30, 2013, an increase of $198,921, or approximately 204%. Professional fees consisted of legal, accounting and auditing costs necessary to prepare our public filings, and oil and gas consulting fees. The increase in professional fees expense for the year ended November 30, 2014 compared to 2013 was primarily due to increases in accounting fees of $22,917, oil and gas consulting fees of $150,347, and legal fees of $25,657 due to costs associated with private placements, oil and gas leases and general corporate matters.
Net Operating Loss:
Net operating loss for the year ended November 30, 2014 was $2,506,494, or ($0.05) per share, compared to a net operating loss of $237,375, or ($0.01) per share, for the year ended November 30, 2013, an increase of $2,269,119 or 956%. Net operating loss increased primarily due to the increased general and administrative expenses, including stock based compensation, and increased legal fees.
Other Expense:
Other expense was $3,572 for the year ended November 30, 2014 compared to $34,529 for the year ended November 30, 2013, a decrease of $30,957, or approximately 90%. Other expenses for 2014 consisted of interest expense. The decrease in other expense for the year ended November 30, 2014 compared to 2013 was primarily due to no further impairment of the oil and gas asset.
Net Loss:
Net loss for the year ended November 30, 2014 was $2,510,066, or ($0.05) per share, compared to a net loss of $271,904, or ($0.01) per share, for the year ended November 30, 2013, an increase of $2,238,162 or 823%. Net loss increased primarily due to the increased general and administrative expenses, including stock based compensation, and increased legal fees.
LIQUIDITY AND CAPITAL RESOURCES
The following table summarizes total assets, accumulated deficit, stockholders’ equity (deficit) and working capital at November 30, 2015 compared to November 30, 2014.
Our principal source of operating capital has been provided from private sales of our Common Stock and debt financing. At November 30, 2015, we had working capital deficit of $(2,946,122). 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. Our funding sources to date have been as follows:
On March 12, 2015, the Company sold 187,794 shares of its Common Stock to Mablewood Investments for $100,000, pursuant to the January 26, 2015 Securities Purchase Agreement with Mablewood Investments.
On April 16, 2015, the Company sold 116,550 shares of its Common Stock to Mablewood Investments for $50,000, pursuant to the April 16, 2015 Securities Purchase Agreement with Mablewood Investments. These shares were issued on June 17, 2015.
On April 10, 2015, the Company issued 50,000 shares of its Common Stock to the two holders of the TJBB Lease Agreement, valued at $24,750.
On May 22, 2015, the Company entered into a securities purchase agreement, with an institutional investor to issue, subject to the terms and conditions of the Purchase Agreement, up to $1,150,000 in aggregate principal amount of senior convertible notes of the Company convertible into shares of the Company’s common stock at a conversion price equal to the lesser of (i) the product of (x) the arithmetic average of the lowest volume weighted average prices of the Common Stock during the twelve consecutive trading days ending and including the trading day immediately preceding the applicable conversion date and (y) 65%, and (ii) $0.75 (as adjusted for stock splits, stock dividends, stock combinations or other similar transactions). The notes bear interest at 7%. The Company filed a registration statement effective August 11, 2015 to register the resale rights of all the shares of Common Stock issuable under the convertible notes.
On August 13, 2015, the Company issued 250,000 shares of its Common Stock to Himmil Investments for $40,706 pursuant to a conversion on the convertible note.
On August 20, 2015, the Company issued 500,000 shares of its Common Stock to Himmil Investments for $61,750 pursuant to a conversion on the convertible note.
On August 25, 2015, the Company issued 1,021,225 shares of its Common Stock to Himmil Investments for $123,568 pursuant to a conversion on the convertible note.
On September 16, 2015, the Company issued 1,008,462 shares of its Common Stock to Himmil Investments for $104,275 pursuant to a conversion on the convertible note.
On October 15, 2015, the Company issued 497,550 shares of its Common Stock to Himmil Investments for $38,461 pursuant to a conversion on the convertible note.
On October 28, 2015, the Company issued 580,435 shares of its Common Stock to Himmil Investments for $27,339 pursuant to a conversion on the convertible note.
On November 6, 2015, the Company issued 535,000 shares of its Common Stock to Himmil Investments for $22,042 pursuant to a conversion on the convertible note.
On November 20, 2015, the Company issued 577,335 shares of its Common Stock to Himmil Investments for $15,704 pursuant to a conversion on the convertible note.
On October 7, 2015, the Company entered into a securities purchase agreement with an institutional investor to issue, subject to the terms and conditions of the Purchase Agreement, $600,000 of principal amount of a senior convertible note of the Company convertible into shares of the Company’s common stock, $0.001 par value per share, bearing interest at 7% and convertible at a conversion price equal to the lesser of (i) the product of (x) the arithmetic average of the lowest volume weighted average prices of the Company’s common stock during the twelve consecutive trading days ending and including the trading day immediately preceding the applicable conversion date and (y) 65%, and (ii) $0.30 (as adjusted for stock splits, stock dividends, stock combinations or other similar transactions).
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 November 30, 2015, our balance of cash on hand was $2,990. Our plan for satisfying our cash requirements for the next twelve months is through sale of shares of our Common Stock, third party debt financing, and/or traditional bank financing.
Contractual obligations and commitments.
As of November 30, 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., (“Clear Financial”). On December 5, 2013, the Company and Clear Financial entered into Amendment No. 1 to the Engagement Letter.
Under 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. 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 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. Mr. Plumb has been paid $18,000 under the agreement during the year ended November 30, 2013 and $57,500 during the year ended November 30, 2014. In February 2014, the Company issued Mr. Plumb 500,000 shares of restricted common stock of the Company. On February 6, 2015, the Company issued the remaining 500,000 shares.
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 November 13, 2013, the Company, entered into a purchase agreement (the “Tidewater Agreement”) with Tidewater Oil & Gas Company LLC (“Tidewater”) pursuant to which the Company purchased an 87.5% working interest in oil and gas leases covering approximately 36,787 acres in Iron County, Utah, with an 80% net revenue interest, in August 2014. 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 September 1, 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 purchased 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 delivered the leases to the Company with an 80% net revenue interest, but retained 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.
