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GRAY FOX PETROLEUM CORP. - 10-Q - Management's Discussion and Analysis or Plan of Operation.

August 6, 2014

This 10-Q contains forward-looking statements. Our actual results could differ materially from those set forth as a result of general economic conditions and changes in the assumptions used in making such forward-looking statements. The following discussion and analysis of our financial condition and results of operations should be read together with the financial statements and accompanying notes and the other financial information appearing elsewhere in this report. The analysis set forth below is provided pursuant to applicable Securities and Exchange Commission regulations and is not intended to serve as a basis for projections of future events.

Overview and Outlook

The Company was incorporated in the State of Nevada on September 22, 2011. The Company was formed originally to provide interior design and architectural visualization, 3D rendering and architectural animation services. On May 31, 2013, the then majority stockholder, Viatcheslav Gelshteyn, entered into a stock purchase agreement with Lawrence Pemble pursuant to which Mr. Gelshteyn sold 7,000,000 shares of Common Stock to Mr. Pemble and forgave $8,363 in stockholder loans he had made to the Company in consideration of $50,000 in cash from Mr. Pemble.

Since the Company's inception on September 22, 2011, it has not generated any revenues. The Company's administrative offices are located at 3333 Lee Parkway, Suite 600, Dallas, Texas 75219. The Company has two employees, Lawrence Pemble, who serves as its Chief Executive Officer and sole director, and Randall Newton, who serves as Chief Financial Officer.

On December 2, 2013, Gray Fox completed the acquisition of 22 separate oil and gas leases issued by the BLM from FFMJ for an aggregate purchase price of $250,000. The leased land, known as the "West Ranch Prospect," comprises 32,723 acres in the Butte Valley Oil Play Region in North Central Nevada. We have a 100% working interest and an 82% net revenue interest in the Leases. If the property is viable and can be developed, we will receive 82% of the net revenues generated from the property. As the leaseholder, we are responsible for evaluating, exploring, paying for and maintaining the Leases.

Our plan of operations for the next 12 months is to conduct geological mapping, gravity surveying and 2D seismic coverage on the West Ranch Prospect. To that end, we have developed an initial exploration plan to identify drilling targets. This initial exploration plan is designed to identify new drilling locations targeting certain geological formations that the Company believes may be capable of producing oil or natural gas in commercial quantities.

As a result of the acquisition of the Leases, the Company is no longer a "shell company," as defined in Rule 12b-2 of the Exchange Act. This change in "shell company" status was previously reported in Item 5.06 of the Current Report on Form 8-K, filed on December 6, 2013, as amended.

In order for us to finance our operations, we will require additional capital. It was our expectation that registration with the SEC and subsequent public listing of our Common Stock might facilitate our efforts in attracting additional capital. Thus far we have been unsuccessful in identifying credible sources of financing despite our efforts.

Results of Operations

Three Months Ended June 30, 2014 versus 2013


The Company was established on September 22, 2011 and has had no revenues or field operations during the three months ended June 30, 2014 and 2013.

Lease Operating Expenses:

Since we have yet to begin operations in the field, we have only recorded ad valorem taxes of $719 in this category. We had no such taxes in 2013.

14 General and Administrative:

General and administrative expense was $23,868 for the three months ended June 30, 2014 compared to $13,987 for the same period in 2013, an increase of $9,881. General and administrative expenses consisted of bank fees, statutory reporting expenses, travel expenses, costs associated with website and other promotional activities. We had higher levels of expenditure in this category principally due to higher rent and travel costs.

Officer Salaries:

Officer salaries expense was $239,348 for the three months ended June 30, 2014 compared to $10,000 for the same period in 2013. The principal difference between these two periods is stock-based compensation of $204,348 which did not exist during the three months ended June 30, 2013.

Professional Fees:

Professional fees expense was $34,481 for the three months ended June 30, 2014 compared to $42,927 for the same period in 2013. Professional fees consisted of legal, accounting and auditing costs necessary to prepare our public filings. The decrease in professional fees results in the net changes in legal costs - a decrease of $23,630 from 2013- and an increase in accounting and other professional fees of $15,184.

Depreciation, Depletion and Amortization:

Depreciation, depletion and amortization was $234 for the three months ended June 30, 2014 versus zero for the same period in 2013. In the current year we had a small amount of computer equipment to depreciate whereas there was no such equipment during 2013.

Asset Impairments:

We incurred 22,037 of geological costs during the three months ended June 30, 2014. We initially capitalized these amounts and then impaired them as the future value of the geological costs is currently unknown. In the previous year, we had no such impairment.

Interest Expense:

Interest expense was zero for the three months ended June 30, 2014 compared to $186 of related-party interest for the same period in 2013. The decrease is a result of the elimination of interest-bearing debt.

Liquidity and Capital Resources

Our principal source of operating capital has been provided from private sales of our common stock and related-party debt financing. At June 30, 2014, we had negative working capital of $141,081 and negative cash flows from operations of $84,635 for the three months ended June 30, 2014. As we continue to develop our business and attempt to expand operational activities, we expect to continue to experience net negative cash flows from operations in amounts not now determinable. We will be required to obtain additional financing to fund operations through common stock offerings and debt borrowings to the extent necessary to provide working capital. We have and expect to continue to have substantial capital expenditure and working capital needs. We do not now have funds sufficient to fund our operations at their current level for the next twelve months. We need to raise additional cash to fund our operations and implement our business plan. We expect that the additional financing will (if available) take the form of a private placement of equity, although we may be constrained to obtain additional debt financing in lieu thereof. We are maintaining an ongoing effort to locate sources of additional funding, without which we will not be able to remain a viable entity. There are no assurances that we will be able to obtain adequate financing to fund our operations. If we are able to obtain the financing required to remain in business, eventually achieving operating profits will require substantially increasing revenues or drastically reducing expenses from their current levels or both. If we are able to obtain the required financing to remain in business, future operating results depend upon a number of factors that are outside of our control.


Our ability to continue as a going concern is dependent on our ability to generate sufficient cash from operations to meet our cash needs and/or to raise funds to finance ongoing operations and repay debt. There can be no assurance, however, that we will be successful in our efforts to raise additional debt or equity capital and/or that our cash generated by our future operations will be adequate to meet our needs. These factors, among others, indicate that we may be unable to continue as a going concern for a reasonable period of time.

Off-Balance Sheet Arrangements

The Company has no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company.

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Source: Edgar Glimpses

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