Document_and_Entity_Informatio
Document and Entity Information (USD $) | 12 Months Ended | ||
Aug. 31, 2012 | Nov. 29, 2012 | Feb. 29, 2012 | |
Document And Entity Information | |||
Entity Registrant Name | EFLO ENERGY, INC. | ||
Entity Central Index Key | 1448806 | ||
Document Type | 10-K | ||
Document Period End Date | 31-Aug-12 | ||
Amendment Flag | TRUE | ||
Amendment Description | This amendment is being filed to comply with regulations. | ||
Current Fiscal Year End Date | -23 | ||
Is Entity a Well-known Seasoned Issuer? | No | ||
Is Entity a Voluntary Filer? | No | ||
Is Entity's Reporting Status Current? | Yes | ||
Entity Filer Category | Smaller Reporting Company | ||
Entity Public Float | $22,138,100 | ||
Entity Common Stock, Shares Outstanding | 19,009,205 | ||
Document Fiscal Period Focus | FY | ||
Document Fiscal Year Focus | 2012 |
Balance_Sheets
Balance Sheets (USD $) | Aug. 31, 2012 | Aug. 31, 2011 |
ASSETS | ||
Cash | $2,206,347 | $487,017 |
Accounts receivable | ||
Accrued gas sales | 178,225 | |
Joint interest owners and other | 122,745 | |
Prepaids | 204,892 | 21,875 |
Other | 17,919 | 3,436 |
Total current assets | 2,730,128 | 512,328 |
OIL AND GAS PROPERTIES, full cost method, unproven | 22,107,381 | |
OTHER ASSETS-Goodwill | 1,194,365 | |
Total assets | 26,031,874 | 512,328 |
CURRENT LIABILITIES | ||
Accounts payable and accrued liabilities | 1,483,041 | 299,701 |
Notes payable | 72,500 | |
Asset retirement obligation | 80,000 | 80,000 |
Total current liabilities | 1,563,041 | 452,201 |
ASSET RETIREMENT OBLIGATION-Long term | 7,057,716 | |
Total liabilities | 8,620,757 | 452,201 |
STOCKHOLDERS' EQUITY | ||
Capital Stock Authorized: 75,000,000 common shares, par value $0.001 per share Issued and outstanding:17,478,539 and 7,196,870 common shares at August 31, 2012 and August 31, 2011, respectively | 17,479 | 7,197 |
Additional paid-in capital | 21,830,083 | 1,683,890 |
Accumulated other comprehensive loss | -2,959 | |
Deficit accumulated during the exploration stage | -4,433,486 | -1,630,960 |
Total stockholders' equity | 17,411,117 | 60,127 |
Total liabilities and stockholders' equity | $26,031,874 | $512,328 |
Balance_Sheets_Parenthetical
Balance Sheets (Parenthetical) (USD $) | Aug. 31, 2012 | Aug. 31, 2011 |
Stockholders Equity | ||
Common Stock Shares Par value | $0.00 | $0.00 |
Common Stock Shares Authorized | 75,000,000 | 75,000,000 |
Common Stock Shares Issued | 17,478,539 | 7,196,870 |
Common Stock Shares Outstanding | 17,478,539 | 7,196,870 |
Statements_of_Operations_Unaud
Statements of Operations (Unaudited) (USD $) | 12 Months Ended | 49 Months Ended | |
Aug. 31, 2012 | Aug. 31, 2011 | Aug. 31, 2012 | |
Income Statement [Abstract] | |||
Management and director's fees | $997,836 | $173,548 | $1,196,384 |
Stock-based compensation expense | 789,277 | 789,277 | |
Consulting fees | 530,127 | 331,851 | 876,978 |
Professional fees | 217,487 | 121,996 | 380,244 |
Office, travel and general | 223,462 | 84,134 | 316,609 |
Oil and gas property impairment | 44,335 | 835,659 | 879,994 |
Total Expenses | 2,802,526 | 1,547,188 | 4,439,486 |
OPERATING LOSS | -2,802,526 | -1,547,188 | -4,439,486 |
OTHER INCOME (EXPENSE) | |||
Gain on forgiveness of accounts payable | 6,000 | ||
NET LOSS | -2,802,526 | -1,547,188 | -4,433,486 |
Foeign currency translation | -2,959 | -2,959 | |
COMPREHENSIVE LOSS | ($2,805,485) | ($1,547,188) | ($4,436,445) |
BASIC AND DILUTED NET LOSS PER COMMON SHARE | ($0.33) | ($0.23) | |
WEIGHTED AVERAGE NUMBER OF BASIC AND DILUTED COMMON SHARE OUTSTANDING | 8,467,594 | 6,855,836 |
Consolidated_Statements_of_Cas
Consolidated Statements of Cash Flows (USD $) | 12 Months Ended | 49 Months Ended | |
Aug. 31, 2012 | Aug. 31, 2011 | Aug. 31, 2012 | |
Cash FLOWS FROM OPERATING ACTIVITIES | |||
Net loss | ($2,802,526) | ($1,547,188) | ($4,433,486) |
Adjustments to reconcile net loss to net cash used in operating activities: | |||
Stock-based compensation and fee payments | 2,035,808 | 2,035,808 | |
Unrealized foreign exchange losses | -2,959 | -2,959 | |
Gain on forgiveness of accounts payable | -6,000 | ||
Oil and gas property impairment | 44,335 | 835,659 | 879,994 |
Changes in working capital items- | |||
Accounts receivable | -300,970 | -300,970 | |
Prepaids and other | -197,500 | -25,311 | -222,811 |
Accounts payable and accrued liabilities | 305,039 | 234,198 | 579,580 |
Net cash used in operating activities | -918,773 | -502,642 | -1,470,844 |
CASH FLOWS FROM INVESTING ACTIVITIES | |||
Expenditures on oil and gas properties | -15,051 | -724,500 | -739,551 |
Acquisition of oil and gas interest | -289,295 | -289,295 | |
Cash used by investing activities | -304,346 | -724,500 | -1,028,846 |
CASH FLOWS FROM FINANCING ACTIVITIES | |||
Common stock and warrants sold for cash, net of fees | 2,944,949 | 1,646,901 | 4,601,800 |
Common stock redeemend for cash | -100 | ||
Proceeds from notes payable | 534,500 | 554,500 | |
Repayment of notes payable | -2,500 | -482,000 | -484,500 |
Loan from related parties | 10,000 | 34,337 | |
Net cash provided by financing activities | 2,942,449 | 1,709,401 | 4,706,037 |
INCREASE IN CASH | 1,719,330 | 482,259 | 2,206,347 |
CASH, BEGINNING OF PERIOD | 487,017 | ||
CASH, END OF PERIOD | 2,206,347 | 487,017 | 2,206,347 |
SUPPLEMENTAL DISCLOSURE | |||
Cash paid for interest | |||
Cash paid for income taxes | |||
Forgiveness of debt | 9,337 | ||
NON-CASH INVESTING ACTIVITIES: | |||
Accrued expenditures on oil and gas properties | 33,135 | 31,159 | 64,294 |
Asset retirment obligation incrurred | 80,000 | 80,000 | |
Asset retirement obligation acquired in Devon acquisition | 7,057,716 | 7,057,716 | |
NON-CASH FINANCING ACTIVITIES | |||
Common stock issued as repayment of note payable | 70,000 | 25,000 | 95,000 |
Common stock issued for services | 1,788,831 | 1,788,831 | |
Common stock issued for Devon assets | $15,950,000 | $15,950,000 |
Consolidated_Statements_of_Sha
Consolidated Statements of Shareholders Equity (Deficit) (USD $) | Common Stock | Additional Paid-In Capital | Accumulated Other Comprehensive Loss | Deficit Accumulated During Exploration Stage | Total |
Beginning Balance, Amount at Jul. 21, 2008 | |||||
Common Stock issued for cash at $0.0001 per share - July 2008, Shares | 100,000,000 | ||||
Common Stock issued for cash at $0.0001 per share - July 2008, Amount | $100,000 | ($95,000) | $5,000 | ||
Ending Balance, Amount at Aug. 31, 2008 | 100,000 | -95,000 | -5,145 | ||
Ending Balance, Shares at Aug. 31, 2008 | 100,000,000 | ||||
Common Stock issued for cash at $0.0015 per share - February 2009, Shares | 3,300,000 | ||||
Common Stock issued for cash at $0.0015 per share - February 2009, Amount | 3,300 | 1,650 | 4,950 | ||
Net loss | -14,777 | ||||
Ending Balance, Amount at Aug. 31, 2009 | 103,300 | -93,350 | -19,922 | ||
Ending Balance, Shares at Aug. 31, 2009 | 103,300,000 | ||||
Forgiveness of debt by former director | 9,337 | 9,337 | |||
Common Stock redeemed and cancelled at $0.001 per share - April 2010, Shares | -96,700,000 | ||||
Common Stock redeemed and cancelled at $0.001 per share - April 2010, Amount | -96,700 | 96,600 | -100 | ||
Comprehensive loss | -63,850 | -63,850 | |||
Ending Balance, Amount at Aug. 31, 2010 | 66,000 | 12,587 | -83,772 | ||
Ending Balance, Shares at Aug. 31, 2010 | 6,600,000 | ||||
Investment units issued for cash at $2.30 per unit - April 2011 (net of fees), Shares | 86,870 | ||||
Investment units issued for cash at $2.30 per unit - April 2011 (net of fees), Amount | 87 | 191,013 | 191,100 | ||
Investment units issued for cash at $3.00 per unit - April 2011 (net of fees), Shares | 390,000 | ||||
Investment units issued for cash at $3.00 per unit - April 2011 (net of fees), Amount | 390 | 1,122,810 | 1,123,200 | ||
Investment units issued for cash at $3.00 per unit - May 2011 (net of fees), Shares | 120,000 | ||||
Investment units issued for cash at $3.00 per unit - May 2011 (net of fees), Amount | 120 | 357,480 | 357,600 | ||
Net loss | -1,547,188 | -1,547,188 | |||
Ending Balance, Amount at Aug. 31, 2011 | 7,197 | 1,683,890 | -1,630,960 | 60,127 | |
Ending Balance, Shares at Aug. 31, 2011 | 7,196,870 | ||||
Conversion of indebtedness to investment units, Shares | 23,334 | ||||
Conversion of indebtedness to investment units, Amount | 23 | 69,977 | 70,000 | ||
Issued for services, Shares | 483,334 | ||||
Issued for services, Amount | 484 | 944,065 | 944,549 | ||
Stock-based compensation granted | 246,976 | 246,976 | |||
Issued for cash at $1.20 per unit (net of fees), Shares | 2,525,001 | ||||
Issued for cash at $1.20 per unit (net of fees), Amount | 2,525 | 2,942,425 | 2,944,950 | ||
Issued in connection with Devon asset acquisition, Shares | 7,250,000 | ||||
Issued in connection with Devon asset acquisition, Amount | 7,250 | 15,942,750 | 15,950,000 | ||
Net loss | -2,802,526 | -2,802,526 | |||
Foreign currency translation | -2,959 | -2,959 | |||
Total Comprehensive loss | -2,805,485 | ||||
Ending Balance, Amount at Aug. 31, 2012 | $17,479 | $21,830,083 | ($2,959) | ($4,433,486) | $17,411,117 |
Ending Balance, Shares at Aug. 31, 2012 | 17,478,539 |
1_NATURE_AND_CONTINUANCE_OF_OP
1. NATURE AND CONTINUANCE OF OPERATIONS | 12 Months Ended | ||||||||||||
Aug. 31, 2012 | |||||||||||||
Accounting Policies [Abstract] | |||||||||||||
1. NATURE AND CONTINUANCE OF OPERATIONS | |||||||||||||
EFL Overseas, Inc. (the “Company”), was incorporated in the State of Nevada on July 22, 2008, and prior to March 2011, was relatively inactive. During March 2011, the Company initiated operations focused on oil and gas exploration and development in the United States and Canada. On July 18, 2012, the Company’s wholly owned subsidiary, EFLO Energy Yukon Ltd., completed an acquisition of Devon Canada’s entire right and interest (generally a working interest of 22.989%, with a working interest of 69.337% in one shut-in gas well) in the Kotaneelee Gas Project (Note 4). | |||||||||||||
The Company’s Consolidated financial statements are prepared on a going concern basis in accordance with generally accepted accounting principles in the United States (“US GAAP”) which contemplates the realization of assets and discharge of liabilities and commitments in the normal course of business. The Company is in the exploration stage. It has not generated operating revenues, and has accumulated losses of $4,838,081 since inception. The Company has funded its operations through the issuance of capital stock and debt. Management plans to raise additional funds through third-party equity or debt financings and the joint venturing of its exploration efforts with third parties. There is no certainty that further funding will be available as needed. These factors raise substantial doubt about the ability of the Company to continue operating as a going concern. The Company’s ability to continue its operations as a going concern, realize the carrying value of its assets, and discharge its liabilities in the normal course of business is dependent upon its ability to raise capital sufficient to fund its commitments and ongoing losses, and ultimately generate profitable operations. | |||||||||||||
Restatements | |||||||||||||
