UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

☒   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2016

 

☐   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ______________ to _______________

 

Commission file number 000-30563

 

DELTA INTERNATIONAL OIL & GAS INC.

(Exact Name of Registrant as Specified in Its Charter)

 

Delaware		14-1818394
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)
7272 E Indian School Rd STE 540, Scottsdale, AZ		85251
(Address of principal executive offices)		(Zip Code)

 

(480) 483-0420

(Registrant's Telephone Number, Including Area Code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes   ☐ No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☐   No ☒

 

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

 

Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer ☐	Smaller reporting company ☒

(Do not check if a smaller reporting company)

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐   No ☒

 

The number of shares outstanding of the issuer's common stock, $0.0001 par value per share, was 32,338,826 as of November 14, 2016.

 

 

 

DELTA INTERNATIONAL OIL & GAS INC.

 

INDEX

 

	Page
Part I. Financial Information	1
Item 1. Financial Statements.	1
Consolidated Balance Sheets as of September 30, 2016 (unaudited) and December 31, 2015	2
Consolidated Statements of Operations for the three and nine months ended September 30, 2016 and 2015 (unaudited)	3
Consolidated Statements of Comprehensive Income (Loss) for the nine months ended September 30, 2016, and 2015 (unaudited)	4
Consolidated Statements of Cash Flows for the nine months ended September 30, 2016 and 2015 (unaudited)	5
Notes to Unaudited Consolidated Financial Statements	6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.	8
Item 3. Quantitative and Qualitative Disclosures About Market Risk.	12
Item 4. Controls and Procedures.	13
Part II. Other Information	14
Item 6. Exhibits.	14
Signatures	15

 

 

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

  

Certain information and footnote disclosures required under accounting principles generally accepted in the United States of America have been condensed or omitted from the following consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, all material adjustments that are necessary for a fair presentation for the periods presented have been reflected. It is suggested that the following consolidated financial statements be read in conjunction with the year-end consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015.

 

The results of operations for the three and nine months ended September 30, 2016 and 2015 are not necessarily indicative of the results for the entire fiscal year or for any other period.

 

 

DELTA INTERNATIONAL OIL & GAS INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (Unaudited)

 

		September 30,				December 31,
		2016				2015
ASSETS
Current Assets:
Cash		$	328,536			$	717,085
Receivable from sale of bidding rights and oil and gas properties (net of allowance for doubtful accounts of $0 and $3,200,069  as of September 30, 2016 and December 31, 2015, respectively)			-				-
Total current assets			328,536				717,085
Property and equipment (net of accumulated depreciation of $0 and $16,386 as of September 30, 2016 and December 31, 2015, respectively)			693				-
Investment in MHD Technology Corporation			125,000				-
Investments in unproved oil and gas properties			-				221,880
Other assets			-				6,368
TOTAL ASSETS		$	454,229			$	945,333
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable		$	2,200			$	560
Accrued expenses			6,140				4,705
Notes payable			15,000				15,000
Total current liabilities			23,340				20,265
Total liabilities			23,340				20,265
Commitments and Contingencies
Stockholders' Equity:
Preferred stock $0.0001 par value-authorized 10,000,000 shares; no shares issued and outstanding at September 30, 2016 and December 31, 2015, respectively			-				-
Common stock $0.0001 par value - authorized 250,000,000 shares; 32,338,826 shares issued and outstanding at September 30, 2016 and December 31, 2015, respectively			3,233				3,233
Additional paid-in capital			7,151,482				7,151,482
Accumulated deficit			(6,741,785	)			(6,280,417	)
Accumulated other comprehensive gain			17,959				50,770
Total stockholders' equity			430,889				925,068
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY		$	454,229			$	945,333

 

The accompanying notes are an integral part of the unaudited consolidated financial statements

 

 

DELTA INTERNATIONAL OIL & GAS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

 

