ITEM 1
BUSINESS.
General
Sears Oil and Gas Corporation (“SRSG”), a Nevada corporation, was incorporated on October 18, 2005. At the time SRSG was organized its principal business objective was to take advantage of the many and varied opportunities presented within the oil and gas industry. SRSG intended to exploit multiple revenue streams throughout the natural resources industry, including oil, gas and mining areas. However, after various failed efforts, the principals sold controlling interest in the Company. The Company now seeks another company with which to merge or acquire for stock. SRSG has never declared bankruptcy, it has never been in receivership, and it has never been involved in any legal action or proceedings. Since incorporation, SRSG has not made any significant purchase or sale of assets, nor has it been involved in any mergers, acquisitions or consolidations. SRSG has no subsidiaries. Our fiscal year end is December 31st.
Description of Business
The Company intends to continue to seek, investigate and, if warranted, acquire an interest in a business opportunity. Management has not established any firm criteria with respect to the type of business with which the Company desires to become involved and will consider participating in a business enterprise in a variety of different industries or areas with no limitation as to the geographical location of the enterprise. The Company’s management will have unrestricted discretion in reviewing, analyzing, and ultimately selecting a business enterprise for acquisition or participation by the Company. It is anticipated that any enterprise ultimately selected will be selected by management based on its analysis and evaluation of the business and financial condition of the enterprise, as well as its business plan, potential for growth, and other factors, none of which can be anticipated to be controlling. If the Company is able to locate a suitable business enterprise, the decision to acquire or participate in the enterprise may be made by the Company’s board of directors without stockholder approval. Approval may also be obtained pursuant to the consent of a majority of the Company’s stockholders and, since the principal stockholders of the Company own approximately 68% of the Company’s outstanding shares, they would be able to approve any transaction with the affirmative vote of a limited number of additional shares. Further, it is anticipated that the acquisition of or participation in an enterprise may involve the issuance by the Company of a controlling interest in the Company, which would dilute the respective equity interests of the Company’s stockholders and may also result in a reduction of the Company’s net tangible asset value per share.
The activities of the Company will continue to be subject to several significant risks which arise primarily as a result of the fact that the Company has no specific business and may acquire or participate in a business opportunity based on the decision of management which will, in all probability, act without the consent, vote, or approval of the Company’s stockholders. The risks faced by the Company are further increased as a result of its limited resources and its inability to provide a prospective business opportunity with additional capital. (See “Item 1A.
ITEM 1A
RISK FACTORS
Factors Affecting Future Operating Results
This Annual Report on Form 10-K contains forward-looking statements concerning our future programs, expenses, revenue, liquidity and cash needs as well as our plans and strategies. These forward-looking statements are based on current expectations and we assume no obligation to update this information, except as required by applicable laws and regulations. Numerous factors could cause actual results to differ significantly from the results described in these forward-looking statements, including the following risk factors.
Because our auditors have issued a going concern opinion, there is substantial uncertainty we will continue activities in which case you could lose your investment.
Our auditors have issued a going concern opinion. This means that there is substantial doubt that we can continue as an ongoing business for the next twelve months. As such we may have to cease activities and you could lose your investment. We will continue to look for a merger
candidate for our business.
We currently do not have adequate funds to cover the costs associated with maintaining our status as a Reporting Company.
As of December 31, 2014 the Company had approximately $376 cash available.
We lack an operating history and have losses which we expect to continue into the future. As a result, we may have to suspend or cease activities, which would result in a complete loss of any investment made into the Company.
We were incorporated on October 18, 2005 and we have not started any business activities or realized any revenues. We have no operating history upon which an evaluation of our future success or failure can be made. As of December 31, 2014 our net loss since inception was $236,870. Based upon current plans, we expect to incur operating losses in future periods.
As a result, we may not generate revenues in the future.
If we are able to complete financing through the sale of additional shares of our common stock in the future, then shareholders will experience dilution.
The most likely source of future financing presently available to us is through the sale of shares of our common stock. Any sale of common stock will result in dilution of equity ownership to existing shareholders. This means that if we sell shares of our common stock, more shares will be outstanding and each existing shareholder will own a smaller percentage of the shares then outstanding. To raise additional capital we may have to issue additional shares, which may substantially dilute the interests of existing shareholders. Alternatively, we may have to borrow large sums, and assume debt obligations that require us to make substantial interest and capital payments.
