The accompanying
notes are an integral part of the consolidated financial statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.
DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
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 filing by the Company
in Delaware of a Certificate of Ownership, providing for the merger of the Company’s wholly-owned subsidiary, Delta International
Oil and Gas Inc., into the Company, and in the merger, changing the Company’s name to Delta International Oil & Gas
Inc.
The
primary focus of the Company’s business from 2008 through 2016 was its South American Hedge Fund, LLC (“SAHF”)
subsidiary, which had investments in oil and gas concessions in Argentina. The subsidiary was sold in 2017 along with all of its
oil and gas properties.
In 2017, the Company made various investments
in oil and gas companies and properties in the United States. Although some of the properties produced intermittently throughout
2017 and in early 2018, the Company determined that they wouldn’t produce at a high enough rate in the future to justify
them remaining as part of the Company’s portfolio.
In the fourth quarter of 2017, Delta signed a letter of intent
to do a reverse merger with American Green, Inc. to purchase Nipton, Inc.- the holder of 120 acres in Nipton, CA. The reverse
merger closed on April 5, 2018.
Principles
of Consolidation
The
Company’s financial statements include the accounts of all majority-owned subsidiaries where its ownership is more than 50 percent
of the common stock. All material intercompany transactions and balances have been eliminated.
Use
of Estimates
The
preparation of the consolidated financial statements in conformity with accepted accounting principles generally accepted in the
United States of America requires the Company to make estimates and assumptions that affect the reported amounts of assets, liabilities,
revenues and expenses and related disclosure of contingent assets and liabilities. On an ongoing basis, the Company
evaluates its estimates including, but not limited to, those related to such items as impairments of oil and gas properties, income
tax exposures, accruals, depreciable/useful lives, allowance for doubtful accounts, and valuation allowances. The Company
bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily
apparent from other sources. Actual results could differ from those estimates.
Evaluation
of Long Lived Assets
Oil
and gas and mineral properties represent an important component of the Company’s total assets. Management reviews
long-lived assets for potential impairment whenever significant events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Impairment exists when the carrying amount of the long-lived asset is not
recoverable and exceeds its fair value. The carrying amount of a long-lived asset is not recoverable if it exceeds
the sum of the estimated undiscounted cash flows expected to result from the use and eventual disposition of the asset. If,
impairment exists, the resulting write-down would be the difference between fair market value of the long-lived asset and the
related net book value.
Investments
Investments in non-consolidated affiliates consist of the Company’s
ownership interests in oil and gas development and exploration rights in the United States, net of impairment losses if any. These
investments were reclassified to unproved oil and gas properties after the Company was officially admitted into the joint ventures
for each of the properties.
The
Company evaluates 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 evaluates its equity method investments
for impairment when events or changes in circumstances indicate, in management’s judgment, that the carrying value of such
investments may have experienced an other-than-temporary decline in value. When evidence of loss in value has occurred, the Company
compares fair value of the investment to its carrying value to determine whether impairment has occurred. If the estimated fair
value is less than the carrying value and management considers the decline to be other than temporary, the excess of the carrying
value over the estimated fair value is recognized as impairment in the consolidated financial statements.
Oil
and Gas Properties
The
Company accounts for our oil and natural gas producing activities using the full cost method of accounting as prescribed by the
United States Securities and Exchange Commission (SEC). Under this method, subject to a limitation based on estimated value, all
costs incurred in the acquisition, exploration, and development of proved oil and natural gas properties, including internal costs
directly associated with acquisition, exploration, and development activities, the costs of abandoned properties, dry holes, geophysical
costs, and annual lease rentals are capitalized within a cost center. Costs of production and general and administrative corporate
costs unrelated to acquisition, exploration, and development activities are expensed as incurred.
Costs
associated with unevaluated properties are capitalized as oil and natural gas properties but are excluded from the amortization
base during the evaluation period. When we determine whether the property has proved recoverable reserves or not, or if there
is an impairment, the costs are transferred into the amortization base and thereby become subject to amortization.
The
Company assesses all items classified as unevaluated property on at least an annual basis for inclusion in the amortization base.
The Company assesses properties on an individual basis or as a group if properties are individually insignificant. The assessment
includes consideration of the following factors, among others: intent to drill; remaining lease term; geological and geophysical
evaluations; drilling results and activity; the assignment of proved reserves; and the economic viability of development if proved
reserves are assigned. During any period in which these factors indicate that there would be impairment, or if proved reserves
are assigned to a property, the cumulative costs incurred to date for such property are transferred to the amortizable base and
are then subject to amortization.