		Three months ending September 30,								Nine Months Ending September 30,
		2016				2015				2016				2015
Costs and Expenses:
Impairment charge		$	-			$	-			$	191,236			$	-
General and administrative			84,154				127,731				270,212				413,016
			84,154				127,731				461,448				413,016
Loss from operations		$	(84,154	)		$	(127,731	)		$	(461,448	)		$	(413,016	)
Other Income (Expense):
Foreign exchange (loss)			-				(18,290	)			-				(25,735	)
Other income			-				-				80				-
Other Income (expense)			-				(18,290	)			80				(25,735	)
Loss before income taxes			(84,154	)			(146,021	)			(461,368	)			(438,751	)
Provision (benefit) for income taxes			-				-				-				-
Net Loss		$	(84,154	)		$	(146,021	)		$	(461,368	)		$	(438,751	)
Net (loss) per common share:
Basic and Diluted		$	(0.00	)		$	(0.00	)		$	(0.01	)		$	(0.01	)
Weighted average common shares - Basic and Diluted			32,338,826				32,338,826				32,338,826				32,338,826

 

The accompanying notes are an integral part of the unaudited consolidated financial statements

 

 

DELTA INTERNATIONAL OIL & GAS INC. AND SUBSIDIARIES UNAUDITED

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS)

 

		Three months ending September 30,								Nine Months ending September
		2016				2015				2016				2015
Net (loss)		$	(84,154	)		$	(146,021	)		$	(461,368	)		$	(438,751	)
Other comprehensive (loss):
Foreign currency translation adjustment			(2,176	)			(14,758	)			(32,811	)			(56,556	)
Net change in other comprehensive (loss)			(2,176	)			(14,758	)			(32,811	)			(56,556	)
Comprehensive (loss)		$	(86,330	)		$	(160,779	)		$	(494,179	)		$	(495,307	)

 

  The accompanying notes are an integral part of the unaudited consolidated financial statements  

 

 

DELTA INTERNATIONAL OIL & GAS INC. AND SUBSIDIARIES UNAUDITED

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

		Nine Months Ending September 30,
		2016				2015
Cash flows from Operating Activities:
Net income (loss)		$	(461,368	)		$	(438,751	)
Impairment charge			191,236				-
Warrants issued for services			-				32,499
Adjustments to reconcile net earnings (loss) to net cash used in operating activities:
Changes in operating assets and liabilities			9,443				(3,814	)
Net cash used in operating activities			(260,689	)			(410,066	)
Cash flows from investing activities:
Purchases of furniture and equipment			(693	)
Investment in MHD Technology Corporation			(125,000	)			-
Net cash used in investing activities			(125,693	)			-
Cash flows from financing activities:
Proceeds from notes payable			-				12,000
Net cash provided by financing activities			-				12,000
Effect of Exchange Rates on Cash			(2,167	)			(33,028	)
Net (decrease) in cash			(388,549	)			(431,094	)
Cash - Beginning of period			717,085				1,206,177
Cash - End of period		$	328,536			$	775,083
Changes in operating assets and liabilities consists of:
Increase (decrease) in accounts payable and accrued expenses		$	3,075			$	(3,814	)
Decrease in other assets			6,368				-
Changes in assets and liabilities		$	9,443			$	(3,814	)
Supplemental disclosure of cash flow information:
Cash paid for interest		$	-			$	-
Cash paid for income taxes		$	-			$	-

 

The accompanying notes are an integral part of the unaudited consolidated financial statements

           

 

DELTA INTERNATIONAL OIL & GAS INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

1. BASIS OF PRESENTATION

 

The accompanying unaudited interim consolidated financial statements of Delta International Oil & Gas Inc. (“Delta” or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission, and should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements which would substantially duplicate the disclosure contained in the audited financial statements for the most recent fiscal year end December 31, 2015 as reported on Form 10-K, have been omitted.

 

2. RECEIVABLE FROM SALE OF BIDDING RIGHTS AND OIL AND GAS PROPERTIES

 

On March 30, 2012 the Company entered into the Cooperation Agreement with PPL. Under the Cooperation Agreement, PPL agreed to pay us $7,000,000 for certain exploration and exploitation rights to oil and gas deposits and certain bidding rights held by Delta on the following areas: Valle de Lerma in the province of Salta; San Salvador de Jujuy; Libertador General San Martin in the province of Jujuy; and Selva Maria in the province of Formosa. Pursuant to a separate Agreement dated March 31, 2012, the Company agreed with PPL to assign and transfer 50% of SAHF's current ownership of the Tartagal and Morillo (i.e., a 9% interest in the concession) to PPL for a purchase price of $500,000. PPL had also agreed in an Undertaking to provide funds to the operating entities of Valle de Lerma (the San Salvador, Libertador, and Selva Maria concessions were awarded to another party, whose bid exceeded that of the Company for these concessions), in the aggregate amount of up to $10,000,000.