During a re-evaluation of the oil and gas assets acquired in the Devon acquisition (see Note 2), the Company determined that an error had been made in the classification of the oil and gas assets acquired. Specifically, the Company misclassified certain oil and gas leasehold and infrastructure equipment costs as proved within the full cost pool. The Company acquired the assets in an arms-length transaction. The assets acquired were non-core to the long-term business plans of the selling companies and, consequently, had not been the focus of their ongoing exploration and production efforts. However, the Company’s business plan for these acquisitions is strategic in nature, with only marginal consideration for the existing production at the time of acquisition. Since the dates the acquisitions closed, the Company has begun the process of evaluating the exploitation potential of both the conventional and unconventional hydrocarbons in place, as well as formulating an exploitation and development plan based on its ongoing analyses. The Company intends to utilize modern technology and institutional and strategic knowledge of management to optimize the economics of the assets. | |||||||||||||
Upon consideration of the economic profile of the assets acquired at the time of acquisition, as compared to the Company’s future plans for the assets, the Company believes all oil and gas assets, including related infrastructure equipment, should have been classified as unproved in the Company’s balance sheet. Consequently, the Company believes classifying the assets as unproved is appropriate until such time as the hydrocarbon potential has been evaluated, the Company has completed development of an exploitation and development plan based on evaluation of the reservoir, raised sufficient capital to begin the operational execution of the exploitation and development plan and proved the economic viability of the assets based on successful drilling. The Company will begin reclassifying these oil and gas assets from unproved to proved if and when the assets are demonstrably economic concurrent with the execution of the Company’s business plan. | |||||||||||||
The effect of this restatement on the consolidated financial statements included herein is as shown in tabular form below: | |||||||||||||
As previously | As | ||||||||||||
Consolidated Balance Sheet at August 31, 2012 | reported | Adjustments | restated | ||||||||||
Proved properties | 15,232,824 | (15,232,824 | ) | - | |||||||||
Unproven properties | 6,465,622 | 15,641,759 | 22,107,381 | ||||||||||
Accumulated other comprehensive loss | (7,299 | ) | 4,340 | (2,959 | ) | ||||||||
Retained earnings (accumulated deficit) during exploration stage | (4,838,081 | ) | 404,595 | (4,433,486 | ) | ||||||||
Consolidated Statement of Operations for the year ended August 31, 2012 | |||||||||||||
Gas sales, net | 251,290 | (251,290 | ) | - | |||||||||
Lease operating expenses | -255,143 | 255,143 | - | ||||||||||
Depletion, depreciation and amortization | -400,744 | 400,744 | - | ||||||||||
Net income (loss) | -3,207,121 | 404,595 | -2,802,526 | ||||||||||
Consolidated Statement of Cash Flows for the year ended August 31, 2012 | |||||||||||||
Net income (loss) | -3,207,121 | 404,595 | -2,802,526 | ||||||||||
Depletion, depreciation and amortization | 405,084 | (405,084 | ) | - | |||||||||
Net cash used in operating activities | (922,624 | ) | 3,851 | (918,773 | ) | ||||||||
Expenditures on oil and gas properties | (11,200 | ) | (3,851 | ) | (15,051 | ) | |||||||
Net cash used in investing activities | (300,495 | ) | (3,851 | ) | (304,346 | ) | |||||||
Notes to the Consolidated Financial Statements at August 31, 2012, Note 4. Oil and Gas Properties | |||||||||||||
Oil and Gas Acquisition - Kotaneelee Gas Project | |||||||||||||
Intangibles | 6,780,000 | (6,780,000 | ) | - | |||||||||
Leasehold costs | 581,379 | (581,379 | ) | - | |||||||||
Unproved leasehold costs | 6,465,623 | 7,361,379 | 13,827,002 | ||||||||||
Capitalized Acquisition, Exploration and Development Costs | |||||||||||||
KGP – proven properties | 15,637,906 | -15,637,906 | - | ||||||||||
KGP – unproven properties | 6,465,623 | 15,637,906 | 22,103,529 | ||||||||||
Expenditures on oil and gas properties | - | 3,852 | 3,852 | ||||||||||
Unproved oil and gas properties, August 31, 2012 | 6,465,623 | 15,641,758 | 22,107,381 | ||||||||||
Notes to the Consolidated Financial Statements at August 31, 2012, Note 9. Income Taxes | |||||||||||||
Reconciliation of Provision for Income Taxes | |||||||||||||
Canadian-based losses | (469,659 | ) | 408,884 | (60,775 | ) | ||||||||
Expected recovery of Canadian income tax | 140,898 | (122,675 | ) | 18,233 | |||||||||
Valuation allowance | (140,898 | ) | 122,675 | (18,233 | ) | ||||||||
Significant Components of Deferred Income Taxes | |||||||||||||
Canadian net operating loss carryforwards | 140,898 | (122,675 | ) | 18,233 | |||||||||
Total deferred income tax assets | 140,898 | (122,675 | ) | 18,233 | |||||||||
Valuation allowance | (140,898 | ) | 122,675 | (18,233 | ) | ||||||||
Canadian Non-Capital Loss Carryforwards | 720,949 | (660,174 | ) | 60,775 |
2_SUMMARY_OF_SIGNIFICANT_ACCOU
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 12 Months Ended |
Aug. 31, 2012 | |
Accounting Policies [Abstract] | |
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |
Basis of Presentation | |
These consolidated financial statements include the accounts of the Company and its wholly owned subsidiary EFLO Energy Yukon Ltd., after elimination of intercompany balances and transactions. The Company’s interest in oil and gas exploration and production ventures and partnerships are proportionately consolidated. These consolidated financial statements and related notes are presented in accordance with US GAAP, and are expressed in United States dollars. The Company is an exploration stage company as defined by “Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 915, Development Stage Entities.” | |
Use of Estimates | |
The preparation of consolidated financial statements in conformity with US 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 the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions. The Company bases its estimates and assumptions on current facts, historical experience and various other factors it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected. The most significant estimates with regard to these consolidated financial statements relate to carrying values of oil and gas properties, the estimate of proved oil and gas reserves and related present value estimates of future net cash flows there from, asset retirement obligations, the valuation of goodwill, determination of fair values of stock-based transactions, deferred income tax rates, and environmental risks and exposures. | |
Allowance for Doubtful Accounts | |
The Company routinely assesses the recoverability of all material receivables to determine their collectability. All of the Company's receivables are from joint venture partners and large gas marketers. The Company is exposed to a concentration of credit risk with respect to its accounts receivable. The Company believes its financial partners are financially strong and the risk of loss is minimal. Generally, the Company's natural gas receivables are collected within three months. The Company accrues a reserve on a receivable when, based on the judgment of management, it is probable that a receivable will not be collected and the amount of any reserve may be reasonably estimated. As of August 31, 2012 and 2011, the Company had no amount recorded as an allowance for doubtful accounts. | |
Oil and Gas Properties | |
The Company utilizes the full cost method to account for its investment in oil and gas properties. Accordingly, all costs associated with acquisition, exploration and development of oil and gas reserves, including such costs as leasehold acquisition costs relating to unproved properties, geological expenditures, tangible and intangible development costs including direct internal costs are capitalized to the full cost pool. Sales of proved and unproved properties are accounted for as adjustments of capitalized costs with no gain or loss recognized, unless such adjustments would significantly alter the relationship between capitalized costs and proved reserves of oil and gas, in which case the gain or loss is recognized in the statement of operations. | |
Depletion, depreciation and amortization (DD&A) of oil and gas properties is calculated quarterly, using the Units of Production Method (UOP). The UOP calculation, in simplest terms, matches the percentage of estimated proved reserves produced each quarter with the costs of those reserves. The result is to recognize expense at the same pace that the reservoirs are actually depleting. The amortization base in the UOP calculation includes the sum of proved property costs net of accumulated DD&A, estimated future development costs (future costs to access and develop reserves) and asset retirement costs which are not already included in oil and gas property, less related salvage value. Costs of unproved properties are not amortized until the proved reserves associated with the projects can be determined or until impairment occurs. If an assessment of such properties indicates that properties are impaired, the amount of impairment is added to the capitalized cost base to be amortized. | |
The capitalized costs included in the full cost pool are subject to a "ceiling test" (based on the average of the first-day-of-the-month prices during the twelve-month period prior to August 31, 2012 pursuant to the SEC’s “Modernization of Oil and Gas Reporting” rule), which limits such costs to the aggregate of the (i) estimated present value, using a ten percent discount rate, of the future net revenues from proved reserves, based on current economic and operating conditions, (ii) the lower of cost or estimated fair value of unproven properties included in the costs being amortized, (iii) the cost of properties not being amortized, less (iv) income tax effects related to differences between the book and tax basis of the cost of properties not being amortized. If net capitalized costs exceed this limit, the excess is charged to expense in the current period. At August 31, 2011, all of the Company’s oil and gas properties were impaired and expensed to the extent of their carrying value. At August 31, 2012, the Company recorded no write-downs of the carrying value of its proved oil and gas properties. | |
Oil and Gas Acquisitions | |
The Company accounts for the acquisition of oil and gas properties under the requirements of Financial Accounting Standards Board (FASB) ASC Topic 805, Business Combinations (ASC Topic 805), issued in December 2007, with additional guidance issued in April 2009. ASC Topic 805 requires an acquiring entity to recognize all assets acquired and liabilities assumed at fair value under the acquisition method of accounting, provided they qualify for acquisition accounting under the standard. The Company accounts for all property acquisitions that include working interests in proved leasehold, both operated and non-operated, that would generate more than an immaterial balance of goodwill as business combinations. The Company does not apply acquisition accounting to the purchase of oil and gas properties entirely comprised of undeveloped leasehold, which is in compliance with ASC Topic 805. In accordance with this guidance the Company has recognized the fair value of all the assets acquired and liabilities assumed in connection with its Kotaneelee Gas Project working interest acquisition from Devon effective July 18, 2012. | |