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 Common Stock to be issued in increments of 1,000,000 shares on May 13 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. During the year ended November 30, 2015, the Company recognized $850,000 in expense related to Mr. Ireland’s stock grant.
Summary of product and research and development that we will perform for the term of our plan.
File the regulatory documentation to identify a drilling location for our first oil and gas well.
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.
Recent Accounting Pronouncements
The Company has reviewed all recently issued, but not yet adopted, accounting standards in order to determine their effects, if any, on its results of operation, financial position or cash flows. Based on that review, the Company believes that none of these pronouncements will have a significant effect on its financial statements, with the exception of the adopted standard below.
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 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not required.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Virtus Oil and Gas Corp
(formerly known as Curry Gold Corp.)
We have audited the accompanying balance sheets of Virtus Oil and Gas Corp. as of November 30, 2015 and 2014 and the related statements of operations, stockholders' equity (deficit) and cash flows for the years ended November 30, 2015 and 2014. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Virtus Oil and Gas Corp as of November 30, 2015 and 2014, and the results of its operations and cash flows for each of the years in the two-year period ended November 30, 2015 and 2014 in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statement, the Company suffered a net loss from operations and has a net capital deficiency, which raises substantial doubt about its ability to continue as a going concern. Management’s plans regarding those matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ LBB & Associates, Ltd., LLP
www.LBB.com
Houston, Texas
March 11, 2016
VIRTUS OIL AND GAS CORP
BALANCE SHEETS
The accompanying notes are an integral part of these financial statements.
VIRTUS OIL AND GAS CORP
STATEMENTS OF OPERATIONS
The accompanying notes are an integral part of these financial statements.
VIRTUS OIL AND GAS CORP
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
The accompanying notes are an integral part of these financial statements.
VIRTUS OIL AND GAS CORP
STATEMENTS OF CASH FLOWS
The accompanying notes are an integral part of these financial statements.
VIRTUS OIL AND GAS CORP
NOTES TO FINANCIAL STATEMENTS
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.
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.
The Company has limited operating history and has earned no revenues. Since September 2013, the Company has devoted its activities to the acquisition of oil and gas assets.
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.
Certificate of Deposit
The company accounts for cash and claims that are committed for other than current operations as restricted cash. Restricted cash at November 30, 2015 consists of a certificate of deposit $30,000.
Stock Based Compensation
The Company accounts for share-based expense and activity in accordance with FASB ASC Topic 718, which establishes accounting for equity instruments exchanged for services. Under this provision, share-based compensation costs are measured at the grant date, based on the calculated fair value of the award, and are recognized as an expense over both the employee and non-employee’s requisite service period, generally the vesting period of the equity grant.
Reclassification
Certain amounts in the 2014 financial statements have been reclassified to conform to the 2015 financial presentation. These reclassifications have no impact on net loss.
VIRTUS OIL AND GAS CORP
NOTES TO FINANCIAL STATEMENTS
Note 1 - Nature of Business and Significant Accounting Policies (cont’d)
Accounting for Oil and Gas Properties
Oil and Natural Gas Properties. We use the full cost method of accounting for our investments in oil and natural gas properties. Under this method of accounting, all costs incurred in the acquisition, exploration and development of oil and natural gas properties, including unproductive wells, are capitalized. This includes any internal costs that are directly related to property acquisition, exploration and development activities but does not include any costs related to production, general corporate overhead or similar activities. Gain or loss on the sale or other disposition of oil and natural gas properties is not recognized, unless the gain or loss would significantly alter the relationship between capitalized costs and proved reserves.
Oil and natural gas properties include costs that are excluded from costs being depleted or amortized. Excluded costs represent investments in unproved and unevaluated properties and include non-producing leasehold, geological and geophysical costs associated with leasehold or drilling interests and exploration drilling costs. We exclude these costs until the project is evaluated and proved reserves are established or impairment is determined. Excluded costs are reviewed at least quarterly to determine if impairment has occurred. The amount of any evaluated or impaired oil and natural gas properties is transferred to capitalized costs being amortized.
Limitation on Capitalized Costs. Under the full-cost method of accounting, we are required, at the end of each fiscal quarter, to perform a test to determine the limit on the book value of our oil and natural gas properties (the "Ceiling Test"). If the capitalized costs of our oil and natural gas properties, net of accumulated amortization and related deferred income taxes, exceed the "Ceiling", this excess or impairment is charged to expense and reflected as additional accumulated depreciation, depletion and amortization or as a credit to oil and natural gas properties. The expense may not be reversed in future periods, even though higher oil and natural gas prices may subsequently increase the Ceiling. The Ceiling is defined as the sum of: (a) the present value, discounted at 10 percent, and assuming continuation of existing economic conditions, of 1) estimated future gross revenues from proved reserves, which is computed using oil and natural gas prices determined as the unweighted arithmetic average of the first-day-of-the-month price for each month within the 12-month period prior to the end of the reporting period (with consideration of price changes only to the extent provided by contractual arrangements including hedging arrangements pursuant to SAB 103), less 2) estimated future expenditures (based on current costs) to be incurred in developing and producing the proved reserves; plus (b) the cost of properties not being amortized (pursuant to Reg. S-X Rule 4-10 (c)(3)(ii)); plus (c) the lower of cost or estimated fair value of unproven properties included in the costs being amortized; net of (d) the related tax effects related to the difference between the book and tax basis of our oil and natural gas properties. Our Ceiling Test did result in an impairment of our oil and natural gas properties during the year ended November 30, 2015.
The Company recognized an impairment loss of $2,712,403 and $0 for the years ended November 30, 2015 and 2014 respectively.
Asset Retirement Obligation
An asset retirement obligation (“ARO”) associated with the impaired oil and gas assets is to be recognized as a liability in the period in which a legal obligation is incurred and becomes determinable. The ARO was $30,000 at November 30, 2015 and included in accrued expenses.