 

As of September 30, 2016, the Company had received deposits in the amount of $4,299,891 from PPL on account. The remainder of the proceeds was recorded as a $3,200,069 receivable from the sale of bidding rights and oil and gas properties. As of December 31, 2014, the Company provided a reserve for doubtful accounts of $3,200,069. Because of PPL’s payment default, the Company has not transferred the Tartagal, and Morillo interests. The Company, however, did incorporate High Luck Group (a subsidiary of New Times Energy) into the official UTE for Valle de Lerma, as per PPL’s request.

 

In July 2016, Delta and SAHF terminated all of their agreements with PPL with no further consideration as provided by the MOU with New Times detailed in footnote 5. The final contract is still being worked on by the Parties.

 

3. INVESTMENTS IN MHD TECHNOLOGY

 

We have made an investment of $125,000 in MHD Technology Corporation, a Delaware corporation (“MHD Tech”), for an equity position of 1,343,750 shares of common stock of MHD Tech (approximately 6.25% of the outstanding shares in the company); this investment was made through a separate limited liability company owned by Delta and set up specifically for this investment. In connection with the investment, Santiago Peralta, our Interim Chief Executive Officer and sole director, has joined the Board of Directors of MHD Tech. The investment that Delta made into MHD Tech will be primarily for research and development purposes. In November 2016, a simulation company from Florida finished a simulation of the unit for MHD Tech to start selling licenses. The next step is building a working prototype that will establish the exact specifications of the unit.

 

This investment is accounted for using the cost accounting method. The value of the investment on the balance sheet will be shown at historical cost and will not be adjusted according to fair market value. If there is evidence that suggests that the fair market value of the investment is lower than the historical cost, then the investment will be written down to its new fair market value.

 

 

4. POTENTIAL MANAGER BONUS

 

Due to the agreement reached between New Times Energy and Delta, and the commitments made in July 2015 for a manager bonus to Alberto Mac Mullen and January 2016 for a negotiating commission for Enrique Vidal, the Company expects to have cash disbursements upwards of $200,000 as the payment installments come into the Company.

 

5. ASSET SALE

 

On May 12, 2016, Delta and New Times Energy reached an agreement in principle for the sale of 18% of Tartagal Oriental and Morillo. The two companies signed an MOU detailing the purchase amount, payment terms, and conditions on both sides, and a further Assignment of Rights agreement, which is subject to closing conditions applicable to all parties to the agreement.

 

The total consideration for the 18% of Tartagal Oriental and Morillo is US$4,000,000. The initial payment of US$2,000,000 will be placed in escrow at the signing and will be released when the official transfer of interest in the properties is completed. Additionally, Delta will receive 3% of gross revenues of production of both oil and gas in the properties until an additional US$2 million are paid. New Times has committed to drill 3 exploratory wells in the next 15 months in Tartagal and Morillo. The parties are working on a final draft of the agreement and preparation for closing. Both companies are working in good faith to move forward but there is no certainty that a contract will be finalized or that it will remain in the same terms.

 

6. VALLE DE LERMA CONCESSION

 

The oil and gas concession owned by SAHF in the Province of Salta, Argentina known as Valle de Lerma has been impaired and has a carrying value of $0 as of September 30, 2016. The impairment expense at September 30, 2016 and 2015 was $191,236 and zero dollars, respectively. The property was impaired as of September 30, 2016 because there is a likely scenario in which the property will be returned to the government for no consideration. SAHF still holds title to the property. The property has around 205 work unit commitments outstanding so Delta is looking at ways to transfer the property to an external party to free itself from that potential liability.

 

 

ITEM 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion of our consolidated financial condition and results of operations should be read in conjunction with the consolidated financial statements and notes thereto and the other financial information included elsewhere in this report.