The Company adopted ASC Topic 805 effective December 23, 2009. Accordingly, the Company, on an ongoing basis, conducts assessments of net assets acquired to determine if acquisition accounting is appropriate. As appropriate, the Company properly records assets acquired and liabilities assumed at their estimated acquisition date fair values, while transaction and integration costs associated with the acquisitions are expensed as incurred. The Company uses relevant market assumptions to determine fair value and allocate purchase price, such as future commodity pricing for purchased hydrocarbons, market multiples for similar transactions and replacement value for certain equipment. Many of the assumptions are unobservable. | |
Asset Retirement Obligations | |
The Company records asset retirement obligations based on the guidance set forth in ASC Topic 410, as a liability in the period in which it incurs an obligation associated with the retirement of tangible long-lived assets that result from the acquisition, construction, development and/or normal use of the assets. The estimated balance of the asset retirement obligation is based on the current cost escalated at an inflation rate and discounted at a credit adjusted risk-free rate. This liability is capitalized as part of the cost of the related asset and amortized over its useful life. | |
Long-Lived Assets | |
The carrying value of intangible assets and other long-lived assets is 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 is 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. | |
Environmental | |
Oil and gas activities are subject to extensive federal, state and provincial environmental laws and regulations. These laws, which are constantly changing, regulate the discharge of materials into the environment and may require the Company to remove or mitigate the environmental effects of the disposal or release of petroleum or chemical substances at various sites. | |
Environmental expenditures are expensed or capitalized depending on their future economic benefit. Expenditures that relate to an existing condition caused by past operations and that have no future economic benefits are expensed. Liabilities for expenditures of a non-capital nature are recorded when an environmental assessment and/or remediation is probable, and the costs can be reasonably estimated. | |
Revenue Recognition | |
The Company recognizes natural gas revenue under the sales method of accounting for its interests in producing wells as natural gas is produced and sold from those wells. Natural gas sold by the Company is not significantly different from the Company’s share of production. The Company recognizes revenue upon transfer of ownership of the product to the customer which occurs when (i) the product is physically received by the customer, (ii) an invoice is generated which evidences an arrangement between the customer and the Company, (iii) a fixed sales price has been included in such invoice and (iv) collection from such customer is reasonably assured. Gas sales are reported net of applicable production taxes. Since all of the Company’s oil and gas properties are unproven, revenue net of direct operating expenses is offset to the full cost pool. | |
Stock-Based Compensation | |
The Company records compensation expense in the consolidated financial statements for stock-based payments using the fair value method. The fair value of stock options granted to directors and employees is determined using the Black-Scholes option valuation model at the time of grant. Fair value for common shares issued for goods or services rendered by non-employees are measured based on the fair value of the goods and services received. Stock-based compensation is expensed with a corresponding increase to share capital. | |
Income Taxes | |
Income taxes are determined using the liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using the 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 effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes that date of enactment. In addition, a valuation allowance is established to reduce any deferred tax asset for which it is determined that it is more likely than not that some portion of the deferred tax asset will not be realized. | |
The Company accounts for uncertainty in income taxes by applying a two-step method. First, it evaluates whether a tax position has met a more likely than not recognition threshold, and second, it measures that tax position to determine the amount of benefit, if any, to be recognized in the financial statements. The application of this method did not have a material effect on the Company's consolidated financial statements. | |
Foreign Currency Gains and Losses | |
The Company’s functional and reporting currency is the United States dollar. The functional currency of our Canadian subsidiary is the Canadian dollar. Financial statements of our Canadian subsidiary are translated to United States dollars using period-end rates of exchange for assets and liabilities, and average rates of exchange for the period for revenues and expenses. Translation gains (losses) are recorded in accumulated other comprehensive income as a component of stockholders’ equity. Transaction gains and losses are included in the determination of income. Foreign currency transactions are primarily undertaken in Canadian dollars. As of August 31, 2012, the Company has not entered into derivative instruments to offset the impact of foreign currency fluctuations. | |
Earnings Per Share | |
The Company presents both basic and diluted earnings per share (“EPS”) on the face of the consolidated statements of operations. Basic EPS is computed by dividing net earnings (loss) available to common shareholders by the weighted average number of shares outstanding during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period including convertible debt, stock options, and warrants, using the treasury stock method. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive. Diluted EPS amounts are equal to those of Basic EPS for each period since the Company is in a net loss position. | |
As of August 31, 2012 and 2011, the Company had 1,820,204 and 596,870 shares of its common stock available through the exercise of non-dilutive stock warrants, respectively (Note 8). | |
Recent Accounting Pronouncements | |
The Company has reviewed recently issued accounting pronouncements and plans to adopt those that are applicable to it. It does not expect the adoption of these pronouncements to have a material impact on its financial position, results of operations or cash flows. |
3_FAIR_VALUE_MEASUREMENTS
3. FAIR VALUE MEASUREMENTS | 12 Months Ended | ||
Aug. 31, 2012 | |||
Fair Value Disclosures [Abstract] | |||
3. FAIR VALUE MEASUREMENTS | |||
The Company estimates the fair values of financial and non-financial assets and liabilities under ASC Topic 820 “Fair Value Measurements and Disclosures” (“ASC Topic 820”). ASC Topic 820 provides a framework for consistent measurement of fair value for those assets and liabilities already measured at fair value under other accounting pronouncements. Certain specific fair value measurements, such as those related to share-based compensation, are not included in the scope of ASC Topic 820. Primarily, ASC Topic 820 is applicable to assets and liabilities related to financial instruments, to some long-term investments and liabilities, to initial valuations of assets and liabilities acquired in a business combination, and to long-lived assets written down to fair value when they are impaired. It does not apply to oil and natural gas properties accounted for under the full cost method, which are subject to impairment based on SEC rules. ASC Topic 820 applies to assets and liabilities carried at fair value on the consolidated balance sheet, as well as to supplemental fair value information about financial instruments not carried at fair value. | |||
Valuation techniques are generally classified into three categories: the market approach; the income approach; and the cost approach. The selection and application of one or more of these techniques requires significant judgment and is primarily dependent upon the characteristics of the asset or liability, the principal (or most advantageous) market in which participants would transact for the asset or liability and the quality and availability of inputs. Inputs to valuation techniques are classified as either observable or unobservable within the following hierarchy: | |||
● | Level 1 — quoted prices in active markets for identical assets or liabilities. | ||
● | Level 2 — inputs other than quoted prices that are observable for an asset or liability. These include: quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability; and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market-corroborated inputs). | ||
● | Level 3 — unobservable inputs that reflect the Company’s own expectations about the assumptions that market participants would use in measuring the fair value of an asset or liability. | ||
A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. | |||
Where available, fair value is based on observable market prices or parameters or derived from such prices or parameters. Where observable prices or inputs are not available, valuation models are applied. These valuation techniques involve some level of management estimation and judgment, the degree of which is dependent on the price transparency for the instruments or market and the instrument’s complexity. | |||
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis | |||
Acquired oil and gas properties are reported at fair value on a nonrecurring basis in the Company’s balance sheet. See Note 2, Oil and Gas Acquisitions for further discussion of the methods and assumptions used to estimate fair values. | |||
Cash, Cash Equivalents and the Fair Value of Financial Instruments | |||
The Company considers all highly liquid instruments with an original maturity of three months or less at the time of issuance to be cash equivalents. Cash and cash equivalents totaled $2,206,347 and $487,017 at August 31, 2012 and 2011, respectively. The Company is exposed to a concentration of credit risk with respect to its cash deposits. The Company places cash deposits with highly rated financial institutions in the United States and Canada. At times, cash balances held in financial institutions may be in excess of insured limits. The Company believes the financial institutions are financially strong and the risk of loss is minimal. The Company has not experienced any losses with respect to the related risks and does not believe its exposure to such risks is more than normal. | |||
The estimated fair values for financial instruments are determined at discrete points in time based on relevant market information. These estimates involve uncertainties and cannot be determined with precision. The estimated fair value of cash, other receivables, accounts payable, accrued liabilities and demand notes payable approximates their carrying value due to their short-term nature. |
4_OIL_AND_GAS_PROPERTIES
4. OIL AND GAS PROPERTIES | 12 Months Ended | ||||
Aug. 31, 2012 | |||||
Extractive Industries [Abstract] | |||||
4. OIL AND GAS PROPERTIES | |||||
Oil and Gas Acquisition – Kotaneelee Gas Project | |||||
On July 18, 2012, the Company completed an acquisition of Devon Canada’s (“Devon”) entire right and interest (generally a working interest of 22.989%, with a working interest of 69.337% in one producing gas well) in the Kotaneelee Gas Project (“KGP”). The KGP covers 30,542 gross acres in the Yukon Territory in Canada, and included; a gas dehydration plant (capacity: 70 million cubic feet per day (“MMCFD”)), one gas well producing approximately 3.5 MMCFD, one water disposal well (capacity: 6,000 barrels per day), and two suspended gas wells. The KGP has a fully developed gas gathering, sales and delivery infrastructure, airstrip, roads, flarestack, storage tanks, barge dock and permanent camp facilities. All of the Company’s oil and gas properties related to the KGP are unproven. | |||||
