| Summary of Significant Accounting Policies | 2. Summary of Significant Accounting Policies Basis of Presentation The accompanying
unaudited interim consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting
principles in the United States of America (“GAAP”) and the rules of the U.S. Securities and Exchange Commission (“SEC”),
and should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Company’s
February 28, 2018 Annual Report on Form 10-K filed with the SEC. In the opinion of management, all adjustments, consisting of normal
recurring adjustments, necessary for a fair presentation of the Company’s financial position and results of operations for
the interim periods presented are 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 these financial statements, which would substantially duplicate the disclosure
contained in the audited financial statements for the most recent fiscal year ended February 28, 2018, as reported on the related
Form 10-K, have been omitted. Principles of
Consolidation These consolidated
financial statements include the accounts of the Company and the Subsidiary. Intercompany transactions and balances have been eliminated
upon consolidation. Use of Estimates The preparation
of these financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of these financial statements
and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Cash and Cash
Equivalents The Company considers
all highly liquid instruments with maturities of three months or less at the time of acquisition to be cash equivalents. The Company
maintains its cash in bank accounts which, at times, may exceed federally insured limits as guaranteed by the Federal Deposit Insurance
Corporation. At August 31, 2018, approximately $696,064 of the Company’s cash balances were uninsured. These accounts have
not incurred losses as of the date of this report. Oil and Gas Property
and Exploration Costs The Company is in
the exploration stage of evaluating the Prospect and has not yet realized any revenues from its operations. It applies the successful
efforts method of accounting for expenditures associated with crude oil and natural gas properties. Under this method, exploration
costs such as exploratory geological and geophysical costs, delay rentals and exploratory overhead are expensed as incurred. Costs
to acquire mineral interests in crude oil and/or natural gas properties, drill and equip exploratory wells that find proved reserves
and drill and equip development wells are capitalized. Acquisition costs of unproved leaseholds are assessed for impairment during
the holding period and transferred to proven crude oil and/or natural gas properties to the extent associated with successful exploration
activities. Significant undeveloped leases are assessed individually for impairment, based on the Company’s current exploration
plans, and a valuation allowance is provided if impairment is indicated. Capitalized costs from successful exploration and development
activities associated with producing crude oil and/or natural gas leases, along with capitalized costs for support equipment and
facilities, are amortized to expense using the unit-of-production method based on proved crude oil and/or natural gas reserves
on a field-by-field basis, as estimated by qualified petroleum engineers. Long-lived Assets The carrying values
of long-lived assets are reviewed on a regular basis for the existence of facts or circumstances that may suggest impairment. The
Company recognizes impairment when the sum of the expected undiscounted future cash flows are less than the carrying amount of
the asset. Impairment losses, if any, are measured as the excess of the carrying amount of the asset over its estimated fair value. Fair Value of
Financial Instruments and Derivative Financial Instruments The carrying amounts
of cash, receivables, accounts payable, accrued liabilities and shareholder loans approximate their fair values due to the short
maturity of these items. Certain fair value estimates may be subject to and involve uncertainties and matters of significant judgment
and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect these estimates. The Company
does not hold or issue financial instruments for trading purposes, nor does it utilize derivative instruments in the management
of its foreign exchange, commodity price, and/or interest rate market risks. Income Taxes Deferred income
taxes are reported for timing differences between items of income or expense reported in these financial statements and those reported
for income tax purposes. The Company uses the asset/liability method of accounting for income taxes. Deferred income taxes and
tax benefits are recognized for the future tax consequences attributable to differences between the financial statements carrying
amounts of existing assets and liabilities and their respective tax bases, and for tax loss and credit carry-forwards. Deferred
tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The Company provides a valuation allowance for deferred taxes for
the estimated future tax effects attributable to temporary differences and carry-forwards when realization is not more likely than
not. The Tax Cuts and
Jobs Act of 2017 was signed into law on December 22, 2017. The law includes significant changes to the U.S. corporate income tax
system, including a federal corporate rate reduction from 34% to 21%. In accordance with ASC 740, the impact of a tax law change
is recorded in the period of enactment. The Company accounts
for uncertain income tax positions by recognizing the impact of a tax position, if that position is more likely than not of being
sustained on examination by taxation authorities, based on the technical merits of the position. Foreign Currency
Translation The Company’s
functional and reporting currency is the United States dollar. Monetary assets and liabilities denominated in foreign currencies
are translated using exchange rates prevailing at the balance sheet date. Non-monetary assets are translated at historical exchange
rates, and revenue and expense items at average rates of exchange prevailing during the period. Differences resulting from translation
are presented in equity as accumulated other comprehensive income (loss). Gains and losses arising on settlement of foreign currency
denominated transactions or balances are included in the determination of income. Foreign currency transactions are primarily undertaken
in Canadian and Australian dollars. The Company has not, to the date of these financial statements, entered into derivative instruments
to offset the impact of foreign currency fluctuations. Fair Value Considerations The Company follows
Accounting Standards Codification (“ASC”) 820, “Fair Value Measurements and Disclosures,” as amended by
FASB Financial Staff Position (“FSP”) No. 157 and related guidance. These provisions relate to the Company’s
financial assets and liabilities carried at fair value and the fair value disclosures related to financial assets and liabilities.