Because there is currently limited public trading market for our common stock, you may not be able to resell your stock.
Our common stock is quoted on the OTCQB exchange, under the symbol SRSG. We have limited trading.
Because our securities are subject to penny stock rules, you may have difficulty reselling your shares.
Our shares are penny stocks are covered by section 15(g) of the Securities Exchange Act of 1934 which imposes additional sales practice requirements on broker/dealers who sell the Company's securities including the delivery of a standardized disclosure document; disclosure and confirmation of quotation prices; disclosure of compensation the broker/dealer receives; and, furnishing monthly account statements. For sales of our securities, the broker/dealer must make a special suitability determination and receive from its customer a written agreement prior to making a sale. The imposition of the foregoing additional sales practices could adversely affect a shareholder's ability to dispose of his stock and as a result the investor may lose his entire investment made into the Company.
We are subject to the requirements of section 404 of the Sarbanes-Oxley Act. If we are unable to timely comply with section 404 or if the costs related to compliance are significant, our profitability, stock price and results of operations and financial condition could be materially adversely affected.
We are required to comply with the provisions of Section 404 of the Sarbanes-Oxley Act of 2002, which require us to maintain an ongoing evaluation and integration of the internal controls of our business. We were required to document and test our internal controls and certify that we are responsible for maintaining an adequate system of internal control procedures for the year ended December 31, 2014.
We evaluated our existing controls for the year ended December 31, 2014. Our Chief Executive Officer and Chief Financial Officer identified material weaknesses in our internal control over financial reporting and determined that we did not maintain effective internal control over financial reporting as of December 31, 2014. The identified material weaknesses did not result in material audit adjustments to our 2014 financial statements; however, uncured material weaknesses could negatively impact our financial statements for subsequent years.
We cannot be certain that we will be able to successfully complete the procedures, certification and attestation requirements of Section 404 or that our auditors will not have to report a material weakness in connection with the presentation of our financial statements. If we fail to comply with the requirements of Section 404 or if our auditor’s report such material weakness, the accuracy and timeliness of the filing of our annual report may be materially adversely affected and could cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our common stock. In addition, a material weakness in the effectiveness of our internal controls over financial reporting could result in an increased chance of fraud and the loss of customers, reduce our ability to obtain financing and require additional expenditures to comply with these requirements, each of which could have a material adverse effect on our business, results of operations and financial condition.
Further, we believe that the out-of-pocket costs, the diversion of management’s attention from running the day-to-day operations and operational changes caused by the need to comply with the requirements of Section 404 of the Sarbanes-Oxley Act could be significant. If the time and costs associated with such compliance exceed our current expectations, our results of operations could be adversely affected.
ITEM 1B
ITEM 1B
UNRESOLVED STAFF COMMENTS.
None
ITEM 2
ITEM 2
PROPERTIES.
We do not own any property. The principal offices are located at 1661 Lakeview Circle, Ogden, Utah 84403
ITEM 3
ITEM 3
LEGAL PROCEEDINGS.
Sears Oil and Gas is not currently a party to any legal proceedings.
ITEM 4
ITEM 4
MINE SAFETY DISCLOSURES.
None.
PART II
ITEM 5
ITEM 5
MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
The Company’s common stock is included on the OTCQB Exchange under the symbol “SRSG.” On March19, 2015, the published closing bid was $1.75 for the Company’s common stock on the OTCQB exchange.
At December 31, 2014, there were approximately 33 holders of record of the Company’s common stock, as reported by the Company’s transfer agent. In computing the number of holders of record, each broker-dealer and clearing corporation holding shares on behalf of its customers is counted as a single stockholder.
The Following represents trading ranges per quarter.
Quarter Ending
3/31/2014
High $2.50 Low $0.50
Quarter Ending
6/30/2014
High $2.40 Low $1.30
Quarter Ending
9/30/2014
High $3.32 Low $1.40
Quarter Ending
12/31/2014
High $1.60 Low $1.60
No dividends have ever been paid on the Company’s securities, and the Company has no current plans to pay dividends in the foreseeable future.
Equity Compensation Plans
We do not have in effect any compensation plans under which our equity securities are authorized for issuance and we do not have any outstanding stock options.
Transfer Agent
Presidents Stock Transfer, Suite 215-515 West Pender Street, Vancouver, B.C., V6B 6H5, Canada, serves as the transfer agent and registrar for our common stock.
Recent Sales of Unregistered Securities
None.