As consideration for Devon’s working interest in the KGP, (the “Devon Assets”), the Company paid approximately $23,298,000. The consideration was comprised of $290,000 in cash, 7,250,000 shares of the Company’s restricted common stock valued at $15,950,000, and the absorption of $7,058,000 in asset retirement obligations. The Company allocated the consideration paid to the assets acquired based upon their fair value at the date of purchase, as follows: | |||||
Fair Value of | |||||
Asset Description | Asset Acquired | ||||
Unproven Properties | |||||
Unproven leasehold costs | $ | 13,827,002 | |||
Plant and equipment | 6,484,000 | ||||
Gathering systems | 1,788,000 | ||||
Vehicles | 4,527 | ||||
Unproved Property | 22,103,529 | ||||
Goodwill | 1,194,365 | ||||
Total Assets Acquired - KGP | $ | 23,297,894 | |||
Capitalized acquisition, exploration and development costs incurred on the KGP during the fiscal year ended August 31, 2012 are summarized as follows: | |||||
KGP – Unproven Properties | |||||
Balance, August 31, 2011 | $ | –– | |||
Acquisition costs | 22,103,529 | ||||
Expenditures on oil and gas properties | 3,852 | ||||
Depletion and depreciation | –– | ||||
Oil and gas property impairment | –– | ||||
Balance, August 31, 2012 | $ | 22,107,381 | |||
Oil and natural gas revenues and lease operating expenses related to unproved oil and gas properties that are being evaluated for economic viability are offset against the full cost pool until proved reserves are established, or determination is made that the unproved properties are impaired. During the year ended August 31, 2012, the full cost pool was increased by $3,852 as a result of oil and gas revenue, net of lease operating expense, from unproven properties. | |||||
San Miguel Oil Project | |||||
On March 31, 2011, the Company initiated oil and gas operations by entry into a Farmout and Participation Agreement which provided for its acquisition of a net working interest ranging from 21.25% to 42.5%, in a 2,629 acre oil and gas lease known as the Matthews Lease, insofar as that lease covers from the surface to the base of the San Miguel formation (the “San Miguel Lease”). The San Miguel Lease is located in Zavala County, Texas, is unproven and has no current production. | |||||
During April and May 2011, the Company drilled and completed a test well on the San Miguel Lease (the “Test Well”), performed injection operations and earned its initial interest in the Matthews Lease. The Test Well was drilled into the San Miguel heavy oil zone to a depth of 3,168 feet. The well encountered oil and was completed as a San Miguel producer. After completion, it was determined that the oil was subject to significant viscosity changes related to temperature reductions from formation to recovery at surface. The Test Well was stimulated with nitrified hydrochloric acid and placed on production. To date, however, oil viscosity has prohibited economic operation. As a result of the application of a full cost pool "ceiling test", the Company determined that the book value of the San Miguel Lease was impaired to the extent of its carrying value. Accordingly, during August 2011 and November 2011, the Company recognized losses on the impairment of oil and gas assets of $835,659 and $44,335, respectively. The carrying value of oil and gas properties was likewise reduced to reflect the impairment of the San Miguel Lease. | |||||
The Company continues to investigate various methods to improve production from the Test Well. In the event the Company is unable to substantially improve production, it intends to abandon the Test Well, or actively pursue the sale of its interest in the Matthews Lease. | |||||
The costs incurred on the Mathews Lease during the fiscal years ended August 31, 2012 and 2011 are summarized as follows: | |||||
San Miguel Oil Project – Unproven | |||||
Balance, August 31, 2010 | $ | –– | |||
Expenditures on oil and gas properties | 724,500 | ||||
Accrued expenditures on oil and gas properties | 31,159 | ||||
Asset retirement obligations | 80,000 | ||||
Oil and gas property impairment | (835,659 | ) | |||
Balance, August 31, 2011 | –– | ||||
Expenditures on oil and gas properties | 11,200 | ||||
Accrued expenditures on oil and gas properties | 33,135 | ||||
Asset retirement obligations | –– | ||||
Oil and gas property impairment | (44,335 | ) | |||
Balance, August 31, 2012 | $ | –– | |||
5_ASSET_RETIRMENT_OBLIGATIONS
5. ASSET RETIRMENT OBLIGATIONS | 12 Months Ended | ||||
Aug. 31, 2012 | |||||
Notes to Financial Statements | |||||
5. ASSET RETIRMENT OBLIGATIONS | |||||
In connection with its acquisition of the Devon Assets, the Company acquired $7,057,716 in asset retirement obligations relating with its portion of the abandonment, reclamation and environmental liabilities associated with the KGP. The Company also incurred $80,000 in asset retirement obligations related to the future plugging and abandonment of the Test Well on the San Miguel Lease. Under the provisions of “ASC Topic 410, Asset Retirement and Environmental Obligations”, the fair value of a liability for an asset retirement obligation is recorded in the period in which it is incurred with a corresponding increase in the carrying amount of the related long-lived asset. The liability is accreted to its present value each period, and the capitalized cost is amortized over the useful life of the related asset. If the liability is settled for an amount other than the recorded amount, a gain or loss is recognized. | |||||
At August 31, 2012, the Company’s interest in the San Miguel Lease was impaired and expensed to the extent of its carrying value, which included the full amount of the associated asset retirement obligation. The entire asset retirement obligation relating to the San miguel Lease has been classified as a current liability. The present value of the asset retirement obligation acquired in connection with the KGP is equivalent to its fair value computed as of July 18, 2012. | |||||
The Company has no assets that are legally restricted for purposes of settling asset retirement obligations. As part of the Company’s acquisition of the Devon Assets, it provided Devon a corporate guarantee (the “Guarantee”) in the amount of CAD$10,000,000 (USD$9,980,000) and delivered a letter of credit in the amount of CAD$4,380,000 (USD$4,371,000) to Devon (the “Devon LOC”). The Company also agreed to deliver a letter of credit in the amount of CAD$625,000 (USD$624,000) to the government of the Yukon Territory as soon as practicable (the “Yukon LOC”). The amounts of the Devon LOC and Yukon LOC reduce the amount of the Guarantee on a dollar-for-dollar basis. The Company is primarily responsible for payment of all asset retirement obligations. The Guarantee, Devon LOC and Yukon LOC are only available to Devon in the event the Company defaults upon its asset retirement obligations relating to the Devon Assets. | |||||
The following table summarizes the Company’s asset retirement obligation transactions the fiscal years ended August 31, 2012 and 2011: | |||||
Asset Retirement Obligations | |||||
Balance, August 31, 2010 | $ | –– | |||
Liabilities incurred (acquired) | 80,000 | ||||
Accretion expense | –– | ||||
Liabilities (settled) | –– | ||||
Changes in asset retirement obligations | –– | ||||
Balance, August 31, 2011 | 80,000 | ||||
Liabilities incurred (acquired) | 7,057,716 | ||||
Accretion expense | –– | ||||
Liabilities (settled) | –– | ||||
Changes in asset retirement obligations | –– | ||||
Total Balance, August 31, 2012 | $ | 7,137,716 | |||
Total Balance, August 31, 2012 - Current | $ | 80,000 | |||
Total Balance, August 31, 2012 – Long Term | $ | 7,057,716 | |||
6_NOTES_PAYABLE
6. NOTES PAYABLE | 12 Months Ended | ||||||||
Aug. 31, 2012 | |||||||||
Debt Disclosure [Abstract] | |||||||||
6. NOTES PAYABLE | |||||||||
Non-interest bearing notes, unsecured and payable upon demand to unrelated parties: | |||||||||
August 31, 2012 | August 31, 2011 | ||||||||
Notes payable | $ | –– | $ | 72,500 | |||||
$ | –– | $ | 72,500 | ||||||
On December 26, 2011, the Company retired $70,000 in non-interest bearing notes payable to an unrelated party using 23,334 investment units paid to the noteholder (Note 8). The residual balance was paid in cash. | |||||||||
7_RELATED_PARTY_TRANSACTIONS
7. RELATED PARTY TRANSACTIONS | 12 Months Ended |
Aug. 31, 2012 | |
Related Party Transactions [Abstract] | |
7. RELATED PARTY TRANSACTIONS | |
In connection with its acquisition of the Devon Assets, the Company acquired $7,057,716 in asset retirement obligations with its portion of the abandonment, reclamation and environmental liabilities associated with the KGP. To secure its obligation, the Company provided Devon the Guarantee, the Devon LOC, and the Yukon LOC (Note 5). The Guarantee was provided to Devon by the Company’s largest shareholder, Holloman Corporation, in exchange for 3,250,000 shares of its restricted common stock. Likewise, the Devon LOC was provided to Devon by Pacific LNG Operations Ltd. (“PLNG”). PLNG is also committed to provide the Yukon LOC to the government of the Yukon Territory. In exchange for the Devon LOC and Yukon LOC the Company issued PLNG 4,000,000 shares of its restricted common stock. Our directors, James Ebeling and Eric Prim are officers of Holloman Corporation, and Henry Aldorf, the Chairman of the Company’s Board of Directors, is a director of PLNG. | |
Effective January 20, 2011, a company controlled by the Company’s Chief Executive Officer, its Chief Financial Officer, and an unrelated consultant (the “Finders”) entered into an agreement with the Company providing for the payment of finder’s compensation ranging from 5% (on transaction values greater than $1,000,000) to 10% (on transactions values up to $300,000) on transactions introduced to the Company by or through the Finders for a period of two years (the “Finder’s Fee Agreement”). Under the Finder’s Fee Agreement, compensation is divided equally between the Finders and the Finders may elect whether the finder’s compensation is payable in cash, or shares of the Company’s restricted common stock. If the Finders elect to receive payment in stock, the shares into which finder’s compensation will be converted will be calculated using the average closing price of the Company’s common stock for the ten trading days preceding the closing date of the transaction to which the compensation relates. The Finder’s Fee Agreement specifically recognizes that the KGP has been presented to the Company by the Finder’s. As of August 31, 2012 total finder’s compensation of $844,282 has been accrued under the Finder’s Fee Agreement in connection with the Company’s acquisition of the KGP. | |
In connection with the San Miguel Agreement, the Company obtained $400,000 in temporary financing from its largest shareholder. This financing was subject to a non-interest bearing demand note payable. The entire $400,000 note balance was repaid by the Company during May 2011. | |