VIRTUS OIL AND GAS CORP
NOTES TO FINANCIAL STATEMENTS
Note 1 - Nature of Business and Significant Accounting Policies (cont’d)
Fair Value Estimates
Pursuant to the Accounting Standards Codification (“ASC”) No. 820, “Disclosures About Fair Value of Financial Instruments”, the Company records its financial assets and liabilities at fair value. ASC No. 820 provides a framework for measuring fair value, clarifies the definition of fair value and expands disclosures regarding fair value measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. ASC No. 820 establishes a three-tier hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:
Level 1-Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.
Level 2-Inputs (other than quoted prices included in Level 1) are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the asset/liability’s anticipated life.
Level 3-Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.
The carrying values for cash and cash equivalents, prepaid assets, accounts payable and accrued liabilities approximate their fair value due to their short maturities.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. A valuation allowance is provided for significant deferred tax assets when it is more likely than not, that such asset will not be recovered through future operations.
Fair Value of Financial Instruments
Financial instruments consist principally of cash, trade and notes receivables, 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
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.
VIRTUS OIL AND GAS CORP
NOTES TO FINANCIAL STATEMENTS
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 $8,364,921 at November 30, 2015, and a working capital deficit of $2,946,122 at November 30, 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.
Note 3 - Related Party
From time to time one of the Company’s prior CEOs, Daniel M. Ferris paid invoices on behalf of the Company. As of November 30, 2012, the Company owed Mr. Ferris a total of $14,918 as presented within accounts payable, related parties on the Company’s balance sheet. During the fiscal year ending November 30, 2013, Mr. Ferris advanced the Company $32,831 and the balance due to Mr. Ferris at November 30, 2012 was reclassified and included in note payable, related party at November 30, 2013. The note bears interest at 10%. The total amount due to Mr. Ferris at November 30, 2013 was $52,278, including principal and accrued interest. In July, 2014, Mr. Ferris forgave the amounts owed to him totaling $59,655 consisting of $47,749 in principal and $8,101 of accrued interest, as well as $3,805 in unpaid salary.
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 $5,000 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 $61,500 and $57,500 for Mr. Plumb’s services during the fiscal years ended November 30, 2015 and 2014.
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.
VIRTUS OIL AND GAS CORP
NOTES TO FINANCIAL STATEMENTS
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 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 $850,000 and $460,414 during the fiscal years ending November 30, 2015 and 2014, respectively, in expense related to Mr. Ireland’s stock grant.
Note 4 - Property and equipment, net
Property and equipment consist of the following at November 30, 2015 and 2014, respectively:
Depreciation and amortization expense totaled $683 and $421 for the years ended November 30, 2015 and 2014, respectively.
VIRTUS OIL AND GAS CORP
NOTES TO FINANCIAL STATEMENTS
Note 5 - Oil & Gas Properties
Oil and gas properties consist of the following unproved properties at November 30, 2015 and 2014, respectively:
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 was 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 and/or fails to timely complete the initial test well, it will forfeit its interests in the oil and gas leases and Tidewater will retain the purchase price.
During the year ended November 30, 2015, the Company made payments of $51,126 on expiring leases covered by the Tidewater Agreement, $10,000 for a survey for a drilling location, $24,750 for a lease modification, and $1,937,196 in drilling costs, for a total of $2,023,072.
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.
VIRTUS OIL AND GAS CORP
NOTES TO FINANCIAL STATEMENTS
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.
TJBB Amendment; Extension of Deadline; Drilling Contract
On April 2, 2015, the Company, entered into the First Amendment to Letter Agreement (the “TJBB Amendment”) with TJBB, which amends the TJBB Agreement. Pursuant to the TJBB Agreement, 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.
Pursuant to the TJBB Agreement, the Company anticipated that it would drill a 12,000-foot test well in the Jurassic-Navajo, Permian-Kaibab formation on the leases no later than June 2015. The TJBB Amendment modified the TJBB Agreement by postponing the deadline to drill the 12,000-foot test well to March 1, 2016, and replacing the commitment with an initial test well contemplated to a depth of 7,000-foot, or a depth sufficient to test the Jurassic-Navajo formation, on or before July 30, 2015.
In consideration of entering into the TJBB Amendment, the Company issued an aggregate 50,000 restricted shares of its Common Stock, valued at $24,750, to TJBB in a private transaction that was exempt from applicable registration requirements. Except for the amendments described above, the TJBB Agreement will remain unchanged and in full force and effect.
In May 2015, the Company entered into a drilling agreement with Energy Drilling, LLC (“Energy Drilling”) to drill a 7,000-foot vertical well on the Company’s oil and gas leases in Iron County, Utah. The Company will pay Energy Drilling a mobilization fee of $100,000, plus a mobilization rate of $11,900 per day, plus the actual cost of all required equipment, labor, services and permits to drill the well. Energy Drilling will begin drilling the well as soon as reasonably practicable after receiving the appropriate permits. The contract also provides for the Company to pay Energy Drilling a demobilization fee of $110,000 and a demobilization rate of $11,900 per day. The mobilization fee of $100,000 was paid on May 27, 2015. On August 18, 2015, the Company made a payment of $35,700 to Energy Drilling for mobilization of the rig.
In July 2015, the Company identified a drilling location for the test well and began drilling operations in August 2015. The test well drilling operations ceased in September 2015 in order to evaluate the information gathered to date. The well was drilled to a depth of 5,362 feet and revealed oil shows at depths from 4,470 feet to 4,670 feet, consistent with the seismic data obtained and previously analyzed. The Company has not yet determined the next steps to be taken regarding this well.
The Company recorded $122,000 impairment expense in August 31, 2015 for expired leases.
In November 2015, the Company determined that further drilling operations at the drilling location would be abandoned based on lack of funding and current market conditions. Accordingly, the Company recorded an additional impairment charge of $2,590,403, equal to the remaining capitalized costs related to the Iron County operations.
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.
VIRTUS OIL AND GAS CORP
NOTES TO FINANCIAL STATEMENTS
Note 6 - Convertible Notes Payable
Convertible notes payable consisted of the following:
During the year ended November 30, 2015, note holders converted principal in the amount of $433,845 into 4,970,007 number shares of common stock.
VIRTUS OIL AND GAS CORP.
