| SIGNIFICANT ACCOUNTING POLICIES | ManagementÂ’s
Estimates and Assumptions The preparation
of financial statements in conformity with United States Generally Accepted Accounting Principles requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities as of the balance sheet date, and revenues
and expenses for the period then ended. Actual results could differ significantly from those estimates Oil and Gas
Property Payments and Exploration Costs The Company follows
the full cost method of accounting for natural gas and oil operations. Under the full cost method all costs incurred in the acquisition,
exploration and development of natural gas and oil interests are initially capitalized into cost centers on a country-by-country
basis. The CompanyÂ’s current cost center is located in Canada. Such costs include land acquisition costs, geological and
geophysical expenditures, carrying charges on non-producing properties, costs of drilling and overhead charges directly related
to acquisition, exploration and development activities. Costs capitalized,
together with the costs of production equipment, are depleted and amortized on the unit-of-production method based on the estimated
net proved reserves, as determined by independent petroleum engineers. The accounting standards require that the average, first-day-of-the-month
price during the 12-month period before the end of the year rather than the year-end price, must be used when estimating whether
reserve quantities are economical to produce. This same 12-month average price is also used in calculating the aggregate amount
of (and changes in) future cash inflows related to the standardized measure of discounted future net cash flows. Costs of acquiring
and evaluating unproved properties are initially excluded from depletion calculations. These unproved properties are assessed
periodically to ascertain whether impairment has occurred. When proved reserves are assigned or the property is considered to
be impaired, the cost of the property or the amount of the impairment is added to costs subject to depletion calculations. Under full cost
accounting rules, capitalized costs, less accumulated amortization and related deferred income taxes, shall not exceed an amount
(the ceiling) equal to the sum of: (i) the after tax present value of estimated future net revenues computed by applying current
prices of oil and gas reserves to estimated future production of proved oil and gas reserves as of the date of the latest balance
sheet presented, less estimated future expenditures (based on currents costs) to be incurred in developing and producing any proved
reserves computed using a discount factor of ten percent and assuming continuation of existing economic conditions; (ii) the cost
of properties not being amortized; and (iii) the lower of cost or estimated fair value of unproved properties included in the
costs being amortized. If unamortized costs capitalized within a cost center, less related deferred income taxes, exceed
the ceiling, the excess shall be charged to expense and separately disclosed during the period in which the excess occurs. Amounts
thus required to be written off shall not be reinstated for any subsequent increase in the cost center ceiling. We do not have
any proved reserves in our current property holdings. On an annual
basis management evaluates the carrying value of the CompanyÂ’s unproved oil and gas properties and assesses them for impairment,
considering historical experience and other data such as primary lease terms of the properties, average holding period of unproved
properties and geographic and geologic data. Management noted no matters indicating the cost of the CompanyÂ’s unproved properties
was impaired at December 31, 2015 or 2014. The Company has
not recognized any revenue from its oil and gas exploration activities which commenced in the last quarter of 2005. Cash and Cash
Equivalents The Company considers
all highly liquid investments purchased with a maturity of 90 days or less to be cash equivalents. The company maintains cash
and cash equivalent balances with financial institutions that may exceed federally insured limits. There was no cash equivalent
balances for the year ended December 31, 2015 (2014 – $Nil). GST Receivables
GST Receivables
are presented net of an allowance for doubtful accounts. Receivables consist of goods and services input tax credits. The allowance
was $Nil at both December 31, 2015 and 2014. Office Equipment
Office equipment
is recorded at cost less accumulated depreciation using the straight-line method over the estimated useful lives of the assets
which is estimated to be five years.