During fiscal years 2012 and 2011, management fees totaling $240,000 and $113,548, respectively, were incurred with an entity controlled by the Company’s Chief Executive Officer. Under the terms of a consulting agreement, this compensation is payable in equal parts cash and shares of the Company’s restricted common stock (Note 8). The fees were incurred as compensation for services rendered in the normal course of operations. The amount and form of the compensation was established and approved by the Company’s Board of Directors. Amounts of $20,000 and $113,548 of this compensation remained unpaid as of August 31, 2012 and 2011, respectively. | |
During fiscal years 2012 and 2011, fees totaling $150,900 and $108,675 were incurred with one of the Company’s directors for services provided as a financial consultant. That director became the Company’s Chief Financial Officer during August 2012. Fees in the amount of $28,948 and $14,285 were accrued and unpaid as of August 31, 2012 and 2011, respectively. The fees were incurred as compensation for services rendered in the normal course of operations and were paid at the amount established and agreed to by the related parties. | |
During fiscal year 2012, management fees totaling $23,161 (2011- $0.00) were incurred with an entity controlled by the Company’s President. The amount of compensation was established and approved by the Company’s Board of Directors. A balance of $47,106, which includes all fees incurred and certain reimbursable expenses, remained unpaid as of August 31, 2012. |
8_CAPITAL_STOCK_AND_STOCK_BASE
8. CAPITAL STOCK AND STOCK BASED COMPENSATION | 12 Months Ended | ||||||||||||||||
Aug. 31, 2012 | |||||||||||||||||
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |||||||||||||||||
8. CAPITAL STOCK AND STOCK BASED COMPENSATION | |||||||||||||||||
Sales of Common Stock and Investment Units | |||||||||||||||||
During the period from June 2012, through August 2012, the Company sold 2,525,001 shares of its common stock to nineteen (19) accredited investors at a price of $1.20 per share. Proceeds, net of fees of $85,050 from these private placements, totaled $2,944,950. The sales were made pursuant to the terms of the offering approved by our Board of Directors on May 29, 2012. The Company’s President acquired 500,000 shares in the private placement under these terms. | |||||||||||||||||
To secure obligations undertaken in connection with the Company’s acquisition of the Devon Assets, the Company provided Devon the Guarantee, the Devon LOC, and the Yukon LOC (Note 5). The Guarantee was provided to Devon by the Company’s largest shareholder, Holloman Corporation, in exchange for 3,250,000 shares of its restricted common stock with a market value of $2.20 per share. Likewise, the Devon LOC was provided to Devon by Pacific LNG Operations Ltd. (“PLNG”). PLNG is also committed to provide the Yukon LOC to the government of the Yukon Territory. In exchange for the Devon LOC and Yukon LOC the Company issued PLNG 4,000,000 shares of its restricted common stock with a market value of $2.20 per share. The total market value of the 7,250,000 restricted shares provided in connection with acquisition is $15,950,000. | |||||||||||||||||
On December 26, 2011, the Company retired $70,000 in non-interest bearing notes payable to an unrelated party. In exchange for the notes, the Company issued 23,334 investment units to the note holder. The investment units were priced at $3.00 each and consisted of one share of the Company’s common stock, and one stock purchase warrant. Each stock purchase warrant entitles the holder to purchase one share of the Company’s common stock at a price of $4.50 per share until November 5, 2013. | |||||||||||||||||
During May 2011, the Company sold 120,000 investment units. The investment units were priced at $3.00 each and consisted of one share of the Company’s common stock, and one stock purchase warrant. Each stock purchase warrant entitles the holder to purchase one share of the Company’s common stock at a price of $4.50 per share until April 15, 2013. Proceeds from the private placement totaled $360,000, all of which was paid in cash. The Company paid $2,400 in finder’s fees in connection with the sale of the units. The Company’s Chief Executive Officer acquired 50,000 investment units in the private placement under these terms. | |||||||||||||||||
During March 2011, the Company sold 390,000 investment units. The investment units were priced at $3.00 each and consisted of one share of the Company’s common stock, and one stock purchase warrant. Each stock purchase warrant entitles the holder to purchase one share of the Company’s common stock at a price of $4.50 per share until April 1, 2013. Proceeds from the private placement totaled $1,170,000, all of which was paid in cash. The Company paid $46,800 in finder’s fees in connection with the sale of the units. | |||||||||||||||||
During December 2010, the Company sold 86,870 investment units. The investment units were priced at $2.30 each and consisted of one share of the Company’s common stock, and one stock purchase warrant. Each stock purchase warrant entitles the holder to purchase one share of the Company’s common stock at a price of $3.50 per share until December 29, 2012. Proceeds from the private placement totaled $199,800 of which $174,800 was paid in cash and $25,000 was issued as repayment of indebtedness to the Company’s largest shareholder. Finder’s fees in the amount of $8,700 were paid in connection with the sale of the units. | |||||||||||||||||
Stock-Based Compensation | |||||||||||||||||
On August 27, 2012, the Company established a Non-Qualified Stock Option Plan and a Stock Bonus Plan (the “Plans”). The Non-Qualified Stock Option Plan (the “Option Plan”) authorizes the issuance of up to 2,000,000 shares of the Company’s common stock. The Stock Bonus Plan provides for the issuance of up to 350,000 common shares (“Bonus Shares”). Under the Plans, shares may only be issued to employees, directors, officers, consultants and advisors, provided qualifying services are rendered. | |||||||||||||||||
The Company has full and final authority in its discretion, subject to the provisions of the Plans, and subject to the approval of its Board of Directors, to determine the individuals to whom, and the time or times at which shares or options shall be granted and the number of such shares or options; to construe and interpret the Plans; to determine the terms and provisions of the respective option agreements, which need not be identical, including, but without limitation, terms covering the payment of the option price; and to make all other determinations and take all other actions deemed necessary or advisable for the proper administration of the Plans. All such actions and determinations shall be conclusively binding for all purposes and upon all persons. | |||||||||||||||||
The Company may at any time, and from time to time, amend, terminate, or suspend one or more of the Plans in any manner they deem appropriate, provided that any amendment, termination or suspension may not adversely affect rights or obligations with respect to options or shares previously granted. | |||||||||||||||||
Issuance of Options and Bonus Shares | |||||||||||||||||
On August 27, 2012, the Company granted options to officers, directors and consultants under the terms shown below. The options were granted pursuant to the Option Plan. | |||||||||||||||||
Number of Shares | Exercise | First Date | Expiration | ||||||||||||||
Issuable Upon | Price | Vesting | Exercisable | Date | |||||||||||||
Exercise of Option | Period | ||||||||||||||||
300,000 | $ | 2.15 | None | 8/27/12 | 8/27/14 | ||||||||||||
300,000 | $ | 2.3 | 6 Months | 2/27/13 | 8/27/14 | ||||||||||||
300,000 | $ | 2.5 | 2 Years | 8/27/14 | 8/27/17 | ||||||||||||
300,000 | $ | 2.65 | 2 Years | 8/27/14 | 8/27/17 | ||||||||||||
1,200,000 | |||||||||||||||||
In applying the Black-Scholes model, the Company used; expected terms of 2-5 years, historical stock price volatility of 67%, a risk-free rate of 4.5% and annual dividend rate of 0%. | |||||||||||||||||
Options | Shares | Weighted-Average | Aggregate Intrinsic value | ||||||||||||||
0 | Weighted-Average | Remaining Contract Term (yrs) | |||||||||||||||
Exercise Price | |||||||||||||||||
Outstanding – September 1, 2011 | –– | –– | |||||||||||||||
Granted | 1,200 | $ | 2.4 | ||||||||||||||
Exercised | –– | –– | |||||||||||||||
Forfeited or expired | –– | –– | |||||||||||||||
Outstanding – August 31, 2012 | 1,200 | $ | 2.4 | 3.49 | $ | 0 | |||||||||||
Exercisable – August 31, 2012 | 300 | $ | 2.15 | 1.99 | $ | 0 | |||||||||||
The weighted-average grant-date fair value of options granted during fiscal 2012 was $0.94. | |||||||||||||||||
As of August 31, 2012 there was $885,000 of total unrecognized compensation cost related to non-vested share-based compensation under the Option Plan. Of this amount, $554,000 is expected to be recognized during fiscal 2013, and $331,000 during fiscal 2014. A total of $246,976 in non-cash, stock-based compensation has been recognized in the consolidated statement of operations during 2012 in connection with the Option Plan. | |||||||||||||||||
On August 27, 2012, the Company issued 300,000 shares of its common stock to officers and directors pursuant to the Stock Bonus Plan. The fair value for shares of common stock given as compensation is the market price of the stock at date of grant. The 300,000 Bonus Shares had a value of $2.07 per share. The Company recognized non-cash management and director’s fees of $621,000 related to the Bonus Shares in the statements of operations. | |||||||||||||||||
Other Stock-Based Compensation | |||||||||||||||||
During fiscal years 2012 and 2011, management fees totaling $240,000 and $113,548, respectively, were incurred with an entity controlled by the Company’s Chief Executive Officer. At August 31, 2011, all fees incurred under this arrangement remained unpaid. During the year ended August 31, 2012, $323,548 in fees were paid in shares of the Company’s restricted common stock at a weighted average conversion price of $2.018 per share (160,360 shares). | |||||||||||||||||
Stock Warrants and Other | |||||||||||||||||
At August 31, 2012, warrants for 620,204 shares of the Company’s common stock were issued and outstanding with a weighted-average remaining life and exercise price of 6.98 months and $4.35, respectively. Of these warrants, 23,334 were issued during fiscal 2012, and 596,870 were were issued during fiscal year 2011. No warrants have been exercised or forfeited since inception. | |||||||||||||||||
On April 28, 2010, shareholders owning a majority of the Company’s outstanding shares approved a 20 for 1 forward split of its common stock. The forward stock split became effective on June 30, 2010. All references in these financial statements and related notes to number of shares, price per share and weighted average number of shares outstanding prior to this split have been adjusted to reflect the split on a retroactive basis unless otherwise noted. At no time has the Company issued more common stock than is legally authorized. | |||||||||||||||||
9_INCOME_TAXES
9. INCOME TAXES | 12 Months Ended | ||||||||||||
Aug. 31, 2012 | |||||||||||||
Income Tax Disclosure [Abstract] | |||||||||||||
9. INCOME TAXES | |||||||||||||
The Company is subject to United States federal income taxes at an approximate rate of 35%, and Canadian income taxes at a rate of 30%. The reconciliation of the provision for income taxes at the applicable statutory rate compared to the Company’s income tax expense as reported is as follows: | |||||||||||||
Canadian | United States | United States | |||||||||||
Year Ended | Year Ended | Year Ended | |||||||||||
31-Aug-12 | August 31, 2012 | 31-Aug-11 | |||||||||||
