U.S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

[x] Quarterly Report under Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2014

 

        .     Transition Report under Section 13 or 15(d) of the Exchange Act

 

For the Transition Period from ________to __________

 

Commission File Number: 333-144504

 

Pacific Oil Company

(Exact Name of Registrant as Specified in its Charter)

 

NEVADA	20-4057712
(State of other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification Number)

 

 

9500 W. Flamingo Rd. Suite 205
Las Vegas, NV	89147
(Address of principal executive offices)	(Zip Code)
Registrant's Phone: 1-888-303-2272

 

Indicate by check mark whether the issuer (1) filed all reports required to be filed by Section13 or 15(d) of the Exchange Act of 1934 during the past 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ ] No [x]        .

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

 

Large accelerated filer         .  

Accelerated filer         .

Non-accelerated filer         .  

Smaller reporting company [x].

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [ ]  No [x].

 

As of August 12, 2014, the issuer had 60,080,733 shares of common stock issued and outstanding.

 

	TABLE OF CONTENTS					Page
	PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements					3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operation					17
Item 3.	Quantitative and Qualitative Disclosures about Market Risk					19
Item 4.	Controls and Procedures					19
	PART II – OTHER INFORMATION
Item 1.	Legal Proceedings					20
Item 1A.	Risk Factors					20
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds					20
Item 3.	Defaults Upon Senior Securities					20
Item 4.	Mine Safety Disclosures					20
Item 5.	Other Information					20
Item 6.	Exhibits					20

ITEM 1. FINANCIAL STATEMENTS

 

 

 

PACIFIC OIL COMPANY

(An Exploration Stage Company)

 

 

CONDENSED UNAUDITED FINANCIAL STATEMENTS

 

FOR THE THREE AND NINE MONTH PERIODS ENDED JUNE 30, 2014 AND 2013 AND THE PERIOD FROM INCEPTION (DECEMBER 5, 2005) TO JUNE 30, 2014

 

 

C O N T E N T S

 

 

Condensed Balance Sheets as of June 30, 2014 (unaudited) and September 30, 2013 (restated)	4
Condensed Statements of Operations for the three and nine month periods ended
June 30, 2014 and 2013 and for the period from
inception (Dec. 5, 2005) through June 30, 2014(unaudited)	5
Condensed Statements of Cash Flows for the nine month periods ended
June 30, 2014 and 2013 and for the period from
inception (Dec. 5, 2005) through June 30, 2014 (unaudited)	6
Condensed Statements of Changes in Stockholders’ Deficit for the period from inception	7
(December 5, 2005) through June 30, 2014 (unaudited)
Notes to the Condensed Financial Statements (unaudited)	8

 

 

 

 

 

 

 

 

 

 

 

 

PACIFIC OIL COMPANY

(An Exploration Stage Company)

Condensed Balance Sheets

 

		June 30,				September 30,
		2014				2013
ASSETS		(unaudited)				(restated)
CURRENT ASSETS
Cash		$	100			$	820
Total Current Assets			100				820
TOTAL ASSETS		$	100			$	820
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable		$	6,605			$	17,265
Advances payable-related party			56,071				43,255
Note payable-related party			1,174				—
Convertible note payable - related party, net of discount of $0 and
$57,618, respectively			—				20,206
Derivative liability			—				173,856
Total Current Liabilities			63,849				254,582
Total Liabilities			63,849				254,582
STOCKHOLDERS' DEFICIT
Preferred stock: $0.001 par value;
5,000,000 shares authorized, -0- and
-0- shares issued and outstanding, respectively			—				—
Common stock: $0.001 par value;
70,000,000 shares authorized, 60,080,733 and 57,490
shares issued and outstanding, respectively			60,080				57
Additional paid-in capital			668,072				130,751
Deficit accumulated during the exploration stage			(791,901	)			(384,570	)
Total Stockholders' Deficit			(63,749	)			(253,762	)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT		$	100			$	820

 

 

The accompanying notes are an integral part of these condensed unaudited financial statements.

 

 

 

 

PACIFIC OIL COMPANY

(An Exploration Stage Company)

Condensed Statements of Operations (unaudited)

 

																	From Inception
																	(December 5,
		For the Three Months Ended								For the Nine Months Ended							2005) through
		June 30,								June 30,								June 30,
		2014				2013				2014				2013				2014
REVENUES		$	—			$	—			$	—			$	—			$	—
OPERATING EXPENSES
General and administrative			1,270				30				4,735				9,480				93,675
Professional fees			7,160				—				152,446				—				328,690
Total operating expenses			8,430				30				157,181				9,480				422,365
OTHER INCOME (EXPENSE)
Related party income			—				849				—				849				22,409
Interest expense			—				(713	)			(59,272	)			—				(105,035	)
Change in fair value of derivative			—				—				2,380				(1,431	)			(93,652	)
Loss on debt conversion			—				—				(193,258	)			—				(193,258	)
Total other income (expense)			—				136				(250,150	)			(582	)			(369,536	)
NET LOSS		$	(8,430	)		$	107			$	(407,331	)		$	(10,062	)		$	(791,901	)
BASIC AND DILUTIVE LOSS PER SHARE		$	(0.00	)		$	0.00			$	(0.01	)		$	(0.18	)			$
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING - BASIC AND DILUTIVE			60,080,733				57,490				58,094,794				57,490
* denotes a loss of less than $(0.01) per share.