 

Certain statements contained in this report, including, without limitation, statements containing the words "believes," "anticipates," "expects" and words of similar import, constitute "forward looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including our ability to create, sustain, manage or forecast our growth; our ability to attract and retain key personnel; changes in our business strategy or development plans; competition; business disruptions; adverse publicity; and international, national and local general economic and market conditions.

 

GENERAL

 

Delta International Oil & Gas Inc. (“Delta” or “the Company”) was incorporated in Delaware on November 17, 1999. Our name was changed from Delta Mutual Inc. to our present name on October 29, 2013, by the merger with a wholly-owned Delaware subsidiary, where the sole change resulting from the merger was the change of the Company’s name to Delta International Oil & Gas Inc. In 2003, we established business operations focused on providing environmental and construction technologies and services. Our operations in the Far East (Indonesia) and our construction operations in Puerto Rico were discontinued in 2008.

 

Effective March 4, 2008, we acquired 100% of the issued and outstanding membership interests in the parent of South American Hedge Fund LLC, a Delaware limited liability company (sometimes herein referred to as “SAHF”). For accounting purposes, the transaction was treated as a recapitalization of the Company as of March 4, 2008, with the parent of SAHF as the acquirer. SAHF maintains a branch office in Argentina, where it has made investments in oil and gas exploration and development activities. 

 

Overview

 

We are an independent oil and gas company, with the SIC Code classification 1311 (oil and gas production) for SEC filing purposes, engaged in oil and gas acquisition and exploration activities in Argentina. Our operating policies have been to secure oil and gas properties and concessions which are either producing economical quantities of oil and gas or which demonstrate favorable characteristics for well “workovers” with a history of excellent production.

 

Since Mauricio Macri was sworn in as president on December 10, 2015, Argentina has been going through an aggressive reform agenda. In the oil and energy sector, the President has focused on replacing key officials in the Energy Department across the country. He is also in the process of replacing part of the top management and board of directors at the national oil company – YPF. Currently, the oil and natural gas prices applicable domestically are artificially set at $67.50/bbl and up to $7.50/MCF, respectively, in order to keep exploration attractive and to meet domestic energy needs. There are no restrictions for the payment abroad of interest, dividends or profits, royalties and other commercial payments duly supported by the corresponding documentation. There are presently no restrictions on foreign investment in the capital of local corporations.

 

 

Investment in MHD Technology Corporation

 

The Company is currently evaluating prospects for investments in fields other than oil and gas exploration and production, and we have made an initial investment in MHD Tech, a company involved in development of a technology for the transportation and desalination of water, using a specific propulsion technology that had been deemed uneconomic until present-day. We are actively involved in the company in the development phase of the first product. Additionally, in the future, the Company will be involved in the distribution and sales in foreign territories. Our investment was made in the first quarter of 2016.

 

We have made an investment of $125,000 in MHD Technology Corporation, a Delaware corporation (“MHD Tech”), for an equity position of 1,343,750 shares of common stock of MHD Tech (approximately 6.25% of the outstanding shares in the company); this investment was made through a separate limited liability company owned by Delta and set up specifically for this investment. In connection with the investment, Santiago Peralta, our Interim Chief Executive Officer and sole director, has joined the Board of Directors. The investment that Delta made into MHD Tech will be primarily for research and development purposes. On November 9, 2016 MHD Tech received the simulation showcasing how the pump works and has raised another $300,000 from investors. Currently, MHD Tech is teaming up with a PR firm to sign up distributors and working with one of the world’s leading authorities in fluid dynamics to produce an initial prototype. Initial figures have indicated commercial viability.

 

Final product specifications are expected to come from the prototype.

 

Our Oil and Gas Investments

 

As of September 30, 2016, the Company, through SAHF, retained 18% of the total concession in the carryover mode ("no cost obligations to SAHF") in the Tartagal and Morillo oil and gas concessions located in Northern Argentina. We do not operate the Tartagal and Morillo concession, and have a minority position in the joint venture. 9% of Tartagal and Morillo had been sold to PPL in March 2012, but due to payment defaults, the 9% interest was not transferred. Tartagal and Morillo have a carrying value of $0 because 50% of its interest was sold for higher than the carrying cost in 2012. All contracts with PPL have been officially terminated so the 18% of Tartagal and Morillo is owned free and clear.