Capitalized
costs included in the amortization base are depleted using the unit of production method based on proved reserves. Depletion is
calculated using the capitalized costs included in the amortization base, including estimated asset retirement costs, plus the
estimated future expenditures to be incurred in developing proved reserves, net of estimated salvage values.
Sales
or other dispositions of oil and natural gas properties are accounted for as adjustments to capitalized costs, with no gain or
loss recorded unless the ratio of cost to proved reserves would significantly change.
Impairment
The
net book value of all capitalized oil and natural gas properties within a cost center, less related deferred income taxes, is
subject to a full cost ceiling limitation which is calculated quarterly. Under the ceiling limitation, costs may not exceed an
aggregate of the present value of future net revenues attributable to proved oil and natural gas reserves discounted at 10 percent
using current prices, plus the lower of cost or market value of unproved properties included in the amortization base, plus the
cost of unevaluated properties, less any associated tax effects. Any excess of the net book value, less related deferred tax benefits,
over the ceiling is written off as expense. Impairment expense recorded in one period may not be reversed in a subsequent period
even though higher oil and gas prices may have increased the ceiling applicable to the subsequent period.
As
of December 31, 2017, the KEC lease had an impairment of $57,500, bringing the book value to $0, and the investments in MHD Technology
had an impairment of $125,000, bringing the book value to $0.
Property
and Equipment
Property
and equipment are stated at cost. Depreciation is provided for by the straight-line method over the estimated useful lives of
the related assets.
Income
Taxes
The
Company accounts for income taxes in accordance with the liability method. Under the liability method, deferred assets and liabilities
are recognized based upon anticipated future tax consequences attributable to differences between financial statement carrying
amounts of assets and liabilities and their respective tax bases. The Company establishes a valuation allowance to the extent
that it is more likely than not that deferred tax assets will not be utilized against future taxable income.
Uncertain
Tax Positions
The
Company evaluates uncertain tax positions pursuant to ASC Topic 740-10-25 “Accounting for Uncertainty in Income Taxes,”
which allows companies to recognize a tax benefit from an uncertain tax position only if it is more likely than not that the tax
position will be sustained on examination by the taxing authorities based on the technical merits of the position. Those tax positions
failing to qualify for initial recognition are recognized in the first interim period in which they meet the more likely than
not standard, or are resolved through negotiation or litigation with the taxing authority, or upon expiration of the statute of
limitations. De-recognition of a tax position that was previously recognized occurs when an entity subsequently determines that
a tax position no longer meets the more likely than not threshold of being sustained.
At
December 31, 2017 and 2016, the Company has approximately $0 and $0, respectively, of liabilities for uncertain tax positions. Interpretation
of taxation rules relating to investments in Argentina concessions may give rise to uncertain positions. In connection
with the uncertain tax position, there was no interest or penalties recorded.
The
Company is subject to ongoing tax exposures, examinations and assessments in various jurisdictions. Accordingly, the Company may
incur additional tax expense based upon the outcomes of such matters. In addition, when applicable, the Company will adjust tax
expense to reflect the Company’s ongoing assessments of such matters, which require judgment and can materially increase
or decrease its effective rate as well as impact operating results.
The
number of years with open tax audits varies depending on the tax jurisdiction. The Company’s major taxing jurisdictions
include the United States (including applicable states).
Earnings
(Loss) Per Share
Basic earnings per share are computed by dividing net earnings
by the weighted average number of common shares outstanding during the period. Diluted earnings per common share are
computed by dividing net earnings by the weighted average number of common share and potential common share outstanding during
the period. Potential common shares consist of outstanding common stock purchase warrants. For the years
ended December 31, 2016 and 2017, there were 9,211,517 and 9,700,126, respectively of potentially dilutive common shares outstanding.
These potentially dilutive common shares are anti-dilutive in the years ended December 31, 2016 and 2017, due to our operating
losses, and therefore, have not been included in the calculation of earnings per share.
Foreign
Currency Translation
In 2016, the functional currency for the Company’s primary
foreign operations is the local currency. Assets and liabilities of foreign operations are translated at balance sheet date rates
of exchange and income, expense and cash flow items are translated at the average exchange rate for the period. The functional
currency in Argentina is the Argentine Peso. Translation adjustments are recorded in Accumulated Other Comprehensive Loss. The
Company’s subsidiary in Argentina also has certain U.S. dollar denominated intercompany receivables and payables, which generate
foreign currency gains and losses in other income (expense) when translated at the end of each period using the current exchange
rates.