ASC 820 defines fair value, expands related disclosure requirements, and specifies a hierarchy of valuation techniques based on
the nature of the inputs used to develop the fair value measures. Fair value is defined as the price that would be received to
sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, assuming
the transaction occurs in the principal or most advantageous market for that asset or liability. There are three
levels of inputs to fair value measurements - Level 1, meaning the use of quoted prices for identical instruments in active markets;
Level 2, meaning the use of quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments
in markets that are not active or are directly or indirectly observable; and Level 3, meaning the use of unobservable inputs. The
Company uses Level 1 inputs for its fair value measurements whenever there is an active market, with actual quotes, market prices,
and observable inputs on the measurement date. The Company uses Level 2 inputs for fair value measurements whenever there are quoted
prices for similar securities in an active market or quoted prices for identical securities in an inactive market. The Company
uses observable market data whenever available. In accordance with
ASC 815-40-25 and ASC 815-10-15, “Derivatives and Hedging” and ASC 480-10-25, “Liabilities-Distinguishing Liabilities
from Equity”, the embedded derivatives associated with the convertible debenture payable and warrants are accounted for as
liabilities during the term of the related debenture payable and warrants. Net Income (Loss)
Per Share Basic Earnings Per
Share (“EPS”) is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted
average number of shares outstanding (denominator) during the period. Diluted EPS give effect to all dilutive potential common
shares outstanding during the period using the treasury stock method and to convertible preferred stock using the if-converted
method. In computing diluted EPS, the average stock price for the period is used to determine the number of shares assumed to be
purchased from the exercise of stock options and/or warrants. Diluted EPS excludes all dilutive potential shares if their effect
is anti-dilutive. For the three and six months ended August
31, 2018 and August 31, 2017, the following share equivalents related to convertible debt and warrants to purchase shares of common
stock were potentially dilutive.
Three Three Six Six
Months Ended Months Ended Months Ended Months Ended
August 31, 2018 August 31, 2017 August 31, 2018 August 31, 2017
Net income (loss) available to common share holders $ 11,621,329 $ 7,975,144 $ (690,913 ) $ 633,950
Effect of common stock equivalents
Interest expense on convertible debt 156,266 120,500 - 234,050
Tax effect of decrease interest expense (54,693 ) (42,175 ) - (81,918 )
Net income (loss) adjusted for common stock equivalents $ 11,722,902 $ 8,053,469 $ (690,913 ) $ 786,082
Weighted average shares basic 144,001,266 141,665,396 143,520,831 141,665,396
Dilutive effect of common stock equivalents
Warrants 7,048,092 2,673,577 - 5,369,528
Convertible debt 40,930,486 17,487,517 - 35,359,375
Weighted average number of common shares – dilutive 191,979,844 161,826,490 143,520,831 182,394,299
Net income (loss) per common share – basic $ 0.08 $ 0.06 $ (0.00 ) $ 0.00
Net income (loss) per common share – diluted $ 0.06 $ 0.05 $ (0.00 ) $ 0.00 Comprehensive
Income (Loss) The Company recognizes
currency translation adjustments as a component of comprehensive income (loss). Subsequent Events The Company evaluated
all transactions from August 31, 2018, through the financial statement issuance date for subsequent event disclosure consideration. Recent Accounting
Pronouncements In April 2016, the
FASB issued Accounting Standards Update (“ASU”) No. 2016-10, “Revenue from Contracts with Customers: Identifying
Performance Obligations and Licensing” (Topic 606). In March 2016, the FASB issued ASU No. 2016-08, “Revenue from Contracts
with Customers: Principal versus Agent Considerations (Reporting Revenue Gross versus Net)” (Topic 606). These amendments
provide additional clarification and implementation guidance on the previously issued ASU 2014-09, “Revenue from Contracts
with Customers”. The amendments in ASU 2016-10 provide clarifying guidance on materiality of performance obligations; evaluating
distinct performance obligations; treatment of shipping and handling costs; and determining whether an entity’s promise to
grant a License provides a customer with either a right to use an entity’s intellectual property or a right to access an
entity’s intellectual property. The amendments in ASU 2016-08 clarify how an entity should identify the specified good or
service for the principal versus agent evaluation and how it should apply the control principle to certain types of arrangements.
The adoption of ASU 2016-10 and ASU 2016-08 is to coincide with an entity’s adoption of ASU 2014-09, which would be adopted
for interim and annual reporting periods beginning after December 15, 2017. The Company has evaluated and adopted the standard
and due to the nature of the Company’s oil and gas revenue agreements method there was no impact of the standard on its consolidated
financial statements. In August 2016,
the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments”
(“ASU 2016-15”). ASU 2016-15 impacts how cash receipts and cash payments are presented and classified in the statement
of cash flows. ASU 2016-15 is effective for fiscal years beginning after December 15, 2017. The new standard requires adoption
on a retrospective basis unless it is impracticable to apply, in which case it requires application of the amendments prospectively
as of the earliest date practicable. The Company has evaluated the impact of ASU 2016-15 on its consolidated financial statements
and determined that none of the cash flow activity addressed under this ASU occurred during the current or prior period. In February 2016,
the FASB issued ASU 2016-02, a new lease standard requiring lessees to recognize lease assets and lease liabilities for most leases
classified as operating leases under previous U.S. GAAP. The guidance is effective for fiscal years beginning after December 15,
2018, with early adoption permitted. The Company will be required to use a modified retrospective approach for leases that exist
or are entered into after the beginning of the earliest comparative period in the financial statements. The Company has evaluated
the adoption of the standard and, due to only one operating lease currently in place, believes that there will be minimal impact
of the standard on its consolidated financial statements. The Company does
not anticipate that the adoption of other recently issued accounting pronouncements will have a significant impact on its financial
statements. |