Issuer Purchases of Equity Securities
We have not adopted a stock repurchase plan and we did not purchase any shares of our equity securities during the 2014 fiscal year.
ITEM 6
ITEM 6
SELECTED FINANCIAL DATA.
Not Applicable. The Company is a “smaller reporting company.”
ITEM 7
ITEM 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion is intended to assist in the understanding and assessment of significant changes and trends related to the results of operations and financial condition of Sears Oil and Gas Corporation for the years ended December 31, 2014 and 2013.
The Company is a shell company that conducts no active business operations and is seeking business opportunities for acquisition or participation by the Company.
The Report of Independent Registered Public Accounting Firm on the Company’s 2014 audited financial statements addresses an uncertainty about the Company’s ability to continue as a going concern, indicating that the Company has incurred losses since its inception and has no on-going operations. The report further indicates that these factors raise substantial doubt about the Company’s ability to continue as a going concern. At December 31, 2014, the Company had a working capital deficit of $134,870 and a stockholders’ deficit of $134,870. The Company incurred net losses of $53,782 and $33,834 for its fiscal years ended December 31, 2014 and 2013, respectively. The Company has not entered into any agreements or arrangements for the provision of additional debt or equity financing and there can be no assurance that it will be able to obtain the additional debt or equity capital required to continue its operations.
Critical Accounting Policies
The preparation of our financial statements and notes thereto requires management to make estimates and assumptions that affect the amounts and disclosures reported within those financial statements. On an ongoing basis, management evaluates its estimates, including those related to revenue recognition, contingencies, litigation and income taxes. Management bases its estimates and judgments on historical experiences and on various other factors believed to be reasonable under the circumstances. Actual results under circumstances and conditions different than those assumed could result in differences from the estimated amounts in the financial statements. There have been no material changes to these policies during fiscal 2014 and 2013. As of December 31, 2014 the Company has not identified any critical estimates that are used in the preparation of the financial statements.
Liquidity and Capital Resources. As of December 31, 2014 we had cash of $376 and a negative working capital of $134,870. This compares with cash of $18 and negative working capital of $81,088 as of December 31, 2013.
Net cash used by operating activities totaled $37,378 for the year-ended December 31, 2014 consisting of a loss from operations of $53,782 and a change in accounts payable and accrued expenses of $16,404. This compares with net cash used in operating activities of $19,892 for the year-ended December 31, 2013 consisting of a loss from operations of $33,834 which was offset by a change in accounts payable and accrued expenses of $13,942.
There were no investing activities in either the year-ended December 31, 2014 or 2013.
Net cash provided by financing activities totaled $37,736 for the year-ended December 31, 2014 consisting of loans and advances from related parties $77,441 which were offset by payments made against those advances of $39,705. This compares with net cash provided by financing activities of $9,915 for the year-ended December 31, 2013 consisting of advances from the former President of the Company with offsetting payments of $14,250 against those advances.
We must secure additional funds in order to continue our business. We will be required to secure a loan to pay expenses relating to filing this report including legal, accounting and filing fees. We believe that we will be able to obtain this loan from a current shareholder of the
Company; however we cannot provide any assurance that we will be able to raise additional proceeds or secure additional loans in the future to cover our expenses related to maintaining our reporting company status. Furthermore, there is no guarantee we will receive the required financing to complete our business strategies; we cannot provide any assurance that future financing will be available to us on acceptable terms. If financing is not available on satisfactory terms, we may be unable to continue, develop or expand our operations. If we are unable to accomplish raising adequate funds then any it would be likely that any investment made into the Company would be lost in its entirety.
Results of Operations . We did not have revenue for either the year-ended December 31, 2014 or 2013.For the year-ended December 31, 2014, we incurred $36,179 of administrative expenses compared to $27,670 for the year-ended December 31, 2013.For the year-ended December 31, 2014 we incurred $17,603 of interest expense on a note payable.This compares with $6,164 of interest expense for the year-ended December 31, 2013.
As a result of the foregoing, we incurred a loss of $53,782 for the year-ended December 31, 2014 compared to a loss of $33,834 for the year-ended December 31, 2013.Since incorporationwe have incurred a loss of $236,870.
Off-Balance Sheet Arrangements. None
Contractual Obligations. None
Recent Accounting Pronouncements
Except as otherwise disclosed herein, the Company has not adopted any new accounting policies that would have a material impact on the Company’s financial condition, changes in financial condition or results of operations.