 

We hold a 30.6% interest in the Valle de Lerma concession in Northern Argentina, where the joint venture partners are Grasta SA, PetroNEXUS, High Luck Group, and REMSA. Valle de Lerma has a carrying value of $0 because the likely scenario that it will be transferred to a third party for no consideration so that they can take care of the work unit commitments outstanding in the concession.

 

29.4% of the rights were sold to PPL under the PPL Agreement and High Luck Group was included in the UTE and the Operation Agreement as 29.4% owners and a 50% liable for all expenses as requested by PPL. However, the official government decree acknowledging High Luck Group as an owner has not yet been made. Delta has spent about $500,000 and complied with about $800,000 of work unit commitments in relation to Valle de Lerma of which High Luck Group is liable for 50%. Additionally, the end of the first period for Valle de Lerma was in March 2016, which the UTE is not looking to extend.

 

The exploration terms are four years for the first period, three years for the second and two years for the last period. Currently our ability to reopen the existing well site is constrained by law, since the location of the well was within the city limits of Salta. Requests made for government approval to override the existing restrictions of the current policy have been rejected. The Company is looking to sell its full stake in Valle de Lerma.

 

As of the date of this report Delta and New Times Energy Corporation Limited were still working on finalizing an agreement for the Company’s sale of its 18% interest in Tartagal and Morillo for a total consideration of US$4 million. Once the agreement is signed, there will be closing conditions that the parties must fulfill. At this time, there is no assurance that the parties will be able to agree on a final agreement or, if agreement is reached, that closing conditions will be satisfied.

 

 

Lithium Mining Property

 

On March 1, 2010, SAHF purchased control of 51% of the Guayatayoc project via a partnership agreement with Oscar Chedrese and Servicios Mineros SA. The project holds the concession for a period of 20 years for the mineral rights to 143,000 hectares with 29 mines located in the Northwest part of Argentina, south of the border with Bolivia, with high lithium and borates brines concentration. We have performed sampling in the property to determine the value of the property, but the results have been inconclusive. We are seeking a purchaser for our concession interest in this property. Delta is not expecting a sale of the lithium property within the next year due to 1) the current price of lithium, 2) lithium’s abundance in the surrounding area, and 3) Delta’s primary focus on other projects. The concession was completely impaired and has a carrying value of $0 as of September 30, 2016.

 

RESULTS OF OPERATIONS

 

THREE MONTHS ENDED SEPTEMBER 30, 2016 COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 2015

 

During the three months ended September 30, 2016, we incurred a net loss of approximately $84,000, compared to net loss of approximately $146,000 for the three months ended September 30, 2015. The decrease in the net loss for the three months ended September 30, 2016 compared to the three months ended September 30, 2015 is primarily due to: lower general and administrative expenses in 2016 and a foreign exchange loss in 2015. 

 

NINE MONTHS ENDED SEPTEMBER 30, 2016 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 2015

 

During the nine months ended September 30, 2016, we incurred a net loss of approximately $461,000, compared to net loss of approximately $439,000 for the nine months ended September 30, 2015. The increase in the net loss for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015 is primarily due to: an impairment charge of approximately $191,000 in 2016, net of lower general and administrative expenses in 2016 and a foreign exchange loss in 2015. 

 

LIQUIDITY AND CAPITAL REQUIREMENTS

 

At September 30, 2016, we had a working capital surplus of approximately $305,000 compared with a working capital surplus of approximately $697,000 at December 31, 2015.

 

At September 30, 2016, we had total assets of approximately $454,000 compared to total assets of approximately $945,000 at December 31, 2015. Net cash used in operating activities in the nine months ended September 30, 2016 was approximately $261,000, as compared with net cash used in operating activities of $410,000 in 2015; net cash used in investing activities was $126,000 in 2016 and $- in 2015; and net cash generated from financing activities was $-0 in 2016 and $12,000 in 2015.