NOTES TO FINANCIAL STATEMENTS
Note 7 - Derivative Liability
In May 2015, June 2015, August 2015, October 2015 and November 2015, the Company issued convertible note agreements with a variable conversion feature that gave rise to a derivative. The derivative liability has been valued using a binomial lattice-based option valuation model using holding period assumptions developed from the Company's business plan and management assumptions, and expected volatility from comparable companies including OTC Pink® and small-cap companies. Increases or decreases in the Company's share price, the volatility of the share price, changes in interest rates in general, and the passage of time will all impact the value of the derivative liability. The Company re-values the derivative liability at the end of each reporting period and any changes are reflected as gains or losses in current period results. The assumptions used are as follows:
(1)
The market value of common stock is based on closing market price as of initial valuation date.
(2)
The adjusted conversion price is calculated based on conversion terms described in the note agreement.
(3)
The risk-free interest rate was determined by management using the 2 year Treasury Bill as of the respective Offering or measurement date.
(4)
The volatility factor was estimated by management using the historical volatilities of the Company’s stock.
(5)
Management determined the dividend yield to be 0% based upon its expectation that it will not pay dividends for the foreseeable future.
The derivative liability on November 30, 2015 was $709,826. The change in the derivative value during the year ended November 30, 2015 of approximately $244,000 was included in the determination of net loss during the year ended November 30, 2015.
Note 8 - Stockholders’ Equity (Deficit)
Common Stock
On October 7, 2013, the Company entered into a Securities Purchase Agreement with Fieldstone Industries, Inc., pursuant to which the Company agreed to issue 250,000 shares of Common Stock to the investor for an aggregate purchase price of $100,000, or $0.3333 per share. 100,000 shares were issued on October 24, 2013, resulting in $60,000 in stock subscription payable as of November 30, 2013. The remaining 150,000 shares were issued on March 19, 2014 and netting the outstanding payable of $60,000 in the year 2014.
On December 10, 2013, the Company entered into a Securities Purchase Agreement with Fieldstone Industries, Inc., pursuant to which the Company agreed to issue 250,000 shares of Common Stock to the investor for an aggregate purchase price of $100,000, or $0.40 per share.
On January 9, 2014, the Company entered into a Securities Purchase Agreement with Fieldstone Industries, Inc., pursuant to which the Company agreed to issue 250,000 shares of Common Stock to the investor for an aggregate purchase price of $100,000, or $0.40 per share.
VIRTUS OIL AND GAS CORP.
NOTES TO FINANCIAL STATEMENTS
On February 6, 2014, the Company entered into a Securities Purchase Agreement with Fieldstone Industries, Inc., pursuant to which the Company agreed to issue 250,000 shares of Common Stock to the investor for an aggregate purchase price of $100,000, or $0.40 per share.
On April 20, 2014, the Company entered into a Securities Purchase Agreement with Fieldstone Industries, Inc., pursuant to which the Company agreed to issue 125,000 shares of Common Stock to the investor for an aggregate purchase price of $50,000, or $0.40 per share
On April 25, 2014, the Company entered into a Securities Purchase Agreement with Fieldstone Industries, Inc., pursuant to which the Company agreed to issue 300,000 shares of Common Stock to the investor for an aggregate purchase price of $120,000, or $0.40 per share.
On May 27, 2014, the Company entered into a Securities Purchase Agreement with Fieldstone Industries, Inc., pursuant to which the Company agreed to issue 250,000 shares of Common Stock to the investor for an aggregate purchase price of $100,000, or $0.40 per share. The proceeds were received on June 10, 2014, but only 100,000 shares for $40,000 have been issued as of November 30, 2014. The remaining proceeds of $60,000 are recorded as a stock payable as of November 30, 2014. The remaining 150,000 shares were issued June 10, 2015 and netting the outstanding payable of $60,000 in the year 2015.
On July 2, 2014, the Company entered into a Securities Purchase Agreement with Fieldstone Industries, Inc., pursuant to which the Company agreed to issue 203,776 shares of Common Stock to the investor for an aggregate purchase price of $150,000, or $0.74 per share.
On July 21, 2014, the Company entered into a Securities Purchase Agreement with Fieldstone Industries, Inc., pursuant to which the Company agreed to issue 154,735 shares of Common Stock to the investor for an aggregate purchase price of $150,000, or $0.97 per share.
On July 31, 2014, the Company entered into a Securities Purchase Agreement with Fieldstone Industries, Inc., pursuant to which the Company agreed to issue 140,437 shares of Common Stock to the investor for an aggregate purchase price of $150,000, or $1.07 per share.
On September 9, 2014, the Company entered into a Securities Purchase Agreement with Fieldstone Industries, Inc., pursuant to which the Company agreed to issue 136,116 shares of Common Stock to the investor for an aggregate purchase price of $150,000, or $1.10 per share.
On October 30, 2014, the Company entered into a Securities Purchase Agreement with Mablewood Investments, pursuant to which the Company agreed to issue 184,856 shares of Common Stock to the investor for an aggregate purchase price of $250,000, or $1.35 per share. The proceeds are recorded as a stock payable as of November 30, 2014. The proceeds were received on November 7, 2014, but the 184,856 shares were not issued until January 21, 2015 and crediting the outstanding payable of $250,000 in January 2015.
On March 12, 2015, the Company sold 187,794 shares of its Common Stock to Mablewood Investments for $100,000, pursuant to the January 26, 2015 Securities Purchase Agreement with Mablewood Investments.
On April 16, 2015, the Company sold 116,550 shares of its Common Stock to Mablewood Investments for $50,000, pursuant to the April 16, 2015 Securities Purchase Agreement with Mablewood Investments. These shares were issued on June 17, 2015.
On April 10, 2015, the Company issued 50,000 shares of its Common Stock to the two holders of the TJBB Lease Agreement, valued at $24,750.
On August 13, 2015, the Company issued 250,000 shares of its Common Stock to Himmil Investments for $40,706 pursuant to a conversion on the convertible note.
VIRTUS OIL AND GAS CORP.
NOTES TO FINANCIAL STATEMENTS
On August 20, 2015, the Company issued 500,000 shares of its Common Stock to Himmil Investments for $61,750 pursuant to a conversion on the convertible note.