 

 

The accompanying notes are an integral part of these condensed audited financial statements.

 

 

PACIFIC OIL COMPANY

(An Exploration Stage Company)

Condensed Statements of Cash Flows (unaudited)

 

										From Inception
										(December 5,
		For the Nine Months Ended								2005) through
		June 30,								June 30,
		2014				2013				2014
OPERATING ACTIVITIES
Net loss		$	(407,331	)		$	(10,062	)		$	(791,901	)
Adjustments to reconcile net loss to
net cash used by operating activities:
Shares for Services			137,786				—				138,086
Discount on convertible note			57,618				—				57,618
Change in fair value of derivative			(2,380	)			—				93,652
Loss on conversion of debt			193,258				—				193,258
Imputed interest			1,655				1,431				47,419
Changes in operating assets and liabilities
Increase (decrease) in accounts payable			5,859				—				23,124
Net Cash Used in Operating Activities			(13,535	)			(8,631	)			(238,744	)
INVESTING ACTIVITIES
Net Cash Provided by (Used in) Investing Activities			—				—				—
FINANCING ACTIVITIES
Borrowing from related parties			12,815				9,598				135,072
Repayment on related party debt			—				—				(1,178	)
Common stock issued for cash			—				—				67,450
Contributed capital			—				—				37,500
Net Cash Provided by Financing Activities			12,815				9,598				238,844
NET INCREASE (DECREASE) IN CASH			(720	)			967				100
CASH AT BEGINNING OF PERIOD			820				1,580				—
CASH AT END OF PERIOD		$	100			$	2,547			$	100
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION
CASH PAID FOR:
Interest		$	—			$	—			$	—
Income Taxes		$	—			$	—			$	—
Non Cash Activities
Settlement  of accounts payable with stock		$	16,519			$	—			$	16,519
Settlement of derivatives		$	364,734			$	—			$	364,734

 

 

The accompanying notes are an integral part of these condensed unaudited financial statements.

 

 

PACIFIC OIL COMPANY

(An Exploration Stage Company)

Condensed Statements of Stockholders’ Deficit (unaudited)

														Deficit
		Common								Additional				Accumulated				Total
		Stock								Paid-In				During the				Stockholders'
		Shares				Amount				Capital				Development				Equity
Balance, December 5, 2005			—			$	—			$	—			$	—			$	—
Common stock issued for cash at
$0.00375 per share			40,000				40				14,960				—				15,000
Common stock issued for services			3,000				3				297				—				300
Common stock issued for cash
at $0.05 per share			10,490				10				52,440				—				52,450
Common stock issued for
contributed capital			4,000				4				35,496				—				35,500
Net loss from inception through
30-Sep-07											1,010				(119,691	)			(118,681	)
Balance, September 30, 2007			57,490				57				104,203				(119,691	)			(15,431	)
Imputed interest on related party payable											1,152								1,152
Net loss for the year September 30, 2008			—				—				—				(9,682	)			(9,682	)
Balance, September 30, 2008			57,490				57				105,355				(129,373	)			(23,961	)
Imputed interest on related party payable											1,374								1,374
Net loss for the year September 30, 2009			—				—				—				(1,582	)			(1,582	)
Balance, September 30, 2009			57,490				57				106,729				(130,955	)			(24,169	)
Contributed Capital											2,000								2,000
Imputed interest on related party payable											1,551								1,551
Net loss for the year September 30, 2010			—				—				—				(21,529	)			(21,529	)
Balance, September 30, 2010			57,490				57				110,280				(152,484	)			(42,147	)
Imputed interest on related party payable											4,666								4,666
Net loss for the year September 30, 2011			—				—				—				(33,847	)			(33,847	)
Balance, September 30, 2011			57,490				57				114,946				(186,331	)			(71,328	)
Imputed interest on related party payable											6,894								6,894
Net loss for the year September 30, 2012			—				—				—				(34,453	)			(34,453	)
Balance, September 30, 2012			57,490				57				121,840				(220,784	)			(98,886	)
Imputed interest on related party payable											8,911								8,910
Net loss for the year September 30, 2013			—				—				—				(163,786	)			(163,786	)
Balance, September 30, 2013 (Restated)			57,490				57				130,751				(384,570	)			(253,762	)
Imputed interest on related party payable											1,655								1,655
Common stock issued for services			38,100,000				38,100				99,686								137,786
Common stock issued for related party
conversion of note payable			21,900,002				21,900				54,750								76,650
Common stock issued for services			23,241				23				16,496								16,519
Adjustments to derivatives											364,734								364,734
Net loss for period ended June 30, 2014			—				—				—				(407,331	)			(407,331	)
Balance, June 30, 2014			60,080,733			$	60,080			$	668,072			$	(791,901	)		$	(63,749	)

 

The accompanying notes are an integral part of these condensed unaudited financial statements.