 

Effective March 30, 2012, we entered into an Asset Purchase and Cooperation Agreement (the “Cooperation Agreement”) with Principle Petroleum Limited (“PPL”), headquartered in the British Virgin Islands. Under the Cooperation Agreement, we agreed to sell to PPL, for a price of $7,000,000 certain exploration and exploitation rights to oil and gas deposits and certain bidding rights held by SAHF on the following areas: Valle de Lerma in the province of Salta; San Salvador de Jujuy; Libertador General San Martin in the province of Jujuy; and Selva Maria in the province of Formosa. The San Salvador, Libertador, and Selva Maria concessions have since been awarded by the government to another party. Pursuant to a separate Agreement dated March 31, 2012, we agreed with PPL to assign and transfer 50% of SAHF's current ownership of the Tartagal and Morillo (i.e., a 9% interest in the concession) to PPL for a purchase price of US$500,000. PPL had also agreed in an Undertaking to provide funds to the operating entity of Valle de Lerma (and the other concessions, if our bid had been approved) in the aggregate amount of up to US $10,000,000.

 

 

As part of PPL’s obligations under the Cooperation Agreement, PPL made partial payments of $2,000,000 in our 2012 first fiscal quarter, $999,979 in the second quarter and $499,979 in the third quarter towards the full amount of $7,000,000 provided under the Cooperation Agreement. Both parties are working to execute the full amount of PPL’s payment obligations as agreed. Further payments of $500,000, $50,000, $150,000, and $99,973 were made in January 2013, July 2014, August 2014, and November 2014, respectively. The interests in the Tartagal and Morillo concessions have not been transferred to PPL due to PPL’s payment defaults in all agreements. High Luck Group has been included in the UTE Agreement and Operations Agreement for Valle de Lerma as per PPL’s request under the Cooperation Agreement. As of July 2016, all agreements with PPL had been terminated with no further consideration on either side, fulfilling one of the conditions of the proposed agreement with New Times Energy Corporation Limited.

 

Estimated 2016 Capital Requirements

 

In the case of the Tartagal and Morillo oil and gas properties, we have carried interests; therefore, no further capital expenditures are required on our part.

 

Valle de Lerma’s target well, “La Troja,” has been deemed inside the city limits, and, therefore, unable to be drilled. Given the concession’s limited number of other potential “workover” drills, and the Company’s strategy to not engage in any exploratory drilling, the cost of Valle de Lerma for 2016 is expected to be US$100,000 in canons and other obligations. Additionally, there are 205 unfulfilled work unit commitments in the area which the UTE must satisfy. The Company is currently looking for buyers for the property.

 

SAHF also has “minimum expected income” tax in Argentina. In the third quarter of 2015, SAHF spent about US$12,000 in minimum expected income tax in Argentina to bring all of its tax positions up-to-date. Another minimum expected income tax is expected to be paid in the fourth quarter of 2016 in the amount of $15,000.

 

In 2015, Delta considerably lowered its operating expenses and SG&As to look for other opportunities for investment in the energy industry. In the oil and gas sector, the focus is service-related while in the alternative energies, the focus is in water propulsion systems and hydro-electric systems.

 

USE OF ESTIMATES

 

The preparation of the financial statements requires the Company to make estimates and judgments that affect the reported amount of assets, liabilities, and expenses, and related disclosures of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates, including those related to oil and gas properties, intangible assets, income taxes and contingencies and litigation. The Company bases its estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. In the opinion of management, all normal recurring adjustments considered necessary for a fair presentation have been included in these financial statements. Certain amounts for prior periods have been reclassified to conform to the current presentation.

 

Management believes that it is reasonably possible that the following material estimates affecting the financial statements could happen in the coming two years:

 

	●	Reserve reports in two of the properties;
	●	Cash flow from exploratory drilling in two of the properties; and
	●	Future exploration and development costs that are carried.

 

 

NEW FINANCIAL ACCOUNTING STANDARDS

 

For a summary of new financial accounting standards applicable to the Company, please refer to the notes to the financial statements set forth in our Annual Report on Form 10-K for the year ended December 31, 2015, filed with the SEC on April 14, 2016.

 

Critical Accounting Policies and Estimates

 

The Securities and Exchange Commission recently issued “Financial Reporting Release No. 60 Cautionary Advice About Critical Accounting Policies” (“FRR 60”), suggesting companies provide additional disclosures, discussion and commentary on their accounting policies considered most critical to its business and financial reporting requirements. FRR 60 considers an accounting policy to be critical if it is important to the Company’s financial condition and results of operations, and requires significant judgment and estimates on the part of management in the application of the policy.