Restated | |||||||||||||
$ | (60,775 | ) | $ | (2,744,710) | ) | $ | (1,547,188 | ) | |||||
Statutory tax rates | 30 | % | 35 | % | 35 | % | |||||||
Expected recovery of income taxes at statutory rates | 18,233 | 960,649 | 541,516 | ||||||||||
Valuation Allowance | (18,233 | ) | (960,649 | ) | (541,516 | ) | |||||||
Provision for income taxes | $ | –– | $ | –– | $ | –– | |||||||
The significant components of deferred income tax assets at August 31, 2012 and 2011 are as follows: | |||||||||||||
Canadian | United States | United States | |||||||||||
Year Ended | Year Ended | Year Ended | |||||||||||
31-Aug-12 | August 31, 2012 | 31-Aug-11 | |||||||||||
Deferred income tax assets: | |||||||||||||
Impairment | $ | –– | $ | 307,998 | $ | 292,480 | |||||||
Organization costs | –– | 76,732 | 103,418 | ||||||||||
Accrued salaries | –– | –– | 36,242 | ||||||||||
US net operating loss carryforwards | –– | 545,564 | –– | ||||||||||
Canadian net operating loss carryforwards | 18,233 | –– | 138,696 | ||||||||||
Stock Compensation | –– | 599,273 | –– | ||||||||||
Total deferred income tax assets | 18,233 | 1,529,567 | 570,836 | ||||||||||
Less: valuation allowance | (18,233 | ) | (1,529,567 | ) | (570,836 | ) | |||||||
Deferred income tax assets, net | $ | –– | $ | –– | $ | –– | |||||||
At August 31, 2012, the Company had accumulated United States and Canadian non-capital loss carry-forwards of approximately $1,558,755 and $60,775, respectively, that expire in 2032. | |||||||||||||
The potential future tax benefits of these expenses and losses carried-forward have not been reflected in these consolidated financial statements due to the uncertainty regarding their ultimate realization. | |||||||||||||
The Company has no uncertainties in income tax positions which, in the opinion of its management, need to be recognized in the consolidated financial statements. The Company’s tax returns for all years since inception remain open to review and examination by tax authorities. | |||||||||||||
10_SUBSEQUENT_EVENTS
10. SUBSEQUENT EVENTS | 12 Months Ended |
Aug. 31, 2012 | |
Subsequent Events [Abstract] | |
10. SUBSEQUENT EVENTS | |
Oil and Gas Acquisition – Kotaneelee Gas Project | |
On October 17, 2012, the Company completed a Share Purchase Agreement (the “Purchase Agreement”) with Nahanni Energy Inc., 1700665 Alberta Ltd., Apex Energy (2000), Inc. and Canada Southern Petroleum #1 L.P. (jointly “Nahanni”) for the acquisition of its entire right and interest (generally a working interest of 30.664%) in the KGP (the “Nahanni Assets”). | |
As consideration for the Nahanni Assets, the Company paid Nahanni CAD$400,000 (USD$398,550) in cash, and CAD$4,100,000 (USD$4,190,610) in shares of one of the Companies subsidiaries, which are exchangeable for 1,614,767 shares of the Company’s restricted common stock. The cash portion of Nahanni’s consideration was offset by CAD$270,000 (USD$265,950) paid in connection with the acquisition of the Devon Assets in settlement of certain Nahanni indebtedness. The number of shares issued by the Company’s subsidiary was calculated by dividing $4,190,610 by the volume weighted average trading price of the Company’s stock for the ten (10) trading days prior to closing the Purchase Agreement. Both the cash paid and stock issued for the Assets are subject to certain holdbacks for Asset related liabilities or breach of representations and warranties. | |
In addition, the Company indemnified Nahanni against its portion of the abandonment, reclamation and environmental liabilities associated with the Nahanni Assets. Early estimates of those liabilities range from $9,000,000 to $10,000,000. | |
As a result of the closing of the Nahanni acquisition, the Company now generally owns a 53.67% interest in the KGP, including an 100% interest in one producing well which was temporarily shut-in for maintenance subsequent to August 31, 2012. | |
Sales of Common Stock | |
During October 2012, the Company sold 1,530,666 shares of its common stock to ten (10) accredited investors at a price of $1.20 per share. Gross proceeds from these private placements totaled $1,836,800. We paid $64,288 in finder’s fees in connection with the sale of these shares. The sales were made pursuant to the terms of the offering approved by our Board of Directors on May 29, 2012. |
2_SUMMARY_OF_SIGNIFICANT_ACCOU1
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) | 12 Months Ended |
Aug. 31, 2012 | |
Summary Of Significant Accounting Policies Policies | |
Basis of Presentation | Basis of Presentation |
These consolidated financial statements include the accounts of the Company and its wholly owned subsidiary EFLO Energy Yukon Ltd., after elimination of intercompany balances and transactions. The Company’s interest in oil and gas exploration and production ventures and partnerships are proportionately consolidated. These consolidated financial statements and related notes are presented in accordance with US GAAP, and are expressed in United States dollars. The Company is an exploration stage company as defined by “Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 915, Development Stage Entities.” | |
Use of Estimates | Use of Estimates |
The preparation of consolidated financial statements in conformity with US 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 the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions. The Company bases its estimates and assumptions on current facts, historical experience and various other factors it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected. The most significant estimates with regard to these consolidated financial statements relate to carrying values of oil and gas properties, the estimate of proved oil and gas reserves and related present value estimates of future net cash flows there from, asset retirement obligations, the valuation of goodwill, determination of fair values of stock-based transactions, deferred income tax rates, and environmental risks and exposures. | |
Allowance for Doubtful Accounts | Allowance for Doubtful Accounts |
The Company routinely assesses the recoverability of all material receivables to determine their collectability. All of the Company's receivables are from joint venture partners and large gas marketers. The Company is exposed to a concentration of credit risk with respect to its accounts receivable. The Company believes its financial partners are financially strong and the risk of loss is minimal. Generally, the Company's natural gas receivables are collected within three months. The Company accrues a reserve on a receivable when, based on the judgment of management, it is probable that a receivable will not be collected and the amount of any reserve may be reasonably estimated. As of August 31, 2012 and 2011, the Company had no amount recorded as an allowance for doubtful accounts. | |
Oil and Gas Properties | Oil and Gas Properties |
The Company utilizes the full cost method to account for its investment in oil and gas properties. Accordingly, all costs associated with acquisition, exploration and development of oil and gas reserves, including such costs as leasehold acquisition costs relating to unproved properties, geological expenditures, tangible and intangible development costs including direct internal costs are capitalized to the full cost pool. Sales of proved and unproved properties are accounted for as adjustments of capitalized costs with no gain or loss recognized, unless such adjustments would significantly alter the relationship between capitalized costs and proved reserves of oil and gas, in which case the gain or loss is recognized in the statement of operations. | |
Depletion, depreciation and amortization (DD&A) of oil and gas properties is calculated quarterly, using the Units of Production Method (UOP). The UOP calculation, in simplest terms, matches the percentage of estimated proved reserves produced each quarter with the costs of those reserves. The result is to recognize expense at the same pace that the reservoirs are actually depleting. The amortization base in the UOP calculation includes the sum of proved property costs net of accumulated DD&A, estimated future development costs (future costs to access and develop reserves) and asset retirement costs which are not already included in oil and gas property, less related salvage value. Costs of unproved properties are not amortized until the proved reserves associated with the projects can be determined or until impairment occurs. If an assessment of such properties indicates that properties are impaired, the amount of impairment is added to the capitalized cost base to be amortized. | |
The capitalized costs included in the full cost pool are subject to a "ceiling test" (based on the average of the first-day-of-the-month prices during the twelve-month period prior to August 31, 2012 pursuant to the SEC’s “Modernization of Oil and Gas Reporting” rule), which limits such costs to the aggregate of the (i) estimated present value, using a ten percent discount rate, of the future net revenues from proved reserves, based on current economic and operating conditions, (ii) the lower of cost or estimated fair value of unproven properties included in the costs being amortized, (iii) the cost of properties not being amortized, less (iv) income tax effects related to differences between the book and tax basis of the cost of properties not being amortized. If net capitalized costs exceed this limit, the excess is charged to expense in the current period. At August 31, 2011, all of the Company’s oil and gas properties were impaired and expensed to the extent of their carrying value. At August 31, 2012, the Company recorded no write-downs of the carrying value of its proved oil and gas properties. | |
Oil and Gas Acquisitions | Oil and Gas Acquisitions |
The Company accounts for the acquisition of oil and gas properties under the requirements of Financial Accounting Standards Board (FASB) ASC Topic 805, Business Combinations (ASC Topic 805), issued in December 2007, with additional guidance issued in April 2009. ASC Topic 805 requires an acquiring entity to recognize all assets acquired and liabilities assumed at fair value under the acquisition method of accounting, provided they qualify for acquisition accounting under the standard. The Company accounts for all property acquisitions that include working interests in proved leasehold, both operated and non-operated, that would generate more than an immaterial balance of goodwill as business combinations. The Company does not apply acquisition accounting to the purchase of oil and gas properties entirely comprised of undeveloped leasehold, which is in compliance with ASC Topic 805. In accordance with this guidance the Company has recognized the fair value of all the assets acquired and liabilities assumed in connection with its Kotaneelee Gas Project working interest acquisition from Devon effective July 18, 2012. | |
The Company adopted ASC Topic 805 effective December 23, 2009. Accordingly, the Company, on an ongoing basis, conducts assessments of net assets acquired to determine if acquisition accounting is appropriate. As appropriate, the Company properly records assets acquired and liabilities assumed at their estimated acquisition date fair values, while transaction and integration costs associated with the acquisitions are expensed as incurred. The Company uses relevant market assumptions to determine fair value and allocate purchase price, such as future commodity pricing for purchased hydrocarbons, market multiples for similar transactions and replacement value for certain equipment. Many of the assumptions are unobservable. | |