PACIFIC OIL COMPANY

(An Exploration Stage Company)

NOTES TO CONDENSED UNAUDITED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTH PERIODS ENDED JUNE 30, 2014 AND 2013 AND THE PERIOD FROM INCEPTION (DECEMBER 5, 2005) TO JUNE 30, 2014

 

 

NOTE 1 - ORGANIZATION AND BUSINESS OPERATIONS

 

Pacific Oil Company (“the Company”) was originally incorporated in Nevada on December 5, 2005 as Kat Racing, Inc.  On January 4, 2013, the Company changed its name to Prairie West Oil & Gas, Ltd and subsequently on July 26, 2013 to Pacific Oil Company.

 

The Company is an exploration stage junior energy company.

 

NOTE 2 - GOING CONCERN

 

The Company's financial statements are prepared using generally accepted accounting principles 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. The Company has not yet established an ongoing source of revenues sufficient to cover its operating costs and allow it to continue as a going concern, has incurred losses of $791,901 since inception (December 5, 2005) through June 30, 2014 and had a working capital and shareholder deficit of $63,749 at June 30, 2014 . Accordingly, there is substantial doubt about the Company’s ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it becomes profitable. If the Company is unable to obtain adequate capital, it could be forced to cease operations.

 

In order to continue as a going concern, the Company will need, among other things, additional capital resources. Management's plan is to obtain such resources for the Company by obtaining capital from management and significant shareholders sufficient to meet its minimal operating expenses and seeking equity and/or debt financing. However management cannot provide any assurances that the Company will be successful in accomplishing any of its plans.

 

The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

 

 

 

 

PACIFIC OIL COMPANY

(An Exploration Stage Company)

NOTES TO CONDENSED UNAUDITED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTH PERIODS ENDED JUNE 30, 2014 AND 2013 AND THE PERIOD FROM INCEPTION (DECEMBER 5, 2005) TO JUNE 30, 2014

 

NOTE 3 – SIGNIFICANT ACCOUNTING POLICIES

 

Interim Financial Statements

 

The accompanying financial statements have been prepared by the Company without audit in accordance with SEC rules for quarterly reports on form 10-Q. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations, and cash flows at June 30, 2014, and for all periods presented herein, have been made.

 

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company's September 30, 2013 (restated) audited financial statements. The results of operations for the periods ended June 30, 2014 and 2013 are not necessarily indicative of the operating results for the full years.

 

Cash and cash equivalents

 

For purposes of the statement of cash flows, the Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.  

 

Development Stage Company

 

The Company is in the development stage as defined under the then current Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 915-205 “Development-Stage Entities,” and among the additional disclosures required as a development stage company are that our financial statements were identified as those of a development stage company, and that the statements of operations, movement in stockholders’ equity (deficit) and cash flows disclosed activity since the date of our inception (December 5, 2005) as a development stage company. Effective June 10, 2014 FASB changed its regulations with respect to Development Stage Entities and these additional disclosures are no longer required for annual reporting periods beginning after December 15, 2014 with the option for entities to early adopt these new provisions. The Company has not elected to early adopt these provisions and consequently these additional disclosures are included in these financial statements.

 

Use of Estimates and Assumptions

 

The preparation of financial statements in conformity with US Generally Accepted Accounting Practices 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. The Company regularly evaluates estimates and assumptions related to the deferred income tax asset valuation allowances. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.

 

 

 

PACIFIC OIL COMPANY

(An Exploration Stage Company)

NOTES TO CONDENSED UNAUDITED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTH PERIODS ENDED JUNE 30, 2014 AND 2013 AND THE PERIOD FROM INCEPTION (DECEMBER 5, 2005) TO JUNE 30, 2014

 

NOTE 3 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Derivative Liability

 

The Company evaluates its convertible instruments, options, warrants or other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for under ASC Topic 815, “Derivatives and Hedging.” The result of this accounting treatment is that the fair value of the derivative is marked-to-market each balance sheet date and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the statement of operations as other income (expense). Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value is reclassified to equity. Equity instruments that are initially classified as equity that become subject to reclassification under ASC Topic 815 are reclassified to liabilities at the fair value of the instrument on the reclassification date. We analyzed the derivative financial instruments (the Convertible Note), in accordance with ASC 815. The objective is to provide guidance for determining whether an equity-linked financial instrument is indexed to an entity’s own stock. This determination is needed for a scope exception which would enable a derivative instrument to be accounted for under the accrual method. The classification of a non-derivative instrument that falls within the scope of ASC 815-40-05 “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock” also hinges on whether the instrument is indexed to an entity’s own stock. A non-derivative instrument that is not indexed to an entity’s own stock cannot be classified as equity and must be accounted for as a liability. There is a two-step approach in determining whether an instrument or embedded feature is indexed to an entity’s own stock. First, the instrument's contingent exercise provisions, if any, must be evaluated, followed by an evaluation of the instrument's settlement provisions. The Company utilized multinomial lattice models that value the derivative liability within the notes based on a probability weighted discounted cash flow model. The Company utilized the fair value standard set forth by the Financial Accounting Standards Board, defined as the amount at which the assets (or liability) could be bought (or incurred) or sold (or settled) in a current transaction between willing parties, that is, other than in a forced or liquidation sale.