On August 25, 2015, the Company issued 1,021,225 shares of its Common Stock to Himmil Investments for $123,568 pursuant to a conversion on the convertible note.
On September 16, 2015, the Company issued 1,008,462 shares of its Common Stock to Himmil Investments for $104,275 pursuant to a conversion on the convertible note.
On October 15, 2015, the Company issued 497,550 shares of its Common Stock to Himmil Investments for $38,461 pursuant to a conversion on the convertible note.
On October 28, 2015, the Company issued 580,435 shares of its Common Stock to Himmil Investments for $27,339 pursuant to a conversion on the convertible note.
On November 6, 2015, the Company issued 535,000 shares of its Common Stock to Himmil Investments for $22,042 pursuant to a conversion on the convertible note.
On November 20, 2015, the Company issued 577,335 shares of its Common Stock to Himmil Investments for $15,704 pursuant to a conversion on the convertible note.
Contributed Capital
In July 2014, a total of $59,655 of debt, including accrued interest and unpaid salary was forgiven by the former CEO of the Company and contributed to capital.
Stock Compensation
The Company has stock based compensation agreements with its senior executives, Rupert Ireland, Brett Murray and Steven Plumb and with its prior CEO, Dan Ferris.
During the year ended November 30, 2014, the Company recognized $460,414, $766,664 and $200,000, for Rupert Ireland, Steven Plumb and Dan Ferris, respectively, as compensation to each executive. Mr. Plumb was issued 500,000 shares in December 2013 in accordance with his contract.
On March 19, 2014, the Company issued 250,000 shares of its $0.001 par value common stock to a consultant as compensation for services rendered. The fair market value of the common stock on the date of issuance was $200,000.
During the year ended November 30, 2015, the Company recognized $850,000, $460,408 and $33,333, respectively, as compensation to each executive. Mr. Ireland was issued 1,000,000 shares in May 14, 2015, Mr. Murray was issued 500,000 shares on June 5, 2015 and Mr. Plumb was issued 500,000 shares in February 2015 in accordance with their contracts.
On September 17, 2015, the Company issued 90,667 shares of its Common Stock to a consultant for professional services rendered. The fair market value of the shares was $18,133 on the date of grant.
During the year ended November 30, 2015, the Company issued 175,000 common shares for services valued at $65,308.
VIRTUS OIL AND GAS CORP.
NOTES TO FINANCIAL STATEMENTS
Note 9 - Income Taxes
The Company accounts for income taxes under FASB ASC 740-10, which provides for an asset and liability approach of accounting for income taxes. Under this approach, deferred tax assets and liabilities are recognized based on anticipated future tax consequences, using currently enacted tax laws, attributed to temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts calculated for income tax purposes.
For the years ended November 30, 2015 and 2014, respectively, the Company incurred net operating losses and, accordingly, no provision for income taxes has been recorded. In addition, no benefit for income taxes has been recorded due to the uncertainty of the realization of any tax assets. The Company had approximately $5,600,000 and $2,900,000 of federal net operating losses at November 30, 2015 and 2014, respectively. The net operating loss carry forwards, if not utilized, will begin to expire in 2030.
The components of the Company’s deferred tax asset are as follows:
Based on the available objective evidence, including the Company’s history of its loss, management believes it is more likely than not that the net deferred tax assets will not be fully realizable. Accordingly, the Company provided for a full valuation allowance against its net deferred tax assets at November 30, 2015 and 2014, respectively. The Company’s income tax returns are subject to examinations by the U.S. federal, state or local authorities for tax years 2012 and forward.
A reconciliation between the amounts of income tax benefit determined by applying the applicable U.S. and State statutory income tax rate to pre-tax loss is as follows:
In accordance with FASB ASC 740, the Company has evaluated its tax positions and determined there are no uncertain tax positions as of any date on or before November 30, 2015 and 2014.
Note 10 - Commitments and Contingencies
On August 1, 2013, the Company entered into an engagement letter with Clear Financial Solutions, Inc., (“Clear Financial”). On December 5, 2013, the Company and Clear Financial entered into Amendment No. 1 to the Engagement Letter.
Under 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. 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 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. Mr. Plumb has been paid $18,000 under the agreement during the year ended November 30, 2013 and $57,500 during the year ended November 30, 2014. In February 2014, the Company issued Mr. Plumb 500,000 shares of restricted common stock of the Company. On February 6, 2015, the Company issued the remaining 500,000 shares.
VIRTUS OIL AND GAS CORP.
NOTES TO FINANCIAL STATEMENTS
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 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 retained a 12.5% working interest in the Tidewater Leases, the Company 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 was originally required 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 Tidewater Leases to Tidewater, along with the purchase price and any other costs or fees paid under the Tidewater Agreement. On October 14, 2014, the Company paid $17,274 to Tidewater for reimbursement of costs. In addition to the payments made under the Tidewater Agreement, the Company incurred $171,584 in capitalized exploration costs for a total of $491,116.
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 Common Stock to be issued in increments of 1,000,000 shares on May 13 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. During the years ended November 30, 2015 and 2014, the Company recognized $850,000 and $460,414 in expense related to Mr. Ireland’s stock grant.
On June 1, 2014 (“effective date”), the Company entered into a consulting agreement with a company owned by Brett Murray, our Chief Operating Officer, to provide the services of a professional “landman” on its oil and gas leases. Pursuant to the agreement, the consultant will be paid a consulting fee of $9,000 per month.
The consultant will also be entitled to receive up to 2,000,000 shares of the Common Stock, $0.001 par value per share, on the following schedule: (i) one hundred twenty five thousand (125,000) shares of common stock on the effective date; (ii) three hundred seventy five thousand (375,000) shares on the one year anniversary of the effective date; and (iii) two hundred fifty thousand (250,000) shares on each six-month anniversary thereafter.
VIRTUS OIL AND GAS CORP.
NOTES TO FINANCIAL STATEMENTS
The agreement has an initial term of one year and will automatically renew for successive one-year periods unless either party provides the other party written notice of its intention to not renew the agreement at least thirty days prior to the end of the initial term.