December
31, 2015 December
31, 2014
Office equipment $ 11,614 $ 11,614
Accumulated depreciation (11,614 ) (11,614 )
Net book value $ – $ – Impairment
of Long-lived Assets In accordance
with ASC 360, Property, Plant and Equipment, Asset Retirement
Obligations In accordance
with ASC 410, Asset Retirement and Environmental Obligations the fair value of an asset retirement cost, and corresponding liability,
should be recorded as part of the cost of the related long-lived asset and subsequently allocated to expense using a systematic
and rational method. The Company has recorded an asset retirement obligation at December 31, 2015 and 2014 (Note 7) to reflect
its legal obligations related to future abandonment of its oil and gas interests using estimated expected cash flow associated
with the obligation and discounting the amount using a credit-adjusted, risk-free interest rate. At least annually, the Company
will reassess the obligation to determine whether a change in any estimated obligation is necessary. The Company will evaluate
whether there are indicators that suggest the estimated cash flows underlying the obligation have materially changed. Should those
indicators suggest the estimated obligation has materially changed the Company will accordingly update its assessment. The liability
accretes until the Company settles the obligation. Income Taxes
The Company follows
the asset and liability method of accounting for income taxes whereby deferred tax assets and liabilities are recognized for the
future tax consequences of differences between the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. If it is determined that the realization of the future tax benefit is not more likely than not, the
enterprise establishes a valuation allowance. Foreign Exchange
Translation The Company's
functional currency is the Canadian dollar, but reports its financial statements in US dollars. The Company translates its Canadian
dollar balances to US dollars in the following manner: Assets and liabilities have been translated using the rate of exchange
at the balance sheet date. The CompanyÂ’s results of operations have been translated using average rates. Translation gains
or losses resulting from the changes in the exchange rates are accumulated as other comprehensive income or loss in a separate
component of stockholders' equity. All amounts included
in the accompanying financial statements and footnotes are stated in U.S. dollars. Derivative
Financial Instruments The Company reviews
the terms of its equity instruments and other financing arrangements to determine whether there are embedded derivative instruments
that are required to be accounted for separately as a derivative financial instrument. Also, in connection with the issuance of
financing instruments, the Company has issued freestanding warrants that are accounted for as derivative instrument liabilities
because they are exercisable in a currency other than the functional currency of the Company and thus do not meet the “fixed-for-fixed”
criteria of ASC 815-40-15. The warrants are exercisable in United States dollars and the CompanyÂ’s functional currency is
the Canadian dollar. Derivative financial
instruments are initially measured at their fair value. For derivative financial instruments that are accounted for as liabilities,
the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in
the fair value reported as charges or credits to income. For option and warrant-based derivative financial instruments, the Company
uses the Black-Scholes option pricing model to value the derivative instruments. Any exercise
or cancellation of an equity instrument which meets the classification of a derivative financial instrument is trued-up to fair
value at that date and the fair value of the exercised instrument is then re-classed from liability to additional paid in capital. The classification
of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is reassessed at
the end of each reporting period. If reclassification is required, the fair value of the derivative instrument, as of the determination
date, is reclassified. Any previous charges or credits to income for changes in the fair value of the derivative instrument are
not reversed. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether
or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date. Stock Option
Plans The Company has
elected to use the Black-Scholes option pricing model to determine the fair value of stock options granted. In accordance with
the accounting standard for employees, the compensation expense is amortized on a graded vesting basis over the requisite service
period which approximates the vesting period. There were no options issued to employees for the years ended December 31, 2015,
2014 or 2013. Compensation
expense for stock options granted to non-employees is amortized over the contract services period or, if none exists, from the
date of grant until the options vest. Compensation associated with unvested options granted to non-employees is re-measured on
each balance sheet date using the Black-Scholes option pricing model. The expected
volatility of options granted has been determined using the methods described under the relevant accounting standard. The Company
uses historical data to estimate option exercise, forfeiture and employee termination within the valuation model. For non-employees,
the expected term of the options approximates the full term of the options. The risk-free interest rate is based on a treasury