 

Fair Value Measurements

 

The Company adopted ASC No. 820-10 (ASC 820-10), Fair Value Measurements. ASC 820-10 relates to financial assets and financial liabilities.

 

ASC 820-10 defines fair value, establishes a framework for measuring fair value in accounting principles generally accepted in the United States of America (GAAP), and expands disclosures about fair value measurements. The provisions of this standard apply to other accounting pronouncements that require or permit fair value measurements and are to be applied prospectively with limited exceptions.

 

ASC 820-10 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. This standard is now the single source in GAAP for the definition of fair value, except for the fair value of leased property. ASC 820-10 establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions, about market participant assumptions that are developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy under ASC 820-10 are described below:

 

¾

Level 1. Observable inputs such as quoted prices in active markets;

 

¾

Level 2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and

 

¾

Level 3. Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

PACIFIC OIL COMPANY

(An Exploration Stage Company)

NOTES TO CONDENSED UNAUDITED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTH PERIODS ENDED JUNE 30, 2014 AND 2013 AND THE PERIOD FROM INCEPTION (DECEMBER 5, 2005) TO JUNE 30, 2014

 

NOTE 3 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Fair Value Measurements (Continued)

 

The carrying value of cash, accounts payable, accounts payable – related party and note payable related party approximates their fair value due to the short-term maturity of these financial instruments.

 

Income Taxes

 

Potential benefits of income tax losses are not recognized in the accounts until realization is more likely than not. The Company has adopted ASC 740 “Accounting for Income Taxes” as of its inception. Pursuant to ASC 740, the Company is required to compute tax asset benefits for net operating losses carried forward. The potential benefits of net operating losses have not been recognized in this financial statement because the Company cannot be assured it is more likely than not it will utilize the net operating losses carried forward in future years.

 

Basic and Diluted Loss per Share

 

The Company computes loss per share in accordance with ASC-260, “Earnings per Share” which requires presentation of both basic and diluted earnings per share on the face of the statement of operations. Basic loss per share is computed by dividing net loss available to common shareholders by the weighted average number of outstanding common shares during the period. Diluted loss per share gives effect to all dilutive potential common shares outstanding during the period. Dilutive loss per share excludes all potential common shares if their effect is anti-dilutive.

 

The Company has previously had potentially dilutive debt instruments outstanding in the form of convertible notes payable – related party. However, as the Company has incurred losses since Inception, these potentially dilutive shares of common stock have been excluded from the calculation of loss per share as their effect would have been anti-dilutive. Consequently basic and diluted loss per share were identical for the three and nine months ended June 30, 2014 and 2013.

 

No potentially dilutive debt or equity instruments were issued or outstanding during the three and nine month ended June 30, 2014.

 

Advertising

 

The Company follows the policy of charging the costs of advertising to expenses incurred. The Company incurred $0 in advertising costs during the three and nine month period ended June 30, 2014 and 2013.

 

Stock-based Compensation

 

The Company records stock based compensation in accordance with the guidance in ASC Topic 718 (Accounting for Share Based Payments) which requires the Company to recognize expenses related to the fair value of its employee stock option awards. This eliminates accounting for share-based compensation transactions using the intrinsic value and requires instead that such transactions be accounted for using a fair-value-based method. The Company recognizes the cost of all share-based awards on a graded vesting basis over the vesting period of the award.

PACIFIC OIL COMPANY

(An Exploration Stage Company)

NOTES TO CONDENSED UNAUDITED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTH PERIODS ENDED JUNE 30, 2014 AND 2013 AND THE PERIOD FROM INCEPTION (DECEMBER 5, 2005) TO JUNE 30, 2014

 

NOTE 3 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Revenue Recognition

 

The Company recognizes service revenue using four basic criteria that must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured. Determination of criteria (3) and (4) are based on management’s judgment regarding the fixed nature of the selling prices of the products delivered and the collectability of those amounts. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded. The Company defers any revenue for which the product has not been delivered or is subject to refund until such time that the Company and the customer jointly determine that the product has been delivered or no refund will be required.

 

Correction of an error in previously issued financial statements

 

The Company follows guidance under ASC 250-10-45-23 for reporting any error in the financial statements of a prior period discovered after the financial statements are issued or are available to be issued. The current comparative statements as presented reflect the retroactive application of any error corrections. Those items that are reported as error corrections in the Company’s restatements of net income and retained earnings, as well as other affected balances for all periods reported there-in, are disclosed in Note 5 of the footnotes to the financial statements presented herein.