On April 17, 2014 (“effective date”), the Company entered into an agreement with a consultant to provide geophysical services on its oil and gas leases. Pursuant to the agreement, the consultant will be paid a consulting fee of $5,000 per month. In March 2015, the Company cancelled this agreement.
The consultant will also be entitled to receive up to 100,000 shares of the Common Stock, $0.001 par value per share, on the following schedule: (i) fifty thousand (50,000) shares of common stock on the effective date; and (ii) in the event that the agreement is extended for an additional six months beyond the initial term, fifty thousand (50,000) shares on the six month anniversary of the effective date.
The agreement has an initial term of six months and will automatically renew for one additional six month period unless either party provides the other party written notice of its intention, to not renew the agreement at least thirty days prior to the end of the initial term.
On June 10, 2015 100,000 shares of common stock were issued to the consultant. On October 1, 2015 the contract was terminated and no additional shares will be issued to the consultant.
Litigation
On October 28, 2015, Energy Services, LLC and Energy Drilling, LLC filed a suit against the Company in the 5th Judicial District Court for Iron County as Civil No. 150500183 for collection of invoices totaling $307,418 and $605,305, respectively. The case has just begun the discovery phase. This is a suit for the payment for services claimed to be incurred in the drilling of a well in Iron County Utah. The Company disputes the validity of these invoices and will mount a vigorous defense of the issues. The suit alleges a verbal contract and thereby the breach by failure of payment. The company believes it has meritorious defenses against the suit, the ultimate resolution of which will likely result in substantial offsets.
On February 29, 2016, Energy Drilling, LLC, filed suit against the Company United States District Court in the District of Wyoming as case No. 16CV040MLC for the collection of outstanding invoices. The Company disputes the validity of these invoices and will mount a vigorous defense of the issues. We believe we will obtain a favorable outcome.
Note 11 - Subsequent Events
On December 8, 2015, the Company issued 130,009 shares of its Common Stock to a consultant for services rendered. The fair market value of the shares on the date of issuance was $3,380.
During the period from December 1, 2015 through March 4, 2016, the Company issued 28,322,696 shares to Himmil Investments for $268,039 in principal and $18,763 in accrued interest pursuant to conversions of convertible notes.
On December 30, 2015, the Company entered into a Securities Purchase Agreement whereby the Company sold a convertible note with a face value of $58,000, bearing interest at 10%. The convertible note is convertible into the Company’s common stock at the rate of 61% of the average of the lowest three (3) closing price of the Company’s common stock during the ten trading days prior to the date of conversion.
Effective January 13, 2016, the Company issued 500,000 shares of its Common Stock to each of its CEO, COO and CFO for services rendered. The fair market value of the shares on the date of issuance was $20,250.
On February 29, 2016, Energy Drilling, LLC, filed suit against the Company United States District Court in the District of Wyoming as case No. 16CV040MLC for the collection of outstanding invoices. The Company disputes the validity of these invoices and will mount a vigorous defense of the issues. We believe we will obtain a favorable outcome.
Effective March 12, 2016, the Company acquired the mineral rights to 160 gross acres, 128 net acres, in San Juan County, Utah, in exchange for 5,000,000 shares of the Company common stock. The lease includes two wells, neither of which is currently producing. The fair market value of the common stock was $145,000 on the effective date.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
The Company has had no disagreements with its certified public accountants with respect to accounting practices or procedures or financial disclosure.
ITEM 9A.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer, of the effectiveness of our disclosure controls and procedures (as defined) in Exchange Act Rules 13a - 15(e). Based upon that evaluation, our principal executive officer concluded that, as of the end of the period covered in this Annual 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 and is accumulated and communicated to our management, including our principal executive officer, as appropriate to allow timely decisions regarding required disclosure.
Our principal executive officer does not expect that our disclosure controls or internal controls will prevent all error and all fraud. Although our disclosure controls and procedures were designed to provide reasonable assurance of achieving their objectives and our principal executive officer has determined that our disclosure controls and procedures are effective at doing so, a control system, no matter how well conceived and operated, can provide only reasonable, and not absolute, assurance that the objectives of the 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 controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented if there exists in an individual a desire to do so. There can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Management’s Annual Report on Internal Control over Financial Reporting.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a- 15(f) under the Securities Exchange Act, as amended. Management, being our sole executive officer, Mr. Ireland, evaluated the effectiveness of our internal control over financial reporting as of November 30, 2015. In making this assessment, management used the criteria set forth by the committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control - Integrated Framework. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. We have identified the following material weaknesses:
·As of November 30, 2015, we did not maintain effective controls over financial reporting. Specifically segregation of duty controls were not designed and in place to ensure that the financial impact of certain transactions were accounted for properly.
·As of November 30, 2015, we did not maintain effective controls over financial reporting. Specifically, our Board of Directors does not currently have any independent members and no director qualifies as an audit committee financial expert. As these entity level programs have a pervasive effect across the organization, management has determined that these circumstances constitute a material weakness.
Because of these material weaknesses, management has concluded that we did not maintain effective internal control over financial reporting as of November 30, 2014 based on the criteria established in “Internal Control-Integrated Framework” issued by the COSO.
We intend to take measures to cure the aforementioned material weaknesses as resources become available, including, but not limited to, the following:
·We intend to hire additional staff as resources become available to maintain proper segregation of duty; and
·We intend to expand our Board of Directors and establish and audit committee as resources become available.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting through the date of this Annual Report or during the quarter ended November 30, 2015, that materially affected, or is reasonably likely to materially affect, the our internal control over financial reporting.
Independent Registered Accountant’s Internal Control Attestation
This Annual Report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to rules of the SEC that permit us to provide only management’s report in this Annual Report.
ITEM 9B.
ITEM 9B. OTHER INFORMATION
There are no further disclosures.
PART III
ITEM 10.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The directors and officers as of November 30, 2014, are set forth below. The directors hold office for their respective term and until their successors are duly elected and qualified. Vacancies in the existing Board of Directors are filled by a majority vote of the remaining directors. The officers serve at the will of our Board of Directors.