On June 10, 2014, the Financial Accounting Standards Board ("FASB") issued update ASU 2014-10, Development Stage Entities (Topic 915). Amongst other things, the amendments in this update removed the definition of development stage entity from Topic 915, thereby removing the distinction between development stage entities and other reporting entities from US GAAP. In addition, the amendments eliminate the requirements for development stage entities to (1) present inception-to-date information on the statements of income, cash flows and shareholders’ equity, (2) label the financial statements as those of a development stage entity; (3) disclose a description of the development stage activities in which the entity is engaged and (4) disclose in the first year in which the entity is no longer a development stage entity that in prior years it had been in the development stage. The amendments are effective for annual reporting periods beginning after December 31, 2014 and interim reporting periods beginning after December 15, 2015, however entities are permitted to early adopt for any annual or interim reporting period for which the financial statements have yet to be issued. The Company has elected to early adopt these amendments and accordingly have not labeled the financial statements as those of a development stage entity and have not presented inception-to-date information on the respective financial statements.
ITEM 7A
ITEM 7A
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We do not currently hold any market risk sensitive instruments entered into for hedging transaction risks related to foreign currencies. In addition, we have not entered into any transactions with derivative financial instruments for trading purposes.
ITEM 8
ITEM 8
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Our financial statements appear beginning on page, immediately following the signature page of this report.
ITEM 9
ITEM 9
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None
ITEM 9A
ITEM 9A
CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of December 31, 2014, these disclosure controls and procedures were ineffective to ensure that all information required to be disclosed by us in the reports that we file or submit under the Exchange Act is: (i)
recorded, processed, summarized and reported, within the time periods specified in the Commission’s rule and forms; and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
There have been no material changes in internal control over financial reporting that occurred during the fourth fiscal quarter that have materially affected, or are reasonably likely to materially affect the Company’s internal control over financial reporting.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed by, or under the supervision of, the Chief Executive Officer and Chief Financial Officer and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
Our evaluation of internal control over financial reporting includes using the COSO framework, an integrated framework for the evaluation of internal controls issued by the Committee of Sponsoring Organizations of the Treadway Commission, to identify the risks and control objectives related to the evaluation of our control environment.
Our management conducted an evaluation of the effectiveness of our internal control over financial reporting. Based on our evaluation, management concluded that our internal control over financial reporting was ineffective for both of our fiscal years ended December 31, 2014 and December 31, 2013,in which there was no material weakness. A material weakness in internal control over financial reporting is defined by the Public Company Accounting Oversight Board’s Audit Standard No. 5 as 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. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of our financial reporting.
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation requirements by the company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the company to provide only management’s report in this annual report.
Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations, including the possibility of human error and circumvention by collusion or overriding of controls. Accordingly, even an effective internal control system may not prevent or detect material misstatements on a timely basis. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
Changes in Internal Controls
There have been no changes in our internal control over financial reporting that occurred during our fiscal year ended December 31, 2014 that have materially affected, or are reasonable likely to materially affect, our internal control over financial reporting.
ITEM 9B
ITEM 9B
OTHER INFORMATION.
NONE
PART III
ITEM 10
ITEM 10
DIRECTORS AND EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
Sears Oil and Gas Corporation’s executive officer and director and his respective age as of December 31, 2014 are as follows:
Directors:
Name of Director
Age
Mark A. Scharmann
Executive Officers:
Name of Officer
Age
Office
Mark A. Scharmann
President, Chief Executive Officer
Chief Financial Officer, Secretary and Treasurer
The term of office for each director is one year, or until the next annual meeting of the shareholders.
Biographical Information
Set forth below is a brief description of the background and business experience of our executive officer and director for the past five years
Mark A. Scharmann - President and Director - Mr. Scharmann has been a private investor and business consultant since 1980. Since 2007, Mr. Scharmann has been a managing principal of Sycamore Ventures, LLC (“Sycamore”), Ogden, UT. Sycamore consults both public and privately held companies relating to management, mergers and acquisitions, debt and equity financing, capital market access, and market support. Mr. Scharmann is an officer of Nightingale, Inc., a publicly held acquisition company currently seeking reverse merger acquisitions. He is an officer of Roycemore Corporation, a firm specializing in the development and acquisition of self-storage facilities. He is also an officer of Nevada Land Holding Company, a privately held real estate acquisition company. Mr. Scharmann is a co-founder of www.wffl.com, a youth sports information web site.