 

Recent Accounting Pronouncements

 

Development Stage Company

We are in the development stage as defined under the then current Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 915-205 “Development-Stage Entities” and among the additional disclosures required as a development stage company are that our financial statements were identified as those of a development stage company, and that the statements of operations, stockholders’ deficit and cash flows disclosed activity since the date of our Inception December 5, 2005) as a development stage company. Effective June 10, 2014 FASB changed its regulations with respect to Development Stage Entities and these additional disclosures are no longer required for annual reporting periods beginning after December 15, 2014 with the option for entities to early adopt these new provisions. We have not elected to early adopt these provisions and consequently these additional disclosures are included in these financial statements.

 

The Company does not believe that other than disclosed above, recently issued, but not yet adopted, accounting pronouncements will have a material impact on its financial position, results of operations or cash flows.

 

 

NOTE 4 - RELATED PARTY TRANSACTIONS

 

In support of the Company’s efforts and cash requirements, it may rely on advances from related parties until such time that the Company can support its operations or attains adequate financing through sales of its equity or traditional debt financing. There is no formal written commitment for continued support by shareholders. Amounts represent advances or amounts paid in satisfaction of liabilities. The advances are considered temporary in nature and have not been formalized by a promissory note.

 

The Company had received $43,255 and $56,071 as of September 30, 2013 (restated) and June 30, 2014 as advances from related parties to fund ongoing operations. In addition, as of June 30, 2014, a related party note payable balance was $ $1,174. All of the related party accounts and note payable are non-interest bearing, unsecured and due upon demand.

 

 

 

PACIFIC OIL COMPANY

(An Exploration Stage Company)

NOTES TO CONDENSED UNAUDITED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTH PERIODS ENDED JUNE 30, 2014 AND 2013 AND THE PERIOD FROM INCEPTION (DECEMBER 5, 2005) TO JUNE 30, 2014

 

NOTE 5 - CORRECTION OF AN ERROR IN PREVIOUSLY ISSUED FINANCIAL STATEMENTS

 

The Company follows guidance under ASC 250-10-45-23 for reporting any error in the financial statements of a prior period discovered after the financial statements are issued or are available to be issued. The error resulted from the Company not properly reporting convertible debt to a related party and the associated derivative liability. The current comparative statements as presented reflect the retroactive application of any error corrections. Those items that are reported as error corrections in the Company’s restatements of net income and retained earnings, as well as other affected balances for all periods reported there-in, are disclosed in Note 5 of the footnotes to the financial statements presented herein.

 

 

 

 

PACIFIC OIL COMPANY

(An Exploration Stage Company)

Balance Sheet and Statement of Operations (restated)

BALANCE SHEET				09/30/13
		As Filed		Adjustments			Restated Actual
Assets
Current assets
Cash	$	820	$	-		$	820
Total current assets		820		-			820
Total Assets	$	820	$	-		$	820
Liabilities
Current liabilities
Accounts payable and accrued liabilities	$	746	$	$       16,519	(a)	$	17,265
Account Payable-related party		121,079		(77,824)	(b)		43,255
Derivative Liability		-		173,856	(b)		173,856
Convertible note payable - related party, net of discount $57,618		-		20,206	(b)		20,206
Total current liabilities		121,825		132,757			254,582
Total Liabilities		121,825		132,757			254,582
Stockholders' Deficiency
Common Stock, $0.001 par value 300,000,000 Common Shares
Authorized 57,490 Common Shares issued and outstanding
as of September 30, 2013		57		-			57
Additional paid-in capital		130,751		-			130,751
Deficit accumulated during development stage		(251,813)		(132,757)	(a, b)		(384,570)
Total stockholders’ deficit		(121,005)		(132,757)			(253,762)
Total liabilities and stockholders’ equity	$	820		-		$	820
STATEMENT OF OPERATIONS
Revenue	$	-				$	-
OPERATING EXPENSE
Professional Fees		15,050		16,519	(a)		31,569
General and administrative expense		7,069		-			7,069
TOTAL OPERATING EXPENSE		22,119		16,519			38,638
OTHER INCOME (EXPENSE)
Related party income		-		-			-
Change in fair value of derivative		-		(96,032)	(b)		(96,032)
Interest Expense		(8,910)		(20,206)	(b)		(29,116)
Total Other Income (Expense)		(8,910)		(116,238)			(125,148)
LOSS BEFORE INCOME TAXES		(31,029)		(132,757)			(163,786)
Provision for income tax		-
Net Income (Loss)	$	(31,029)	$	(132,757)		$	(163,786)
Basic & Diluted (Loss) per Common Share:	$	(0.54)	$	(2.31)		$	(2.85)
Basic & Diluted Weighted Average Number of Common Shares:		57,490		57,490			57,490

(a)  Relates to account payable

(b)  Relates to derivative liability              

PACIFIC OIL COMPANY

(An Exploration Stage Company)