Stock-based
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.
We account for stock-based compensation to employees in
accordance with FASB ASC 718 which requires companies to measure the cost of employee services received in exchange for an
award of an equity instrument based on the grant-date fair value of the award. Stock-based compensation expense is recognized
on a straight-line basis over the requisite service period.
See
NOTE 6 to view the detailed issuance of warrants during 2017.
Fair
Value of Financial Measurements
FASB
ASC 820, Fair Value Measurements and Disclosures, defines fair value as the exchange price that would be received for an asset
or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an
orderly transaction between market participants on the measurement date. FASB ASC 820 also establishes a fair value hierarchy,
which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair
value. FASB ASC 820 describes three levels of inputs that may be used to measure fair value:
The
Company utilizes the accounting guidance for fair value measurements and discloses for all financial assets and liabilities that
are recognized or disclosed at fair value in the consolidated financial statements on a recurring basis during the reporting period.
The
fair value is an exit price, representing 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. The Company utilizes market data or assumptions
that market participants would use in pricing the asset or liability. ASC 820, “Fair Value Measurements and Disclosures”,
establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers
are defined as follows:
Level
1 - Observable inputs such as quoted market prices in active markets.
Level
2 - Inputs other than quoted prices in active markets that are either directly or indirectly observable.
Level
3 - Unobservable inputs about which little or no market data exists, therefore requiring an entity to develop its own assumptions.
As of December 31, 2017 and 2016, there
were no financial assets or liabilities that require to be fair valued on a recurring basis.
Discontinued
Operations
We
present discontinued operations in our consolidated financial statements when we believe that the disposition of assets constitutes
a strategic shift that will have a major effect on our operations or financial results. The results of prior periods are reclassified
to conform to the current year presentation. See Note 3.
Variable
Interest Entities
The Company follows ASC 810-10-15 guidance with respect to
accounting for variable interest entities (each, a “VIE”). These entities do not have sufficient equity at risk to
finance their activities without additional subordinated financial support from other parties or whose equity investors lack any
of the characteristics of a controlling financial interest. A variable interest is an investment or other interest that will absorb
portions of a VIE’s expected losses or receive portions of its expected residual returns and are contractual, ownership,
or pecuniary in nature and that change with changes in the fair value of the entity’s net assets. A reporting entity is
the primary beneficiary of a VIE and must consolidate it when that party has a variable interest, or combination of variable interests,
that provides it with a controlling financial interest. A party is deemed to have a controlling financial interest if it meets
both of the power and losses/benefits criteria. The power criterion is the ability to direct the activities of the VIE that most
significantly impact its economic performance. The losses/benefits criterion is the obligation to absorb losses from, or right
to receive benefits from, the VIE that could potentially be significant to the VIE. The VIE model requires an ongoing reconsideration
of whether a reporting entity is the primary beneficiary of a VIE due to changes in facts and circumstances. The Company has entered
into a transaction with VIEs during the period; however, the Company is not considered to be the primary beneficiary in these
transactions. Footnote 4 further discloses these investments.
2.
GOING CONCERN
Financial
Condition
The Company’s financial statements for the year ended
December 31, 2017 have been prepared on a going concern basis, which contemplates the realization of assets and settlement of liabilities
in the normal course of business. The Company has incurred net losses and as of December 31, 2017 has an accumulated deficit of
$7,550,052 which raises substantial doubt about the Company’s ability to continue as a going concern.
Management
Plans to Continue as a Going Concern
Delta closed a reverse merger in April 2018. The new management
and the new majority shareholders of Delta have secured two credit lines amounting to $500,000 for Delta. In the first quarter
of 2018, Delta has received $30,000 from these credit lines. The Company’s continued existence is dependent upon management’s
ability to develop profitable operations and its ability to obtain additional funding sources to provide capital and other resources
for the further development of the Company’s business. The Company’s financial statements as of December 31, 2017 do
not include any adjustments that might result from the outcome of this uncertainty.
3.
DISCONTINUED OPERATIONS
Disposal
of Tartagal and Morillo Concessions
On January 3, 2017, the Company received the acceptance of its
offer for the sale of SAHF’s interest in the Tartagal and Morillo concessions from High Luck Group (“High Luck”).