 

The Company assesses potential impairment of its long-lived assets, which include its property and equipment, investments, and its identifiable intangibles such as deferred charges under the guidance of ASC 144 “Accounting for the Impairment or Disposal of Long-Lived Assets.” The Company must continually determine if a permanent impairment of its long-lived assets has occurred and write down the assets to their fair values and charge current operations for the measured impairment.

 

Investments in non-consolidated affiliates – These investments consist of the Company’s ownership interests in oil and gas development and exploration rights in Argentina, net of impairment losses if any.

 

We evaluate these investments for impairment when indicators of potential impairment are present. Indicators of impairment include, but are not limited to, levels of oil and gas reserves, availability of pipeline (or other transportation) capacity and infrastructure and management of the operations in which the investments were made.

 

The Company accounts for stock-based compensation to non-employees under ASC 718, "Compensation-Stock Compensation" ("ASC 718"). The compensation cost of the awards is based on the grant date fair-value of these awards and recognized over the requisite service period, which is typically the vesting period. The Company uses the Black-Scholes Option Pricing Model to determine the fair-value of stock options issued for compensation.

 

The Company accounts for non-employee share-based awards based upon ASC 505-50, “Equity-Based Payments to Non-Employees.” ASC 505-50 requires the costs of goods and services received in exchange for an award of equity instruments to be recognized using the fair value of the goods and services or the fair value of the equity award, whichever is more reliably measurable. The fair value of the equity award is determined on the measurement date, which is the earlier of the date that a performance commitment is reached or the date that performance is complete. Generally, our awards do not entail performance commitments. When an award vests over time such that performance occurs over multiple reporting periods, we estimate the fair value of the award as of the end of each reporting period and recognize an appropriate portion of the cost based on the fair value on that date. When the award vests, we adjust the cost previously recognized so that the cost ultimately recognized is equivalent to the fair value on the date the performance is complete. 

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

Not applicable to smaller reporting companies. 

 

 

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Controls and Procedures

 

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Securities Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management, including our chief executive and financial officer, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as ours are designed to do, and management necessarily was required to apply its judgment in evaluating the cost- benefit relationship of possible controls and procedures.

 

As of September 30, 2016, an evaluation was performed under the supervision and with the participation of our management, including our Chief Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon that evaluation, our Chief Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were not effective.

 

Changes in Internal Controls

 

There have been no changes in the Company's internal controls over financial reporting that occurred during the Company's last fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

 

Limitations on the Effectiveness of Controls

 

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. The Company's disclosure controls and procedures are designed to provide reasonable assurance of achieving its objectives. The Company's chief executive officer and principal financial officer concluded that the Company's disclosure controls and procedures are effective at that reasonable assurance level.

 

 

PART II—OTHER INFORMATION

 

ITEM 6. EXHIBITS.

 

31	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
32	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.**

 

* Filed herewith

** Furnished herewith

 

Copies of the following documents are included as exhibits to this report pursuant to Item 601 of Regulation S-K.

 

SEC Ref. No.		Title of Document
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema Document
101.CAL		XBRL Taxonomy Calculation Linkbase Document
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		XBRL Taxonomy Label Linkbase Document
101.PRE		XBRL Taxonomy Presentation Linkbase Document

 

The XBRL related information in Exhibits 101 to this Quarterly Report on Form 10-Q shall not be deemed “filed” or a part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, and is not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of those sections.

 

 

 SIGNATURES

 

In accordance with the requirements of the Exchange Act, the Company has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

	DELTA INTERNATIONAL OIL & GAS INC.
Dated: November 14, 2016	BY:	/s/ Santiago Peralta
		Santiago Peralta
		Interim President and Chief Executive Officer, and Principal Financial Officer

 

 

EXHIBIT INDEX

 

31	Certification of Chief Executive Officer and Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32	Certification of Chief Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

SEC Ref. No.		Title of Document
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema Document
101.CAL		XBRL Taxonomy Calculation Linkbase Document
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		XBRL Taxonomy Label Linkbase Document
101.PRE		XBRL Taxonomy Presentation Linkbase Document

 

 

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