instrument whose term is consistent with the expected term of the stock options. The Company has not paid and does not anticipate
paying dividends on its common stock; therefore, the expected dividend yield is assumed to be zero. In addition, accounting standard
requires companies to utilize an estimated forfeiture rate when calculating the expense for the reporting period. Based on its
best estimate, management applied the estimated forfeiture rate of nil in determining the expense recorded in the accompanying
Statements of Operations and Comprehensive Income (Loss). Compensation
expense is recognized immediately for past services and pro-rata for future services over the option vesting period. During 2015,
the Company recognized $41,845 (2014 – 421,923 2013 - $80,080) in stock-based compensation expense in the Statements of
Operations and Comprehensive Income (Loss) in respect of options granted to non-employees. All stock options granted in 2015,
2014, and 2013 were to non-employees of the Company. The fair value
of each option granted is estimated using the Black-Scholes option-pricing model over the vesting period. During the year ended
December 31, 2015 no stock options were granted. For the years ended December 31, 2014 and 2013 the following weighted average
assumptions were used:
2015 2014 2013
Dividend
yield n/a 0% 0%
Expected volatility n/a 147.1% 144.2%
Risk-free rate n/a 1.79% 2.77%
Expected life in
years n/a 10 8.5 The Company did
not issue any stock options in 2015. Expected volatilities
are calculated using the historical volatility of the CompanyÂ’s stock. When applicable, the Company will use historical
data to estimate option exercise, forfeiture and employees termination within the valuation model. For non-employees, the expected
term of the options approximates the full term of the options. Earnings (Loss)
Per Share of Common Stock Basic earnings
(loss) per share of common stock is computed by dividing net income (loss) available to common shareholders by the weighted-average
number of common shares outstanding for the period. Diluted earnings per share of common stock reflect the potential dilution
that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted
in the issuance of common stock that then shared in the earnings of the Company. Dilutive potential common shares are calculated
in accordance with the treasury stock method, which assumes that proceeds from the exercise of all warrants and options are used
to repurchase common stock at market value. The amount of shares remaining after the proceeds are exhausted represents the potentially
dilutive effect of the securities. Warrants and options with an exercise price lower than the weighted average share price during
the period were determined to be anti-dilutive and excluded from the computation of earnings per share. At December 31,
2014 and 2013, the effect of all outstanding options and common stock warrants would have been anti-dilutive, due to the net loss
incurred and accordingly only basic earnings per share is presented for those years. Fair Value
of Financial Instruments The book values
of GST receivables, notes receivable, accounts payable and accrued expenses approximate their respective fair values due to the
short-term nature of these instruments. The fair value hierarchy under GAAP distinguishes between assumptions based on market
data (observable inputs) and an entityÂ’s own assumptions (unobservable inputs). The hierarchy consists of three levels:
· Level
one
· Level
two
· Level
three Determining
which category an asset or liability falls within the hierarchy requires significant judgment. We evaluate our hierarchy disclosures
each quarter. Liabilities measured at fair value are summarized as follows as of: December 31,
2015:
Level
1 Level
2 Level
3 Total
Derivative liability $ – $ – $ 1,153,491 $ 1,153,491 December 31, 2014:
Level
1 Level
2 Level
3 Total
Derivative liability $ –
$ – $ 4,482,926
$ 4,482,926
We currently
measure and report the fair value liability for warrants with a strike price currency different than the functional currency of
the Company on a recurring basis. The fair value liabilities for warrants have been recorded as determined utilizing the Black-Scholes
option pricing model. See Note 5 for further discussion of the inputs used in determining the fair value. Comprehensive
Income (Loss) Comprehensive
income (loss) is defined to include all changes in equity except those resulting from investments by owners and distributions
to owners. The Company's items of other comprehensive income (loss) are foreign currency translation adjustments. New Accounting
Pronouncements From time to
time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) that are adopted
by the Company as of the specified effective date. Unless otherwise discussed, management believes that the impact of recently
issued standards did not or will not have a material impact on the CompanyÂ’s consolidated financial statements upon adoption. One June 10,
2014, the FASB issued Accounting Standards Update No. 2014-10 (ASU 2014-10), Development Stage Entities (Topic 915)”
Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic
810, Consolidation In February 2015,
the FASB issued ASU 2015-02, Amendments to the Consolidation Analysis In May 2015,
the FASB issued ASU 2015-07, Disclosures for Investments in Certain Entities That Calculate Net Asset Value per share
(or Its Equivalent) There are no
other recently issued accounting pronouncements that are expected to have a material impact on our financial condition, results
of operations or cash flows. |