Background of Officer and Directors
Set forth below are the names of our directors and officers, all positions and offices held, the period during which they have served as such, and the business experience during at least the last five years:
Rupert Ireland:
Rupert Ireland, age 38, has been our President and Chief Executive Officer since May 13, 2014 and a member of our Board of Directors since June 20, 2014. Mr. Ireland most recently served as the Head of Trading at CARAX, a brokerage firm that focuses on high volume execution in cash equities and derivatives trading. Mr. Ireland was a sales trader from 2010 to 2014 in the international offices of CARAX. From 2009 to 2010, Mr. Ireland was a sales trader at the brokerage firm, OCM Capital Markets. Mr. Ireland began his career in the financial services industry in 2003 by working in the marketing and public relations department of City Index, a brokerage firm that offers online financial spread betting, foreign exchange and Contract for Difference (CFD) trading. Mr. Ireland later joined the equities trading desk of City Index, where he traded oil and gas futures and CFDs. Mr. Ireland received his bachelor’s degree in business from the University of Newcastle.
Steven M. Plumb:
Steven M. Plumb, age 56, is a certified public accountant licensed in the State of Texas. Mr. Plumb is the President of Clear Financial, an accounting and consulting firm based in Houston, Texas. Mr. Plumb has over 25 years of experience in accounting, operations, finance and marketing. Prior to forming Clear Financial in 2001, Mr. Plumb was the Chief Financial Officer of ADVENTRX Pharmaceuticals Inc. He also held various roles with the “Big 4” accounting firms and was the Chief Financial Officer for DePelchin Children’s Center, a Houston-based nonprofit organization that offers mental health, foster care and adoption services in Texas. Mr. Plumb earned his Bachelor’s Degree in Business Administration in Accounting from the University of Texas at Austin in 1981.
Employment Agreements
Mr. Ireland
Mr. Ireland acts as our sole officer and is our only full-time employee. On May 13, 2014, the Company entered into an Employment Agreement with Mr. Ireland. Pursuant to the Employment Agreement, Mr. Ireland is paid a base salary of $120,000 per year and received 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.
Mr. Plumb
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, 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, Mr. Plumb will execute the certifications required by Form 10-K and Form 10-Q pursuant to the requirements of the Securities Exchange Act of 1934 and Section 302 of the Sarbanes-Oxley Act of 2002. 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.
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.
Term of Office
All directors have a term of office expiring at the next annual general meeting of the Company, unless reelected or earlier vacated in accordance with our bylaws. All officers have a term of office lasting until their removal or replacement by the board of directors.
Code of Ethics
The Company has not yet adopted a Code of Ethics as defined by applicable rules of the SEC. The Company only has one director and officer, and no employees. The Company anticipates that it will adopt a Code of Ethics when appropriate as it hires additional employees, obtains additional officers and directors, and begins operations.
Board Committees
The Company does not presently have a separately designated audit committee, compensation committee, nominating committee, executive committee or any other committees of its Board of Directors. As such, the sole director acts in those capacities. The Company believes that committees of the Board are not necessary at this time given that the Company is in its exploration stage. However, the sole director will continue to study this matter, and the Company plans to add Board members and/or committees of the Board as its business develops.
Audit Committee Financial Expert
Mr. Ireland does not qualify as an audit committee financial expert. The Company believes that the cost related to retaining such a financial expert at this time is prohibitive, given its current operating and financial condition. Further, because the Company is in the development stage of its business operations, it believes the services of an audit committee financial expert are not warranted at this time.
Legal Proceedings
No director, nominee for director, or executive officer has appeared as a party in any legal proceeding material to an evaluation of his or ability or integrity during the past five years.
Compliance with Section 16(a) Of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934 requires our executive officers and directors, and persons who own more than ten percent of our Common Stock to file reports of ownership and change in ownership with the Securities and Exchange Commission and the exchange on which the Common Stock is listed for trading. Executive officers, directors and more than ten percent stockholders are required by regulations promulgated under the Exchange Act to furnish us with copies of all Section 16(a) reports filed. Based solely on our review of copies of the Section 16(a) reports filed for the fiscal year ended November 30, 2012, we believe that our executive officers, directors and ten percent stockholders complied with all reporting requirements applicable to them, except that it appears that Soenke Timm, a former CEO and President and Director of the Company, did not file a Form 3 with respect to his initial appointment, a Form 4 with respect to the 28,000,000 shares of Common Stock issued to him in October 2009, or a Form 5 for the 2011 or 2012 fiscal years.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
Since inception, we have paid no cash or non-cash executive compensation (including stock options or awards, perquisites, or deferred compensation plans), whatsoever, to the officers or directors. Following the date of this prospectus, our officers and directors will also continue not to receive any form of cash compensation from the Company until at least such time as we commence operations.
The following tables set forth certain summary information concerning all plan and non-plan compensation awarded to, earned by, or paid to the named executive officers and directors by any person for all services rendered in all capacities to the Company since inception until the date of this filing:
Summary Compensation Table
(1) Mr. Ferris resigned from his positions as President, Treasurer and Secretary on May 13, 2014, and from the board of directors on July 10, 2014.
Option Grants Since Inception Until The Date of This Filing
We do not currently have a stock option plan. No individual grants of stock options, whether or not in tandem with stock appreciation rights known as SARs or freestanding SARs have been made to any executive officer or director since our inception; accordingly, no stock options have been granted or exercised by any of the officers or directors since we were founded.
Long-Tem Incentive Plans and Awards
We do not have any long-term incentive plans that provide compensation intended to serve as incentive for performance. No individual grants or agreements regarding future payouts under non-stock price-based plans have been made to any executive officer or any director or any employee or consultant since our inception; accordingly, no future payouts under non-stock price-based plans or agreements have been granted or entered into or exercised by any of the officers or directors or employees or consultants since we were founded.
Compensation of Directors
The members of the Board of Directors are not compensated by us for acting as such. Directors are reimbursed for reasonable out-of-pocket expenses incurred. There are no arrangements pursuant to which directors are or will be compensated in the future for any services provided as a director.
Employment Contracts, Termination of Employment, Change-in-Control Arrangements
Except for the agreements disclosed above with Mr. Ireland and Mr. Plumb, there are no employment agreements, or other contracts or arrangements with our officers or directors, and there are no compensation plans or arrangements, including payments to be made by the Company, with respect to the officers, directors, employees or consultants of the Company that would result from the resignation, retirement or any other termination of such directors, officers, employees or consultants. There are no arrangements for directors, officers or employees that would result from a change-in-control.