The consideration for 18% of Tartagal and Morillo will be $2,000,000 upon the transfer of the concessions, and 3% of gross revenues
from the production of oil or gas of either concession up to an additional $2,000,000. Once the transfer occurs, the companies
will sign a mutual release. The release of funds is also contingent on other external factors detailed on a Consulting Agreement
signed between a third party (Consultant”) and High Luck. After speaking with the Consultant to High Luck on various occasions,
Delta has taken the position that most of the Consultant’s duties have been fulfilled and the ones that have not require
High Luck to present paperwork to the province and fulfill its commitments to the Province. On February 10, 2017, High Luck Group
deposited the initial $2,000,000 in an Escrow account. On April 4, 2017, the Escrow Agent released $500,000 to Delta as a deposit
towards the initial $2,000,000 payment which is reported as a “Deposit toward T&M Sale” in the consolidated balance
sheet as of December 31, 2017 pending closing of the sale.
On
April 21, 2017, the official government decree for the transfer of Tartagal and Morillo was issued, but High Luck refused to meet
with the SAHF representative to finalize the transfer despite extensive efforts from SAHF.
As
of the date of this filing, High Luck still had failed to meet with SAHF to close the contract, and we have taken the position
that High Luck is in breach of multiple clauses in the contract. The companies are attempting to solve the outstanding issues
in this transaction.
Sale
of SAHF
In
July 2017, Delta closed the agreement with Enrique Vidal for the transfer of SAHF. As the buyer, he will receive 25% of the Tartagal
and Morillo (T&M) Asset Sale in exchange for the buyer’s assumptions of all potential liabilities related to Valle de
Lerma concession.
In connection with the deposit received from the sale of the
T&M concessions and SAHF, the Company paid commissions and bonuses totaling to $175,000 during the year ended December 31,
2017 which are included in “Discontinued operations, net” in the consolidated statements of operations. Out of the
remaining $1,500,000 that Delta is to be paid for the sale of T&M, SAHF is to receive $375,000. SAHF has already received
$125,000 from the initial $500,000 that was transferred to Delta.
The
following table presents the amounts of the major line items that are included in “Discontinued operations, net” in
our consolidated statements of operations.
|
|
Twelve Months Ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
General and Administrative
|
|
$
|
(193,055
|
)
|
|
$
|
(25,773
|
)
|
Impairment Expense
|
|
$
|
-
|
|
|
$
|
(191,236
|
)
|
Gain on sale of SAHF
|
|
$
|
15,535
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations, net of income tax
|
|
$
|
(177,520
|
)
|
|
$
|
(217,009
|
)
|
4.
NOTES RECEIVABLE
On May 25, 2017, the Company loaned $250,000 to Second Chance
Oil, LLC (SCO) for the development of a gas field in northern California. SCO is using the funds provided to work over 2 wells
and puncture in different pay zones, expecting close to virgin pressures.
The note carries a 9% interest, an 18-month maturity, and has
an equity kicker of 3.5% in SCO which we determined to have a value of zero. The note will also be prepaid from 25% of the production
in the new wells and is not secured.
On July 26, 2017, the Company made a $50,000 loan to Landmaster
for a term of 18 months and annual interest of 9% for the re-entry of two oil wells in Haskell County, Texas. The Company was also
granted a 3.75% carried interest in the two wells with the option to participate at the same interest in future wells on the property.
The 3.75% carried interest (3% NRI) in the two wells in the Kieke Lease with a fair value of $44,703 was recorded as an oil and
gas property and a discount to the loan made to Landmaster and amortized over the term of the note. This note is secured with production
from the Kieke lease, and in case the Kieke lease does not produce, it is also secured with production from the Swenson lease (also
owned by Landmaster). During the year ended December 31, 2017, amortization credited to interest income was $12,865. The unamortized
discount at December 31, 2017 amounted to $31,838.
The Company has performed an analysis of the notes receivable
balance under ASC 810-10, and has determined the note receivables mentioned above are variable interests and that SCO and Landmaster
are variable interest entities (“VIEs”) and depends on the Company, as well as additional parties, for continuing financial
support in order to maintain operations. However, the Company cannot make key operating decisions considered to be most significant
to the VIEs, and is therefore not considered to be the primary beneficiary in both transactions. The Company’s maximum exposure
to loss approximates to the carrying value of the notes receivable balance at December 31, 2017.
5.