Sear Oil and Gas Corporation’s Officer and sole Director has not been involved, during the past five years, in any bankruptcy, conviction or criminal proceedings; has not been subject to any order, judgment, or decree, not subsequently reversed or suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; and has not been found by a court of competent jurisdiction, the Commission or the Commodity Futures trading Commission to have violated a federal or state securities or commodities law.
Significant Employees. We do not employ any non-officers who are expected to make a significant contribution to its business.
Corporate Governance
Nominating Committee. We have not established a Nominating Committee because of our limited operations; and because we have only one director and officer, we believe that we are able to effectively manage the issues normally considered by a Nominating Committee.
Audit Committee. We have has not established an Audit Committee because of our limited operations; and because we have only one director and officer, we believe that we are able to effectively manage the issues normally considered by a Audit Committee.
Code of Ethics. We have adopted a Code of Ethics for our principal executive and financial officers. Our Code of Ethics is filed as an Exhibit to our registration statement filed on May 30, 2008.
ITEM 11
ITEM 11
EXECUTIVE COMPENSATION.
Summary Compensation Table
There has been no cash payment paid to the executive officer for services rendered in all capacities to us for the period ended December 31, 2014. There has been no compensation awarded to, earned by, or paid to the executive officer by any person for services rendered in all capacities to us for the fiscal period ended December 31, 2014. No compensation is anticipated within the next six months to any officer or director of the Company.
Stock Option Grants
We did not grant any stock options to the executive officer during the most recent fiscal period ended December 31, 2014. We have also not granted any stock options to the executive officer of the Company.
ITEM 12
ITEM 12
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
The following table provides the names and addresses of each person known to Sears Oil and Gas Corporation to own more than 5% of the outstanding common stock as of December 31, 2014, and by the Officers and Directors, individually and as a group. Except as otherwise indicated, all shares are owned directly.
The percent of class is based on 181,005 shares of common stock issued and outstanding as of December 31, 2014.
ITEM 13
ITEM 13
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
During the year ended December 31, 2014, related parties of the company loaned a total of $77,441 to the Company in order to pay for expenses and continue the reporting requirements with the Securities and Exchange Commission. The Company paid $39,705back to the related parties against these loans. The balance due to these related parties was$92,441 as of December 31, 2014. There were no other material transactions between the Company and any Officer, Director or related party. Other than the foregoing, there has not, since the date of incorporation, had any material interest, direct or indirect, in any transaction with us or in any presently proposed transaction that has or will materially affect us.
Any future transactions between us and our Officers, Directors, and Affiliates will be on terms no less favorable to us than can be obtained from unaffiliated third parties. Such transactions with such persons will be subject to approval of our Board of Directors.
ITEM 14
ITEM 14
PRINCIPAL ACCOUNTANT FEES AND SERVICES.
The amounts paid to our independent auditing firm for each of the past two calendar years are as follows:
Auditing
$7,525
$7,642
Tax services
Other servicesi
________ __________
Total
$7,525
$7,642
PART IV
ITEM 15
ITEM 15
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a)
The following documents have been filed as a part of this Annual Report on Form 10-K.
1.
Financial Statements
2.
Financial Statement Schedules.
All schedules are omitted because they are not applicable or not required or because the required information is included in the Financial Statements or the Notes thereto.
3.
Exhibits.
The following exhibits are filed as part of, or incorporated by reference into, this Annual Report:
Exhibit
Number
SEC Reference Number
Title of Document
Location
3.1
Articles of Incorporation
Incorporated by Reference(1)
3.2
Bylaws
Incorporated by Reference(1)
31.1
Section 302 Certification of Chief Executive and Chief Financial Officer
This Filing
32.1
Section 1350 Certification of Chief Executive and Chief
Financial Officer
This Filing
101.INS(2)
XBRL Instance Document
This Filing
101.SCH(2)
XBRL Taxonomy Extension Schema
This Filing
101.CAL(2)
XBRL Taxonomy Extension Calculation Linkbase
This Filing
101.DEF(2)
XBRL Taxonomy Extension Definition Linkbase
This Filing
101.LAB(2)
XBRL Taxonomy Extension Label Linkbase
This Filing
101.PRE(2)
XBRL Taxonomy Extension Presentation Linkbase
This Filing
(1)Incorporated by reference to Exhibits 3(i) and 3(ii) of the Company’ 2003 Form 10-KSB report, filed March 30, 2004.