NOTES TO CONDENSED UNAUDITED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTH PERIODS ENDED JUNE 30, 2014 AND 2013 AND THE PERIOD FROM INCEPTION (DECEMBER 5, 2005) TO JUNE 30, 2014

 

NOTE 6 – DERIVATIVE LIABILITIES

 

As discussed in Note 7 under Convertible Debentures, the Company issued convertible notes payable that provide for the issuance of convertible notes with variable conversion provisions. The conversion terms of the convertible notes are variable based on certain factors, such as the future price of the Company’s common stock. The number of shares of common stock to be issued is based on the future price of the Company’s common stock. The number of shares of common stock issuable upon conversion of the promissory note is indeterminate. Due to the fact that the number of shares of common stock issuable could exceed the Company’s authorized share limit, the equity environment is tainted and all additional convertible debentures and warrants are included in the value of the derivative. Pursuant to ASC 815-15 Embedded Derivatives, the fair values of the variable conversion option and warrants and shares to be issued were recorded as derivative liabilities on the issuance date.

 

The fair values of the Company’s derivative liabilities were estimated at the issuance date and are revalued at each subsequent reporting date, using a lattice model. The Company recorded current derivative liabilities of $2,632 and $173,856 at December 31, 2013 and September 30, 2013, respectively. The change in fair value of the derivative liabilities resulted in a loss of $252 and $0 for the three months ended December 31, 2013 and 2012, respectively, which has been reported as other income (expense) in the statements of operations. The loss of $252 for the three months ended December 31, 2013 consisted of a loss of $252 attributable to the fair value of attributable to the fair value of the convertible notes and settlement of derivative liability from conversion of $171,476.Effective January 1, 2014, the Company, with the consent of the holder of the remaining note convertible – related party totaling $1,174, amended the terms of the note payable to remove the conversion feature. The remaining $2,632 balance of the derivative liability relating to the note payable was credited as other income on removal of the conversion feature from the note payable – related party.

 

The following presents the derivative liability value at June 30, 2014 and September 30, 2013:

 

			June 30, 2014		September 30, 2013
Convertible Note - Related party		$	—			$	173,856
		$	—			$	173,856

 

The following is a summary of changes in the fair market value of the derivative liability during the three and nine months ended June 30, 2014 and the year ended September 30, 2013:

 

Balance, September 30, 2012		$	—
Increase in derivative value due to issuance of convertible note			168,812
Change in fair market value of derivative liabilities due to the mark to market adjustment			5,044
Balance, September 30, 2013			173,856
Debt Conversion			(171,476	)
Change in fair market value of derivative liabilities due to the mark to market adjustment			252
Balance, December 31, 2013			2,632
Cancellation of the conversion feature			(2,632	)
Balance at June 30, 2014		$	—

 

 

 

 

 

 

PACIFIC OIL COMPANY

(An Exploration Stage Company)

NOTES TO CONDENSED UNAUDITED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTH PERIODS ENDED JUNE 30, 2014 AND 2013 AND THE PERIOD FROM INCEPTION (DECEMBER 5, 2005) TO JUNE 30, 2014

 

NOTE 6 – DERIVATIVE LIABILITIES (CONTINUED)

 

Key inputs and assumptions used to value the convertible debentures and warrants issued during the three months ended December 31, 2013 and the year ended September 30, 2013:

-

The underlying stock price was used as the fair value of the common stock;

-

The note amount as of issuance on July 1, 2013 and September 30, 2013, was $77,823.50. The principal amounts of $20,650, $7,000, $10,500, $10,500, $8,750 and $8,750 were converted out by the various Note assignees on October 4, 2013. The remaining principal balance as of December 31 2013 was $1,173.50.

-

Capital raising events are not a factor for this Note since it was unlikely that the Company would raise capital at less than 50% of market during the term which would reset the conversion feature;

-

It was assumed that the Company would not file a registration statement and it would not become effective.

-

The Issue would redeem based on availability of alternative financing, 0% of the time increasing 1.0% monthly to a maximum of 10%;

-

The Holder would convert over a six month term;

-

The projected annual volatility for each valuation period was based on the historic volatility of the company

-

Events of default were not modeled since there was no penalty for default

 

NOTE 7 – CONVERTIBLE NOTE – RELATED PARTIES

 

The Company and the related party agreed to convert the reaming balance of the convertible note to a non-convertible note. The remaining convertible note of $1,174 was reclassified as a note payable during a prior period.

 

NOTE 8 – COMMON STOCK

 

On October 1, 2013 the Company issued 38,100,000 shares to Anthony Sarvucci which resulted in a change in control of the Company. The shares were valued at $137,786 or $0.00362 per share, and were recorded as professional fees for stock based compensation.

 

On October 4, 2013, the Company issued 29,100,002 as a result of a conversion on a note payable.  The total debt relieved was $76,650.  The Company issued 21,889,489 additional shares outside the term of the conversion; the excess shares were valued at $193,258 or $0.0088 per share, which is recorded as a loss on debt conversion. These shares were valued by a valuation expert as there had been no orderly trades of the Company’s stock to date.