UNPROVED OIL AND GAS PROPERTIES
On
September 22, 2017, the Company acquired a 70% NRI of the KEC lease in Polk County, Texas from Crestmont Operating, LLC (“Crestmont”)
for a total consideration of $57,500 which consists of a cash payment of $5,000 and the issuance of 750,000 shares of the Company
with a fair value of $52,500. The shares were valued as of the date of their assignment at $.07 per share. The property has four
wells- one of the four being a salt water disposal well.
Crestmont
Operating Agreement
On September 22, 2017, the Company signed an operating agreement
with Crestmont to remain the operator of the KEC property for a total consideration of $2,500. The operator’s role in this
case includes: filing all the necessary paperwork with the Railroad Commission, helping Delta file to become an operator, and formulating
a workover plan for the wells. In connection with the operating agreement, the Company also agreed to pay Crestmont an additional
$45,000 in the form of a note that will be issued on the earlier of (a) successful completion of the workover of one well with
production of at least 13.5 barrels of oil per day for a period of 30 days or (b) a period of three months from the effective date
of the agreement in case the workover has not yet started. The agreement with Crestmont was amended in the fourth quarter of 2017
to substitute the $45,000 Note for 1,000,000 common shares in Delta. The 1,000,000 common shares with a fair value of $30,000 were
issued in the fourth quarter of 2017 and charged to expense.
In late 2017, BCM Energy Investments was issued 750,000 shares
with a fair value of $21,750 for its consulting and evaluation services in connection with the acquisition of the KEC property.
The KEC property was fully impaired as of December 31, 2017
and has a carrying value of $0.
6. WARRANTS
During the year ended December 31, 2017, in connection to the
deals signed with Landmaster, Crestmont, and SCO, the Company issued to each Mr. Jay Wright and Mr. William Forkner, consultants,
158,583 5-year common stock purchase warrants with and exercise price of $0.07 per share, and Mr. Santiago Peralta, CEO, 171,443
5-year common stock purchase warrants with an exercise price of $0.07. The fair value of the warrants amounting to $34,196 was
determined using the Black-Scholes model which included the following assumptions: a 5-year term, risk-free rate of 2.37%, $0 dividend,
and a computed volatility ranging from 324-339%.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Aggregated
|
|
|
|
Warrants
|
|
|
Price
|
|
|
Term years)
|
|
|
Intrinsic
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding,
December 31, 2015
|
|
|
9,211,517
|
|
|
$
|
0.21
|
|
|
|
3.65
|
|
|
$
|
691,052
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, December
31, 2016
|
|
|
9,211,517
|
|
|
$
|
0.21
|
|
|
|
2.65
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
488,609
|
|
|
|
0.07
|
|
|
|
4.52
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding,
December 31, 2017
|
|
|
9,700,126
|
|
|
$
|
0.20
|
|
|
|
0.84
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested,
December 31, 2017
|
|
|
9,700,126
|
|
|
$
|
0.20
|
|
|
|
0.84
|
|
|
$
|
0
|
|
Mr.
Jay Wright and Mr. William Forkner were acting as advisers for Delta. Their roles were to bring projects to the Company, help
evaluate the projects, help negotiate the final terms of the contract, and bring funding to the Company.
7.
DEBT
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Short – term debt
|
|
|
|
|
|
|
Note payable to third party, interest at 6%, due August 10, 2011
|
|
|
15,000
|
|
|
|
15,000
|
|
Total
|
|
$
|
15,000
|
|
|
$
|
15,000
|
|
During the year 2017, the Company did not
pay off any debt and did not raise any more capital via debt instruments. The note payable is currently past due and the note is
unsecured.
8. INCOME TAXES
The
Company has not made provision for income taxes in the years ended December 31, 2017 and 2016, respectively, since the Company
has the benefit of net operating losses carried forward in these periods.
Deferred
income tax assets consist of:
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Net operating loss carryforwards
|
|
$
|
1,366,557
|
|
|
$
|
2,013,467
|
|
|
|
|
|
|
|
|
|
|
Less valuation allowance
|
|
|
(1,366,557
|
)
|
|
|
(2,013,467
|
)
|
|
|
|
|
|
|
|
|
|
Deferred income tax assets, net
|
|
$
|
--
|
|
|
$
|
--
|
|
On December 22, 2017, the U.S. government enacted comprehensive
tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “TCJA”). Changes include, but are not limited
to, a corporate tax rate decrease from 35% to 21% effective for tax years beginning in 2018. The Company has calculated its best
estimate of the impact of the TCJA in its 2017 income tax provision in accordance with its understanding of the TCJA and guidance
available as of the date of this filing.