(2)XBRL information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934, and is not subject to liability under those sections, is not part of any registration statement or prospectus to which it relates and is not incorporated or deemed to be incorporated by reference into any registration statement, prospectus or other document.
SIGNATURE
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.
PRITCHETT, SILER & HARDY, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
A PROFESSIONAL CORPORATION
660 SOUTH 200 EAST, SUITE 300
SALT LAKE CITY, UTAH 84111
(801) 328-2727 FAX (801) 328-1123
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
Sears Oil & Gas, Inc.
Salt Lake City, Utah
We have audited the accompanying balance sheets of Sears Oil & Gas, Inc. as of December 31, 2014 and 2013 and the related statements of operations, stockholders’ deficit and cash flows for the years then ended. 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 the 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 also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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 Sears Oil & Gas, Inc. as of December 31, 2014 and 2013 and the results of its operations and cash flows for the years then ended in conformity with generally accepted accounting principles in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company has suffered recurring losses and has no operations which raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Pritchett, Siler & Hardy, P.C.
Pritchett, Siler & Hardy, P.C
Salt Lake City, Utah
April 9, 2015
SEARS OIL AND GAS CORPORATION
Notes to the Financial Statements
December 31, 2014 and 2013
NOTE 1 - ORGANIZATION AND HISTORY
Sears Oil and Gas Corporation (the Company) was incorporated on October 18, 2005 in the State of Nevada. The Company was formed to use a patented technology to produce crude oil from “tar sands” deposits. The Company will also conduct administrative, correlated transportation and delivery of product, financial management, and the marketing and sales programs of the operation. The Company has not commenced principle operations.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
a. Accounting Method
The Company uses the successful efforts method of accounting for oil and gas producing activities. Costs to acquire mineral interests in oil and gas properties, to drill and equip exploratory wells that find proved reserves, and to drill and equip development wells are capitalized. Costs to drill exploratory wells that do not find proved reserves, geological and geophysical costs, and costs of carrying and retaining unproved properties are expensed.
Unproved oil and gas properties that are individually significant are periodically assessed for impairment of value, and a loss is recognized at the time of impairment by providing an impairment allowance. Other unproved properties are amortized based on the Company's experience of successful drilling and average holding period. Capitalized costs of producing oil and gas properties, after considering estimated dismantlement and abandonment costs and estimated salvage values, are depreciated and depleted by the unit-of-production method. Support equipment and other property and equipment are depreciated over their estimated useful lives.
On the sale or retirement of a complete unit of a proved property, the cost and related accumulated depreciation, depletion, and amortization are eliminated from the property accounts, and the resultant gain or loss is recognized. On the retirement or sale of a partial unit of proved property, the cost is charged to accumulated depreciation, depletion, and amortization with a resulting gain or loss recognized in income.
b. Basic Loss Per Share
For the Year Ended
December 31, 2014
Loss
(Numerator)
Shares
(Denominator)
Per Share
Amount
$ (53,782)
181,005
$ (0.30)
For the Year Ended
December 31, 2013
Loss
(Numerator)
Shares
(Denominator)
Per Share
Amount
$ (33,834)
181,005
$ (0.19)
The computations of basic loss per share of common stock are based on the weighted average number of shares outstanding at the date of the financial statements. There are no common stock equivalents outstanding.
SEARS OIL AND GAS CORPORATION
Notes to the Financial Statements
December 31, 2014 and 2013
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
c. Income Taxes
The Financial Accounting Standards Board (FASB) has issued FASB ASC 740-10. FASB ASC 740-10 clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements. This standard requires a company to determine whether it is more likely than not that a tax position will be sustained will be sustained upon examination based upon the technical merits of the position. If the more-likely-than- not threshold is met, a company must measure the tax position to determine the amount to recognize in the financial statements. As a result of the implementation of this standard, the Company performed a review of its material tax positions in accordance with recognition and measurement standards established by FASB ASC 740-10.
Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax basis. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
At December 31, 2014 the Company had net operating loss carryforwards of approximately $236,870 that may be offset against future taxable income through 2034. No tax benefits have been reported in the financial statements, because the potential tax benefits of the net operating loss carry forwards are offset by a valuation allowance of the same amount.
Due to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carryforwards for Federal income tax reporting purposes are subject to annual limitations. Should a change in ownership occur, net operating loss carryforwards may be limited as to use in the future.