 

On December 31, 2013, the Company issued 23,241 shares of its common stock in settlement of accounts payable relating to services provided to the Company. The Company valued the shares based on fair market value services provided to the Company and recorded an expense of $16,519 in the prior period.

 

NOTE 9 – SUBSEQUENT EVENTS

 

There are no events subsequent to period ended June 30, 2014 through the date these financial statements are available to be issued or August 12, 2014 that would warrant further disclosures.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

FORWARD-LOOKING STATEMENTS

 

This Form 10-Q includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than statements of historical facts, included or incorporated by reference in this Form 10-Q which address activities, events or developments which the Company expects or anticipates will or may occur in the future, including such things as future capital expenditures (including the amount and nature thereof); finding suitable merger or acquisition candidates; expansion and growth of the Company's business and operations; and other such matters are forward-looking statements. These statements are based on certain assumptions and analyses made by the Company in light of its experience and its perception of historical trends, current conditions and expected future developments, as well as other factors it believes are appropriate under the circumstances. However, whether actual results or developments will conform with the Company's expectations and predictions is subject to a number of risks and uncertainties, including general economic, market and business conditions; the business opportunities (or lack thereof) that may be presented to and pursued by the Company; changes in laws or regulation; and other factors, most of which are beyond the control of the Company.

 

These forward-looking statements can be identified by the use of predictive, future-tense or forward-looking terminology, such as "believes," "anticipates," "expects," "estimates," "plans," "may," "will," or similar terms. These statements appear in a number of places in this Filing and include statements regarding the intent, belief or current expectations of the Company, and its directors or its officers with respect to, among other things: (i) trends affecting the Company's financial condition or results of operations for its limited history; (ii) the Company's business and growth strategies; and, (iii) the Company's financing plans. Investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve significant risks and uncertainties, and that actual results may differ materially from those projected in the forward-looking statements as a result of various factors. Such factors that could adversely affect actual results and performance include, but are not limited to, the Company's limited operating history, potential fluctuations in quarterly operating results and expenses, government regulation, technological change and competition.

 

Consequently, all of the forward-looking statements made in this Form 10-QSB are qualified by these cautionary statements and there can be no assurance that the actual results or developments anticipated by the Company will be realized or, even if substantially realized, that they will have the expected consequence to or effects on the Company or its business or operations. The Company assumes no obligations to update any such forward-looking statements.

 

The Company has a limited operating history upon which an evaluation of the Company, its current business and its prospects can be based. The Company's prospects must be considered in light of the risks, uncertainties, expenses and difficulties frequently encountered by companies in their early stages of development. Such risks include inadequate funding the company's inability to anticipate and adapt to a developing market, the failure of the company's infrastructure, changes in laws that adversely affect the company's business, the ability of the Company to manage its operations, including the amount and timing of capital expenditures and other costs relating to the expansion of the company's operations, the introduction and development of different or more extensive communities by direct and indirect competitors of the Company, including those with greater financial, technical and marketing resources, the inability of the Company to attract, retain and motivate qualified personnel and general economic conditions.

 

The Company expects that its operating expenses will increase significantly, especially as it implements its business plan. To the extent that increases in its operating expenses precede or are not followed by commensurate increases in revenues, or that the Company is unable to adjust operating expense levels accordingly, the Company's business, results of operations and financial condition would be materially and adversely affected. There can be no assurances that the Company can achieve or sustain profitability or that the Company's operating losses will not increase in the future.

 

GENERAL DESCRIPTION OF BUSINESS

 

Pacific Oil Company is an exploration stage junior energy company.

 

The Company was originally incorporated in Nevada on December 5, 2005 as Kat Racing, Inc.  On January 4, 2013, the Company changed its name to Prairie West Oil & Gas, Ltd and subsequently on July 26, 2013 to Pacific Oil Company.

 

 

 

 

 

RESULTS OF OPERATIONS FOR THE THREE MONTHS AND THE NINE MONTHS ENDED JUNE 30, 2014 COMPARED TO THE THREE AND NINE MONTHS ENDED JUNE 30, 2013

 

The Company has achieved no revenue or profits to date reflecting its exploration stage and the Company anticipates that it will continue to incur net losses for the foreseeable future.

 

The Company incurred a net loss of $8,430 for the three months ended June 30, 2014, compared with net income of $107 for the three months ended June 30, 2013. The year to year variance was due to professional fees of $7,160 relating to accounting and audit reviews, and general and administrative fees of $1,270 relating to stock transfers and stock position reports being expensed for the period ended June 30, 2014.

 

The Company incurred a net loss of $407,331 for the nine months ended June 30, 2014, compared with a net loss of $10,062 for the nine months ended June 30, 2013. The year to year variance was largely due to the loss on debt conversion of $193,258, and professional fees of $137,786 related to stock based compensation.