Due to uncertainties surrounding the Company’s ability
to generate future taxable income to realize these assets, a full valuation has been established to offset the net deferred income
tax asset. Based on management’s assessment, utilizing an effective combined tax rate for federal and state taxes of approximately
26%, the Company has determined it to be more likely than not that a deferred income tax asset of approximately $1,366,557 and
$2,013,467 attributable to the future utilization of the approximately $5,255,987 and $4,793,970 in eligible net operating loss
carry-forwards as of December 31, 2017 and 2016, respectively, will not be realized. The Company will continue to review this valuation
allowance and make adjustments as appropriate. The net operating loss carryforwards will begin to expire in varying amounts from
year 2022 to 2036.
9. COMMITMENTS
AND CONTINGENCIES
OPERATING
LEASES
Rent
expense was $5,137 under a month-to-month office lease and $14,311 for the years ended December 31, 2017 and 2016, respectively.
EMPLOYMENT
AGREEMENTS
The
only current Executive Employment Agreement is with Mr. Santiago Peralta dated February 6, 2015 as an Interim CEO, President,
and Director for a one (1) year term and an annual salary of $80,000 plus a $5,000 quarterly bonus. The contract has an automatic
one (1) year renewal, which was renewed originally in 2016, and, again, in 2017. Additionally, Mr. Peralta, alongside other company
management, is eligible for participation of a bonus pool of up to 15% of net profits difference between the current quarter and
the same quarter five years in the past. Mr. Peralta stopped receiving salary payments in October 2017. Mr. Peralta resigned as
a Director on April 10, 2018
.
CONTINGENT
BONUSES
The
Company has commitments to one SAHF employee and one ex-SAHF contractor if the sale of Tartagal and Morillo to High Luck materializes.
Upon receipt of the initial payment, Alberto Mac Mullen is expected to be paid $200,000 for his services over the past ten years
to the Company. Enrique Vidal is expected to be paid 3% of the total purchase price of the sale for his crucial role negotiating
the contract with High Luck.
10. INVESTMENT IN MHD TECHNOILOGY
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 (currently,
approximately 5.5% 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.
This investment is accounted for using
the cost accounting method. 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. The investment was fully impaired during the year
ended December 31, 2017.
11.
SUBSEQUENT EVENTS
Convertible Notes
On March 20, 2018, two convertible promissory notes were
issued to investors for $15,000 each with a commitment of up to $500,000 throughout 2018. The notes are subject to annual interest
of 6%, mature on March 20, 2021 and are convertible to common shares any time after 180 days from the issuance date at a price
of $0.02 per share. The notes include a dilutive issuance provision when certain conditions are met.
Preferred Series A Stock
In April 2018, Delta designated 160,000 shares of Series A preferred
stock with a par value of $0.0001 per share. Each share is convertible 1,000 to 1 into common stock, carries a dividend rate of
5% per annum on the face value, and is secured by the Nipton Properties.
Reverse Merger with American Green, Inc. and Acquisition
of Nipton, Inc.
On
March 19, 2018, the Company entered into a Securities Exchange Agreement, dated as of March 14, 2018 (the “Agreement”)
with American Green, Inc., a Wyoming corporation (“American Green”), and Nipton, Inc., a California corporation, a
wholly-owned subsidiary of American Green. Pursuant to the Agreement, the Company agreed to acquire 100% of the issued and outstanding
equity securities of Nipton, Inc. from American Green (the “Nipton Acquisition”) in exchange for shares of our convertible
preferred stock, convertible into 160,000,000 shares of the Company’s Common Stock, par value $0.0001 per share. On April
6, 2018, Delta and American Green closed the Nipton Acquisition. At the closing of the Agreement, Delta issued 160,000 shares of
its Series A Convertible Preferred Stock, convertible into 160,000,000 shares of its common stock, to American Green, the former
stockholder of Nipton, Inc., in exchange for all the outstanding shares of capital stock of Nipton, Inc. Following the closing
of the Nipton Acquisition, Nipton, Inc. became a wholly-owned subsidiary of the Company, with American Green, the former stockholder
of Nipton, Inc., owning a controlling interest of approximately 82% of the outstanding shares of common stock of Delta.