Asset Retirement Obligations | Asset Retirement Obligations |
The Company records asset retirement obligations based on the guidance set forth in ASC Topic 410, as a liability in the period in which it incurs an obligation associated with the retirement of tangible long-lived assets that result from the acquisition, construction, development and/or normal use of the assets. The estimated balance of the asset retirement obligation is based on the current cost escalated at an inflation rate and discounted at a credit adjusted risk-free rate. This liability is capitalized as part of the cost of the related asset and amortized over its useful life. | |
Long-Lived Assets | Long-Lived Assets |
The carrying value of intangible assets and other long-lived assets is 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 is 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. | |
Environmental | Environmental |
Oil and gas activities are subject to extensive federal, state and provincial environmental laws and regulations. These laws, which are constantly changing, regulate the discharge of materials into the environment and may require the Company to remove or mitigate the environmental effects of the disposal or release of petroleum or chemical substances at various sites. | |
Environmental expenditures are expensed or capitalized depending on their future economic benefit. Expenditures that relate to an existing condition caused by past operations and that have no future economic benefits are expensed. Liabilities for expenditures of a non-capital nature are recorded when an environmental assessment and/or remediation is probable, and the costs can be reasonably estimated. | |
Revenue Recognition | Revenue Recognition |
The Company recognizes natural gas revenue under the sales method of accounting for its interests in producing wells as natural gas is produced and sold from those wells. Natural gas sold by the Company is not significantly different from the Company’s share of production. The Company recognizes revenue upon transfer of ownership of the product to the customer which occurs when (i) the product is physically received by the customer, (ii) an invoice is generated which evidences an arrangement between the customer and the Company, (iii) a fixed sales price has been included in such invoice and (iv) collection from such customer is reasonably assured. Gas sales are reported net of applicable production taxes. Since all of the Company’s oil and gas properties are unproven, revenue net of direct operating expenses is offset to the full cost pool. | |
Stock-Based Compensation | Stock-Based Compensation |
The Company records compensation expense in the consolidated financial statements for stock-based payments using the fair value method. The fair value of stock options granted to directors and employees is determined using the Black-Scholes option valuation model at the time of grant. Fair value for common shares issued for goods or services rendered by non-employees are measured based on the fair value of the goods and services received. Stock-based compensation is expensed with a corresponding increase to share capital. | |
Income Taxes | Income Taxes |
Income taxes are determined using the liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using the 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 effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes that date of enactment. In addition, a valuation allowance is established to reduce any deferred tax asset for which it is determined that it is more likely than not that some portion of the deferred tax asset will not be realized. | |
The Company accounts for uncertainty in income taxes by applying a two-step method. First, it evaluates whether a tax position has met a more likely than not recognition threshold, and second, it measures that tax position to determine the amount of benefit, if any, to be recognized in the financial statements. The application of this method did not have a material effect on the Company's consolidated financial statements. | |
Foreign Currency Gains and Losses | Foreign Currency Gains and Losses |
The Company’s functional and reporting currency is the United States dollar. The functional currency of our Canadian subsidiary is the Canadian dollar. Financial statements of our Canadian subsidiary are translated to United States dollars using period-end rates of exchange for assets and liabilities, and average rates of exchange for the period for revenues and expenses. Translation gains (losses) are recorded in accumulated other comprehensive income as a component of stockholders’ equity. Transaction gains and losses are included in the determination of income. Foreign currency transactions are primarily undertaken in Canadian dollars. As of August 31, 2012, the Company has not entered into derivative instruments to offset the impact of foreign currency fluctuations. | |
Earnings Per Share | Earnings Per Share |
The Company presents both basic and diluted earnings per share (“EPS”) on the face of the consolidated statements of operations. Basic EPS is computed by dividing net earnings (loss) available to common shareholders by the weighted average number of shares outstanding during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period including convertible debt, stock options, and warrants, using the treasury stock method. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive. Diluted EPS amounts are equal to those of Basic EPS for each period since the Company is in a net loss position. | |
As of August 31, 2012 and 2011, the Company had 1,820,204 and 596,870 shares of its common stock available through the exercise of non-dilutive stock warrants, respectively (Note 8). | |
Recent Accounting Pronouncements | Recent Accounting Pronouncements |
The Company has reviewed recently issued accounting pronouncements and plans to adopt those that are applicable to it. It does not expect the adoption of these pronouncements to have a material impact on its financial position, results of operations or cash flows. | |
1_NATURE_AND_CONTINUANCE_OF_OP1
1. NATURE AND CONTINUANCE OF OPERATIONS (Tables) | 12 Months Ended | ||||||||||||
Aug. 31, 2012 | |||||||||||||
Nature And Continuance Of Operations Tables | |||||||||||||
Schedule of restatements | The effect of this restatement on the consolidated financial statements included herein is as shown in tabular form below: | ||||||||||||
As previously | As | ||||||||||||
Consolidated Balance Sheet at August 31, 2012 | reported | Adjustments | restated | ||||||||||
Proved properties | 15,232,824 | (15,232,824 | ) | - | |||||||||
Unproven properties | 6,465,622 | 15,641,759 | 22,107,381 | ||||||||||
Accumulated other comprehensive loss | (7,299 | ) | 4,340 | (2,959 | ) | ||||||||
Retained earnings (accumulated deficit) during exploration stage | (4,838,081 | ) | 404,595 | (4,433,486 | ) | ||||||||
Consolidated Statement of Operations for the year ended August 31, 2012 | |||||||||||||
Gas sales, net | 251,290 | (251,290 | ) | - | |||||||||
Lease operating expenses | -255,143 | 255,143 | - | ||||||||||
Depletion, depreciation and amortization | -400,744 | 400,744 | - | ||||||||||
Net income (loss) | -3,207,121 | 404,595 | -2,802,526 | ||||||||||
Consolidated Statement of Cash Flows for the year ended August 31, 2012 | |||||||||||||
Net income (loss) | -3,207,121 | 404,595 | -2,802,526 | ||||||||||
Depletion, depreciation and amortization | 405,084 | (405,084 | ) | - | |||||||||
Net cash used in operating activities | (922,624 | ) | 3,851 | (918,773 | ) | ||||||||
Expenditures on oil and gas properties | (11,200 | ) | (3,851 | ) | (15,051 | ) | |||||||
Net cash used in investing activities | (300,495 | ) | (3,851 | ) | (304,346 | ) | |||||||
Notes to the Consolidated Financial Statements at August 31, 2012, Note 4. Oil and Gas Properties | |||||||||||||
Oil and Gas Acquisition - Kotaneelee Gas Project | |||||||||||||
Intangibles | 6,780,000 | (6,780,000 | ) | - | |||||||||
Leasehold costs | 581,379 | (581,379 | ) | - | |||||||||
Unproved leasehold costs | 6,465,623 | 7,361,379 | 13,827,002 | ||||||||||
Capitalized Acquisition, Exploration and Development Costs | |||||||||||||
KGP – proven properties | 15,637,906 | -15,637,906 | - | ||||||||||
KGP – unproven properties | 6,465,623 | 15,637,906 | 22,103,529 | ||||||||||
Expenditures on oil and gas properties | - | 3,852 | 3,852 | ||||||||||
Unproved oil and gas properties, August 31, 2012 | 6,465,623 | 15,641,758 | 22,107,381 | ||||||||||
Notes to the Consolidated Financial Statements at August 31, 2012, Note 9. Income Taxes | |||||||||||||
Reconciliation of Provision for Income Taxes | |||||||||||||
Canadian-based losses | (469,659 | ) | 408,884 | (60,775 | ) | ||||||||
Expected recovery of Canadian income tax | 140,898 | (122,675 | ) | 18,233 | |||||||||
Valuation allowance | (140,898 | ) | 122,675 | (18,233 | ) | ||||||||
Significant Components of Deferred Income Taxes | |||||||||||||
Canadian net operating loss carryforwards | 140,898 | (122,675 | ) | 18,233 | |||||||||
Total deferred income tax assets | 140,898 | (122,675 | ) | 18,233 | |||||||||
Valuation allowance | (140,898 | ) | 122,675 | (18,233 | ) | ||||||||
Canadian Non-Capital Loss Carryforwards | 720,949 | (660,174 | ) | 60,775 | |||||||||
4_OIL_AND_GAS_PROPERTIES_Table
4. OIL AND GAS PROPERTIES (Tables) | 12 Months Ended | ||||
Aug. 31, 2012 | |||||
Oil And Gas Properties Tables | |||||
Schedule of Oil and Gas Acquisition | |||||
Fair Value of | |||||
Asset Description | Asset Acquired | ||||
Unproven Properties | |||||
Unproven leasehold costs | $ | 13,827,002 | |||
Plant and equipment | 6,484,000 | ||||
Gathering systems | 1,788,000 | ||||
Vehicles | 4,527 | ||||
Unproved Property | 22,103,529 | ||||
Goodwill | 1,194,365 | ||||
Total Assets Acquired - KGP | $ | 23,297,894 | |||
Capitalized acquisition, exploration and development costs incurred on the KGP during the fiscal year ended August 31, 2012 are summarized as follows: | |||||
KGP – Unproven Properties | |||||
Balance, August 31, 2011 | $ | –– | |||
Acquisition costs | 22,103,529 | ||||
Expenditures on oil and gas properties | 3,852 | ||||
Depletion and depreciation | –– | ||||
Oil and gas property impairment | –– | ||||
Balance, August 31, 2012 | $ | 22,107,381 | |||
The costs incurred on the Mathews Lease during the fiscal years ended August 31, 2012 and 2011 are summarized as follows: | |||||
San Miguel Oil Project – Unproven | |||||
Balance, August 31, 2010 | $ | –– | |||
Expenditures on oil and gas properties | 724,500 | ||||
Accrued expenditures on oil and gas properties | 31,159 | ||||
Asset retirement obligations | 80,000 | ||||
Oil and gas property impairment | (835,659 | ) | |||
Balance, August 31, 2011 | –– | ||||
Expenditures on oil and gas properties | 11,200 | ||||
Accrued expenditures on oil and gas properties | 33,135 | ||||
Asset retirement obligations | –– | ||||
Oil and gas property impairment | (44,335 | ) | |||
Balance, August 31, 2012 | $ | –– |
5_ASSET_RETIREMENT_OBLIGATIONS
5. ASSET RETIREMENT OBLIGATIONS (Tables) | 12 Months Ended | ||||
Aug. 31, 2012 | |||||
Asset Retirement Obligations Tables | |||||
Schedule of Asset Retirement Obligation | |||||
Asset Retirement Obligations | |||||
Balance, August 31, 2010 | $ | –– | |||
Liabilities incurred (acquired) | 80,000 | ||||
Accretion expense | –– | ||||