Indemnification
We may indemnify an officer or director who is made a party to any proceeding, including a lawsuit, because of his position, if he acted in good faith and in a manner he reasonably believed to be in our best interest. We may advance expenses incurred in defending a proceeding. To the extent that the officer or director is successful on the merits in a proceeding as to which he is to be indemnified, we must indemnify him against all expenses incurred, including attorney’s fees. With respect to a derivative action, indemnity may be made only for expenses actually and reasonably incurred in defending the proceeding, and if the officer or director is judged liable, only by a court order. The indemnification is intended to be to the fullest extent permitted by the laws of the State of Nevada.
Regarding indemnification for liabilities arising under the Securities Act, which may be permitted to directors or officers under Nevada law, we are informed that, in the opinion of the SEC, indemnification is against public policy, as expressed in the Act and is, therefore, unenforceable.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS
The following table sets forth certain information concerning the number of shares of our Common Stock owned beneficially as of the date of this filing by: (i) each person (including any group) known to us to own more than five percent (5%) of any class of our voting securities; (ii) each of our directors; (iii) each of our named executive officers; and (iv) officers and directors as a group. Unless otherwise indicated, the shareholder listed possesses sole voting and investment power with respect to the shares shown.
Notes:
(1) Based on 87,987,641 shares of our Common Stock issued and outstanding as of March 4, 2016.
Equity Compensation Plans
We have no equity compensation program, including no stock option plan, and none are planned for the foreseeable future.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
Our officers and directors are involved in other business activities and may, in the future, become involved in other business opportunities. If a specific business opportunity becomes available, they may face a conflict in selecting between our interests and these other business interests.
Except as described below, there are no transactions since the inception of the Company, or any currently proposed transaction, in which we were or are to be a participant and the amount involved exceeded or exceeds the lesser of $120,000 or one percent of the average of our total assets at year-end for the last two completed fiscal years, and in which any related person had or will have a direct or indirect material interest.
From time to time the Company’s former CEO, Daniel Ferris paid invoices on behalf of the Company. In July 2014 Mr. Ferris forgave the amounts owed to him totaling $59,655 consisting of $47,749 in principal and $8,101 of interest accrued at 10% per annum, as well as $3,805 in unpaid salary. The forgiven debt was contributed to capital.
On June 20, 2014, Daniel M. Ferris (“Ferris”) entered into a Stock Purchase Agreement (the “Purchase Agreement”) with Rupert Ireland (“Ireland”), pursuant to which Ferris sold to Ireland an aggregate 28,000,000 shares of Common Stock of the Company (the “Shares”) for a purchase price of $2,000,000. The transfer of the Shares to Ireland was effective on June 26, 2014. Pursuant to the Purchase Agreement, Ireland acquired all of the shares of Common Stock held by Ferris, representing approximately 57.4% of the issued and outstanding shares of Common Stock of the Company. Ireland purchased the Shares by paying the amount of $180,000 at closing and issuing an unsecured promissory note in the principal amount of $1,820,000, bearing interest at a rate of five percent (5%) per annum, with the entire principal balance and all accrued interest thereon due and payable on June 26, 2016.
Director Independence
Quotations for the Company’s Common Stock are entered on the Over-the-Counter Bulletin Board inter-dealer quotation system, which does not have director independence requirements. For purposes of determining director independence, the Company applied the definitions set out in NASDAQ Rule 4200(a)(15). Under NASDAQ Rule 4200(a)(15), a director is not considered to be independent if he or she is also an executive officer or employee of the corporation. As a result, the Company does not have any independent directors. Our sole director, M. Rupert Ireland, is also the Company’s principal executive officer.
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The aggregate fees billed to us by our principal accountant for services rendered during the fiscal years ended November 30, 2015 and 2014 are set forth in the table below:
(1) Audit fees consist of fees for professional services rendered in connection with or related to the audit of our consolidated annual financial statement, for the review of interim consolidated financial statements in Form 10-Qs and for services normally provided in connection with statutory and regulatory filings or engagements, including registration statements.
(2) Tax fees consist of fees billed for professional services rendered for tax compliance and tax advice.
(3) All other fees consist of fees billed for assistance with assessment for Sarbanes-Oxley, SEC correspondence and services other than the services reported in other categories.
Audit Committee’s Pre-Approval Practice.
We do not have an audit committee. Our board of directors performs the function of an audit committee. Section 10A(i) of the Securities Exchange Act of 1934, as amended, prohibits our auditors from performing audit services for us as well as any services not considered to be audit services unless such services are pre-approved by our audit committee or, in cases where no such committee exists, by our board of directors (in lieu of an audit committee) or unless the services meet certain de minimis standards.
PART IV
ITEM 15.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
The following exhibits are filed as part of, or are incorporated by reference into, this Annual Report:
(a) Incorporated by reference to our Registration Statement on Form S-1, filed on January 10, 2009 (File No. 333-164222)
(b) Incorporated by reference to Form SC 13D, filed by Mr. Ferris on July 16, 2012 (File No. 005-86896)
(c) Incorporated by reference to our Form 8-K, filed on October 19, 2013 (File No. 000-54526)
(d) Incorporated by reference to our Form 8-K, filed on November 14, 2013 (File No. 000-54526)
(e) Incorporated by reference to our Form 8-K, filed on December 9, 2013 (File No. 000-54526)
(f) Incorporated by reference to our Form 8-K, filed on May 13, 2014 (File No. 000-54526)
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
THE COMPANY
By: /s/ M. Rupert Ireland
M. Rupert Ireland
President and Chief Executive Officer,
Treasurer and Secretary
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.
Signature
Title
Date
/s/ M. Rupert Ireland
President and Chief Executive Officer
March 15, 2016
M. Rupert Ireland
(Principal Executive Officer)
Signature
Title
Date
/s/ Steven M. Plumb
Chief Financial Officer
March 15, 2016
Steven M. Plumb
(Principal Accounting Officer)