Net deferred tax assets consist of the following components as of December 31, 2014 and 2013:
Deferred tax assets:
NOL Carryover
$
92,377
$
71,403
Valuation allowance
(92,377)
(71,403)
Net deferred tax asset
$
-
$
-
The income tax provision differs from the amount of income tax determined by applying the U.S. federal and state income tax rates to pretax income from continuing operations for the years ended December 31, 2014 and 2013 due to the following:
Current Federal Tax (34%)
$ 18,285
$ 11,504
Current State Tax (5%)
2,689
1,691
Change in valuation allowance
(20,974)
(13,195)
$
-
$
-
SEARS OIL AND GAS CORPORATION
Notes to the Financial Statements
December 31, 2014 and 2013
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
Year ended December 31,
Beginning balance
$ -
$ -
Additions based on tax positions related to current year
-
-
Additions for tax positions of prior years
-
-
Reductions for tax positions of prior years
-
-
Reductions in benefit due to income tax expense
-
-
Ending balance
$ -
$ -
At December 31, 2014, the Company had no unrecognized tax benefits that, if recognized, would affect the effective tax rate.
The Company did not have any tax positions for which it is reasonably possible that the total amount of unrecognized tax benefits will significantly increase or decrease within the next 12 months.
The Company includes interest and penalties arising from the underpayment of income taxes in the consolidated statements of operations in the provision for income taxes. As of December 31, 2014 and 2013, the Company had no accrued interest or penalties related to uncertain tax positions.
The tax years that remain subject to examination by major taxing jurisdictions are those for the years ended December 31, 2014, 2013 and 2012.
d. Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
e. Fair Value of Financial Instruments
On January 1, 2008, the Company adopted FASB ASC 820-10-50, “Fair Value Measurements.” This guidance defines fair value, establishes a three-level valuation hierarchy for disclosures of fair value measurement and enhances disclosure requirements for fair value measures. The three levels are defined as follows:
Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
Level 3 inputs to valuation methodology are unobservable and significant to the fair measurement.
The carrying amounts reported in the balance sheets for the cash and cash equivalents, receivables and current liabilities each qualify as financial instruments and are a reasonable estimate of fair value because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest.
SEARS OIL AND GAS CORPORATION
Notes to the Financial Statements
December 31, 2014 and 2013
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
f. Recently Issued Accounting Pronouncements
On June 10, 2014, the Financial Accounting Standards Board ("FASB") issued update ASU 2014-10, Development Stage Entities (Topic 915). Amongst other things, the amendments in this update removed the definition of development stage entity from Topic 915, thereby removing the distinction between development stage entities and other reporting entities from US GAAP. In addition, the amendments eliminate the requirements for development stage entities to (1) present inception-to-date information on the statements of income, cash flows and shareholders’ equity, (2) label the financial statements as those of a development stage entity; (3) disclose a description of the development stage activities in which the entity is engaged and (4) disclose in the first year in which the entity is no longer a development stage entity that in prior years it had been in the development stage. The amendments are effective for annual reporting periods beginning after December 31, 2014 and interim reporting periods beginning after December 15, 2015, however entities are permitted to early adopt for any annual or interim reporting period for which the financial statements have yet to be issued. The Company has elected to early adopt these amendments and accordingly have not labeled the financial statements as those of a development stage entity and have not presented inception-to-date information on the respective financial statements.
In August 2014, FASB issued Accounting Standards Update (ASU) No. 2014-15 Preparation of Financial Statements - Going Concern (Subtopic 205-40), Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. Under generally accepted accounting principles (GAAP), continuation of a reporting entity as a going concern is presumed as the basis for preparing financial statements unless and until the entity’s liquidation becomes imminent. Preparation of financial statements under this presumption is commonly referred to as the going concern basis of accounting. If and when an entity’s liquidation becomes imminent, financial statements should be prepared under the liquidation basis of accounting in accordance with Subtopic 205-30, Presentation of Financial Statements-Liquidation Basis of Accounting. Even when an entity’s liquidation is not imminent, there may be conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern. In those situations, financial statements should continue to be prepared under the going concern basis of accounting, but the amendments in this Update should be followed to determine whether to disclose information about the relevant conditions and events. The amendments in this Update are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. The Company will evaluate the going concern considerations in this ASU, however, at the current period, management does not believe that it has met conditions which would subject these financial statements for additional disclosure.