 

LIQUIDITY AND CAPITAL RESOURCES

 

As at June 30, 2014 the Company’s current assets, comprising solely of cash, were $100 compared to $820 in current assets, also solely cash, at September 30, 2013. As at June 30, 2014, the Company’s current liabilities were $63,849 compared to $254,582 at September 30, 2013.

 

Stockholder’s deficit was $63,749 as of June 30, 2014 compared to stockholders’ deficit of $253,762 as of September 30, 2013.   

 

The Company's financial statements are prepared using generally accepted accounting principles 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. The Company has not yet established an ongoing source of revenues sufficient to cover its operating costs and allow it to continue as a going concern, has incurred losses of $791,901 since inception (December 5, 2005) through June 30, 2014 and had a working capital and shareholder deficit of $63,749 at June 30, 2014 . Accordingly, there is substantial doubt about the Company’s ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it becomes profitable. If the Company is unable to obtain adequate capital, it could be forced to cease operations.

 

In order to continue as a going concern, the Company will need, among other things, additional capital resources. Management's plan is to obtain such resources for the Company by obtaining capital from management and significant shareholders sufficient to meet its minimal operating expenses and seeking equity and/or debt financing. However management cannot provide any assurances that the Company will be successful in accomplishing any of its plans.

 

The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

 

Cash Flows from Operating Activities

 

For the nine month period ended June 30, 2014, net cash flows used in operating activities was $13,535 compared to $8,631 used in operating activities in the nine months ended June 30, 2013.  During the nine months ended June 30, 2014 the Company incurred a loss of $407,331 which was largely offset for cash flow purposes by $387,937 in non-cash expenses and a $5,859 increase in the balance of its accounts payable. By comparison during the nine months ended June 30, 2013 the Company incurred a loss of $10,062 which was partially offset for cash flow purposes by $1,431 in non-cash expenses.

 

Cash Flows from Investing Activities

 

We neither used, nor provided cash flow from investing activities during the nine month periods ended June 30, 2014 or 2013.

 

Cash Flows from Financing Activities

 

During the nine months ended June 30, 2014 the Company received $12,815 in borrowings from related parties as compared to $9,598 in borrowings from related parties during the nine months ended June 30, 2013. The decrease in funding between the two periods reflects the decrease in the amount of funds used in operating activities between the two periods.

 

CRITICAL ACCOUNTING POLICIES

 

In Financial Reporting release No. 60, "CAUTIONARY ADVICE REGARDING DISCLOSURE ABOUT CRITICAL ACCOUNTING POLICIES" ("FRR 60"), the Securities and Exchange Commission suggested that companies provide additional disclosure and commentary on their most critical accounting policies. In FRR 60, the SEC defined the most critical accounting policies as the ones that are most important to the portrayal of a company's financial condition and operating results, and require management to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Based on this definition, our most critical accounting policies include: non-cash compensation valuation that affects the total expenses reported in the current period and the valuation of shares. The methods, estimates and judgments we use in applying these most critical accounting policies have a significant impact on the results we report in our financial statements.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

As a "smaller  reporting  company" as defined by Item 10 of Regulation  S-K, the Company is not required to provide information required by this Item.

 

CONTROLS AND PROCEDURES

 

ITEM 4. CONTROLS AND PROCEDURES

 

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

 

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934 , as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to our management, including our president (also our principal executive officer) and our secretary, treasurer and chief financial officer (also our principal financial and accounting officer) to allow for timely decisions regarding required disclosure.

 

As of June 30, 2014 we carried out an evaluation, under the supervision and with the participation of our president (also our principal executive officer and our chief financial officer), of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our President and Chief Financial Officer concluded that our disclosure controls and procedures were not effective in providing reasonable assurance in the reliability of our corporate reporting as of the end of the period covered by this Quarterly Report due to certain deficiencies that existed in the design or operation of our internal controls over financial reporting and that may be considered to be material weaknesses.

 

CHANGES IN INTERNAL CONTROLS.

 

There was no change in our internal controls or in other factors that could affect these controls during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect our internal control over financial reporting.

 

 

PART II OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

The Company was not subject to any legal proceedings during the three and nine months ended June 30, 2014 or 2013 and, to the best of its knowledge; no legal proceedings are pending or threatened.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

There were no sales of unregistered equity securities during the three and nine months ended June 30, 2014 or 2013.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

There were no senior securities issued or outstanding during the three and nine months ended June 30, 2014 or 2013.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5. OTHER INFORMATION

 

None.

 

ITEM 6. EXHIBITS

 

The following documents are included or incorporated by reference as exhibits to this report.

 

Exhibit Number		Description
31.1		Certification of Chief Executive Officer pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a), as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002
32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

SIGNATURES

 

In accordance with Section 13 or 15 (d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: August 12, 2014

 

 

Pacific Oil Company

Registrant

 

 

By: /s/ Anthony Sarvucci

Anthony Sarvucci

Chief Executive Officer