We have reviewed accounting pronouncements issued during the past two years and have adopted any that are applicable to our company. We have determined that none had a material impact on our financial position, results of operations, or cash flows for the years ended December 31, 2014 and 2013.
g. Long-lived Assets
The Company’s long lived assets are recorded at its cost. The Company continually monitors events and changes in circumstances that could indicate carrying amounts of long-lived assets may not be recoverable. When such events or changes in circumstances are present, the Company assesses the recoverability of long-lived assets by determining whether the carrying value of such assets will be recovered through undiscounted expected future cash flows. If the total of the future cash flows is less than the carrying amount of those assets, the Company recognizes an impairment loss based on the excess of the carrying amount over the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or the fair value less costs to sell.
h. Concentration of Risk
Cash - The Company at times may maintain a cash balance in excess of insured limits. At December 31, 2014, the Company has no cash in excess of insured limits.
i. Revenue Recognition
SEARS OIL AND GAS CORPORATION
Notes to the Financial Statements
December 31, 2014 and 2013
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
The Company will determine its revenue recognition policy when it determines a business model and achieves successful operations.
j. Accounts Receivable
Accounts receivable are carried at the expected net realizable value. The allowance for doubtful accounts is based on management's assessment of the collectability of specific customer accounts and the aging of the accounts receivables. If there were a deterioration of a major customer's creditworthiness, or actual defaults were higher than historical experience, our estimates of the recoverability of the amounts due to us could be overstated, which could have a negative impact on operations.
k. Cash and Cash Equivalents
For purposes of the Statement of Cash Flows, the Company considers all highly liquid instruments purchased with a maturity of three months or less to be cash equivalents to the extent the funds are not being held for investment purposes.
l. Property and Equipment
Property and equipment are carried at cost, net of accumulated depreciation. Depreciation is computed straight-line over periods to be determined based on the nature of the assets.
NOTE 3 - GOING CONCERN
The Company’s financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. However, the Company does not have significant cash or other current assets, nor does it have an established source of revenues sufficient to cover its operating costs and to allow it to continue as a going concern. The Company intends to raise additional capital when required to produce crude oil from tar sands. When and if these activities provide sufficient revenues it would allow it to continue as a going concern. In the interim the Company is working toward raising operating capital through the private placement of its common stock or debt instruments.
The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plan described in the preceding paragraph and eventually attain profitable operations. The accompanying financial statements do not include any adjustments that may be necessary if the Company is unable to continue as a going concern.
NOTE 4 - LOANS AND ADVANCES FROM RELATED PARTIES
During the year ended December 31, 2013, the former President of the Company advanced money to the Company in order to pay for expenses and continue the reporting requirements with the Securities and Exchange Commission. The advances are non-interest bearing. As of December 31, 2014 and 2013, the balance due on these advances was $0 and $39,705, respectively.
SEARS OIL AND GAS CORPORATION
Notes to the Financial Statements
December 31, 2014 and 2013
NOTE 5 - NOTES AND LOANS PAYABLE - RELATED PARTIES
Notes and loans payable - related parties consisted of the following:
December 31, 2014
December 31, 2013
Note payable to a related party, interest at 10% per annum, due on February 15, 2010
$ -
$ 15,000
Loans payable to a related party, interest at 12% per annum, due on demand
22,441
-
Notes payable to related parties, interest at 12% per annum, due on March 7, 2015, convertible into common stock at $1.00 per share
70,000
-
Total Notes and Loans Payable - Related Parties
92,441
15,000
Less: Current Portion
(92,000)
(15,000)
Long-Term Notes and Loans Payable - Related Parties
$
-
$
-
The Company did not record beneficial conversion feature elements on the convertible debt due to the conversion rate of $1.00 per share being greater than the estimated fair market value of the underlying shares on the date of issuance.
NOTE 6 -STOCKHOLDERS EQUITY
In March 2013 the Company completed a 200 for 1 reverse stock split. Prior to the reverse split there were 36,200,000 shares outstanding. Following the reverse split there were 181,005 shares outstanding including 5 fractional shares issued. The financial statements have been retroactively restated to reflect the reverse split.
NOTE 7 -SUBSEQUENT EVENTS
The Company has evaluated subsequent events for the period of December 31, 2014 through the date the financial statements were issued, and concluded there were no other events or transactions occurring during this period that required recognition or disclosure in its financial statements.