Liabilities (settled) | –– | ||||
Changes in asset retirement obligations | –– | ||||
Balance, August 31, 2011 | 80,000 | ||||
Liabilities incurred (acquired) | 7,057,716 | ||||
Accretion expense | –– | ||||
Liabilities (settled) | –– | ||||
Changes in asset retirement obligations | –– | ||||
Total Balance, August 31, 2012 | $ | 7,137,716 | |||
Total Balance, August 31, 2012 - Current | $ | 80,000 | |||
Total Balance, August 31, 2012 – Long Term | $ | 7,057,716 |
6_NOTES_PAYABLE_Tables
6. NOTES PAYABLE (Tables) | 12 Months Ended | ||||||||
Aug. 31, 2012 | |||||||||
Notes Payable Tables | |||||||||
Schedule of Notes Payable | |||||||||
August 31, 2012 | August 31, 2011 | ||||||||
Notes payable | $ | –– | $ | 72,500 | |||||
$ | –– | $ | 72,500 |
8_CAPITAL_STOCK_AND_STOCK_BASE1
8. CAPITAL STOCK AND STOCK BASED COMPENSATION (Tables) | 12 Months Ended | ||||||||||||||||
Aug. 31, 2012 | |||||||||||||||||
Capital Stock And Stock Based Compensation Tables | |||||||||||||||||
Schedule of Stock Based Compensation | |||||||||||||||||
Number of Shares | Exercise | First Date | Expiration | ||||||||||||||
Issuable Upon | Price | Vesting | Exercisable | Date | |||||||||||||
Exercise of Option | Period | ||||||||||||||||
300,000 | $ | 2.15 | None | 8/27/12 | 8/27/14 | ||||||||||||
300,000 | $ | 2.3 | 6 Months | 2/27/13 | 8/27/14 | ||||||||||||
300,000 | $ | 2.5 | 2 Years | 8/27/14 | 8/27/17 | ||||||||||||
300,000 | $ | 2.65 | 2 Years | 8/27/14 | 8/27/17 | ||||||||||||
1,200,000 | |||||||||||||||||
Options | Shares | Weighted-Average | Aggregate Intrinsic value | ||||||||||||||
0 | Weighted-Average | Remaining Contract Term (yrs) | |||||||||||||||
Exercise Price | |||||||||||||||||
Outstanding – September 1, 2011 | –– | –– | |||||||||||||||
Granted | 1,200 | $ | 2.4 | ||||||||||||||
Exercised | –– | –– | |||||||||||||||
Forfeited or expired | –– | –– | |||||||||||||||
Outstanding – August 31, 2012 | 1,200 | $ | 2.4 | 3.49 | $ | 0 | |||||||||||
Exercisable – August 31, 2012 | 300 | $ | 2.15 | 1.99 | $ | 0 |
9_INCOME_TAXES_Tables
9. INCOME TAXES (Tables) | 12 Months Ended | ||||||||||||
Aug. 31, 2012 | |||||||||||||
Income tax expense | |||||||||||||
Provision for Federal income tax | |||||||||||||
Canadian | United States | United States | |||||||||||
Year Ended | Year Ended | Year Ended | |||||||||||
31-Aug-12 | August 31, 2012 | 31-Aug-11 | |||||||||||
Restated | |||||||||||||
$ | (60,775 | ) | $ | (2,744,710) | ) | $ | (1,547,188 | ) | |||||
Statutory tax rates | 30 | % | 35 | % | 35 | % | |||||||
Expected recovery of income taxes at statutory rates | 18,233 | 960,649 | 541,516 | ||||||||||
Valuation Allowance | (18,233 | ) | (960,649 | ) | (541,516 | ) | |||||||
Provision for income taxes | $ | –– | $ | –– | $ | –– | |||||||
Net deferred tax assets | |||||||||||||
Canadian | United States | United States | |||||||||||
Year Ended | Year Ended | Year Ended | |||||||||||
31-Aug-12 | August 31, 2012 | 31-Aug-11 | |||||||||||
Deferred income tax assets: | |||||||||||||
Impairment | $ | –– | $ | 307,998 | $ | 292,480 | |||||||
Organization costs | –– | 76,732 | 103,418 | ||||||||||
Accrued salaries | –– | –– | 36,242 | ||||||||||
US net operating loss carryforwards | –– | 545,564 | –– | ||||||||||
Canadian net operating loss carryforwards | 18,233 | –– | 138,696 | ||||||||||
Stock Compensation | –– | 599,273 | –– | ||||||||||
Total deferred income tax assets | 18,233 | 1,529,567 | 570,836 | ||||||||||
Less: valuation allowance | (18,233 | ) | (1,529,567 | ) | (570,836 | ) | |||||||
Deferred income tax assets, net | $ | –– | $ | –– | $ | –– | |||||||
1_NATURE_AND_CONTINUANCE_OF_OP2
1. NATURE AND CONTINUANCE OF OPERATIONS (Details) (USD $) | Aug. 31, 2012 | Aug. 31, 2011 |
Accumulated other comprehensive loss | ($2,959) | |
As Previously Reported | ||
Proven properties | 15,232,824 | |
Unproven properties | 6,465,622 | |
Accumulated other comprehensive loss | -7,299 | |
Retained earnings (accumulated deficit) during exploration stage | -4,838,081 | |
Adjustments | ||
Proven properties | -15,232,824 | |
Unproven properties | 15,641,759 | |
Accumulated other comprehensive loss | 4,340 | |
Retained earnings (accumulated deficit) during exploration stage | 404,595 | |
As Restated | ||
Proven properties | ||
Unproven properties | 22,107,381 | |
Accumulated other comprehensive loss | -2,959 | |
Retained earnings (accumulated deficit) during exploration stage | ($4,433,486) |
1_NATURE_AND_CONTINUANCE_OF_OP3
1. NATURE AND CONTINUANCE OF OPERATIONS (Details 1) (USD $) | 12 Months Ended | 49 Months Ended | 12 Months Ended | |||
Aug. 31, 2012 | Aug. 31, 2011 | Aug. 31, 2012 | Aug. 31, 2013 | Aug. 31, 2013 | Aug. 31, 2013 | |
As Previously Reported | Adjustments | As Restated | ||||
Consolidated Statement of Operations | ||||||
Gas sales, net | $251,290 | $251,290 | ||||
Lease operating expenses | -255,143 | 255,143 | ||||
Depletion, depreciation and amortization | -400,744 | 400,744 | ||||
Net income (loss) | -2,802,526 | -1,547,188 | -4,433,486 | -3,207,121 | 404,595 | -2,802,526 |
Consolidated Statement of Cash Flows | ||||||
Net income (losses) | -2,802,526 | -1,547,188 | -4,433,486 | -3,207,121 | 404,595 | -2,802,526 |
Depletion, depreciation and amortization | 405,084 | -405,084 | ||||
Net cash used in operating activities | -918,773 | -502,642 | -1,470,844 | -922,624 | 3,851 | -918,773 |
Expenditures on oil and gas properties | -15,051 | -724,500 | -739,551 | -11,200 | -3,851 | -15,051 |
Net cash used in investing activities | $304,346 | $724,500 | $1,028,846 | ($300,495) | ($3,851) | ($304,346) |
1_NATURE_AND_CONTINUANCE_OF_OP4
1. NATURE AND CONTINUANCE OF OPERATIONS (Details 2) (USD $) | Aug. 31, 2012 |
As Previously Reported | |
Oil and Gas Acquisition - Kotaneelee Gas Project | |
Intangibles | $6,780,000 |
Leasehold costs | 581,379 |
Unproved leasehold costs | 6,465,623 |
Capitalized Acquisition, Exploration and Development Costs | |
KGP - proven properties | 15,637,906 |
KGP - unproven properties | 6,465,623 |
Expenditures on oil and gas properties | |
Unproved oil and gas properties, August 31, 2012 | 6,465,623 |
Adjustments | |
Oil and Gas Acquisition - Kotaneelee Gas Project | |
Intangibles | -6,780,000 |
Leasehold costs | -581,379 |
Unproved leasehold costs | 7,361,379 |
Capitalized Acquisition, Exploration and Development Costs | |
KGP - proven properties | -15,637,906 |
KGP - unproven properties | 15,637,906 |
Expenditures on oil and gas properties | 3,852 |
Unproved oil and gas properties, August 31, 2012 | 15,641,758 |
As Restated | |
Oil and Gas Acquisition - Kotaneelee Gas Project | |
Intangibles | |
Leasehold costs | |
Unproved leasehold costs | 13,827,002 |
Capitalized Acquisition, Exploration and Development Costs | |
KGP - proven properties | |
KGP - unproven properties | 22,103,529 |
Expenditures on oil and gas properties | 3,852 |
Unproved oil and gas properties, August 31, 2012 | $22,107,381 |
1_NATURE_AND_CONTINUANCE_OF_OP5
1. NATURE AND CONTINUANCE OF OPERATIONS (Details 3) (USD $) | Aug. 31, 2012 |
As Previously Reported | |
Reconciliation of Provision for Income Taxes | |
Canadian-based losses | ($469,659) |
Expected recovery of Canadian income tax | 140,898 |
Valuation allowance | -140,898 |
Canadian net operating loss carryforwards | 140,898 |
Total deferred income tax assets | 140,898 |
Valuation allowance | -140,898 |
Canadian Non-Capital Loss Carryforwards | 720,949 |
Adjustments | |
Reconciliation of Provision for Income Taxes | |
Canadian-based losses | 408,884 |
Expected recovery of Canadian income tax | -122,675 |
Valuation allowance | 122,675 |
Canadian net operating loss carryforwards | -122,675 |
Total deferred income tax assets | -122,675 |
Valuation allowance | 122,675 |
Canadian Non-Capital Loss Carryforwards | -660,174 |
As Restated | |
Reconciliation of Provision for Income Taxes | |
Canadian-based losses | -60,775 |
Expected recovery of Canadian income tax | 18,233 |
Valuation allowance | -18,233 |
Canadian net operating loss carryforwards | 18,233 |
Total deferred income tax assets | 18,233 |
Valuation allowance | -18,233 |
Canadian Non-Capital Loss Carryforwards | $60,775 |
4_OIL_AND_GAS_PROPERTIES_Detai
4. OIL AND GAS PROPERTIES (Details) (Fair Value of Asset Acquired, USD $) | Aug. 31, 2012 |
Fair Value of Asset Acquired | |
Unroven leasehold costs | $13,872,002 |
Plant and equipment | 6,484,000 |
Gathering systems | 1,788,000 |
Vehicles | 4,527 |
Unproven Property | 22,103,529 |
Goodwill | 1,194,365 |
Total Assets Acquired - KGP | $23,297,894 |
4_OIL_AND_GAS_PROPERTIES_Detai1
4. OIL AND GAS PROPERTIES (Details 1) (USD $) | 12 Months Ended | 49 Months Ended | |
Aug. 31, 2012 | Aug. 31, 2011 | Aug. 31, 2012 | |
Oil and gas property impairment | $44,335 | $835,659 | $879,994 |
Unproven Properties | |||
Balance, AugustB 31, 2011 | |||
Acquisition costs | 22,103,529 | ||
Expenditures on oil and gas properties | 3,852 | ||
Depletion and depreciation | |||
Oil and gas property impairment | |||
Balance, AugustB 31, 2012 | $22,107,381 |
4_OIL_AND_GAS_PROPERTIES_Detai2
4. OIL AND GAS PROPERTIES (Details 2) (USD $) | 12 Months Ended | 49 Months Ended | |
Aug. 31, 2012 | Aug. 31, 2011 | Aug. 31, 2012 | |
Accrued expenditures on oil and gas properties | $33,135 | $31,159 | $64,294 |
Asset retirement obligations | 80,000 | 80,000 | |
Unproven | |||
Balance, Beginning | |||
Expenditures on oil and gas properties | 724,500 | 11,200 | |
Accrued expenditures on oil and gas properties | 31,159 | 33,135 | |
Asset retirement obligations | 80,000 | ||
Oil and gas property impairment | -835,659 | -44,335 | |
Balance, Ending |
5_ASSET_RETIREMENT_OBLIGATIONS1
5. ASSET RETIREMENT OBLIGATIONS (Details) (USD $) | 12 Months Ended | |
Aug. 31, 2012 | Aug. 31, 2011 | |
Asset Retirement Obligations Details | ||
Balance, Beginning | $80,000 | |
Liabilities incurred (acquired) | 7,057,716 | 80,000 |
Accretion expense | ||
Liabilities (settled) | ||
Changes in asset retirement obligations | ||
Balance, Ending | 7,137,716 | 80,000 |
Total Balance, AugustB 31, 2012 - Current | 80,000 | |
Total Balance, AugustB 31, 2012 b Long Term | $7,057,716 |
6_NOTES_PAYABLE_Details
6. NOTES PAYABLE (Details) (USD $) | Aug. 31, 2012 | Aug. 31, 2011 |
Notes Payable Details | ||
Notes payable | $72,500 |
8_CAPITAL_STOCK_AND_STOCK_BASE2
8. CAPITAL STOCK AND STOCK BASED COMPENSATION (Details) (USD $) | 12 Months Ended |
Aug. 31, 2012 | |
Number of Shares | 1,200,000 |
Option 1 | |
Number of Shares | 300,000 |
Exercise Price | 2.15 |
Vesting Period | 0 years |
First Date Exercisable | 27-Aug-12 |
Expiration Date | 27-Aug-14 |
Option 2 | |
Number of Shares | 300,000 |
Exercise Price | 2.3 |
Vesting Period | 6 months |
First Date Exercisable | 27-Feb-13 |
Expiration Date | 27-Aug-14 |
Option 3 | |
Number of Shares | 300,000 |
Exercise Price | 2.5 |
Vesting Period | 2 years |
First Date Exercisable | 27-Aug-14 |
Expiration Date | 27-Aug-17 |
Option 4 | |
Number of Shares | 300,000 |
Exercise Price | 2.65 |
Vesting Period | 2 years |
First Date Exercisable | 27-Aug-14 |
Expiration Date | 27-Aug-17 |
8_CAPITAL_STOCK_AND_STOCK_BASE3
8. CAPITAL STOCK AND STOCK BASED COMPENSATION (Details 1) (USD $) | 12 Months Ended |
Aug. 31, 2012 | |
Capital Stock And Stock Based Compensation Details 1 | |
Number of Options Outstanding, Beginning | |
Number of Options Granted | 1,200 |
Number of Options Exercised | |
Number of Options Forfeited | |
Number of Options Outstanding, Ending | 1,200 |
Number of Options Exercisable | 300 |
Weighted Average Exercise Price Outstanding, Beginning | |
Weighted Average Exercise Price Granted | $2.40 |
Weighted Average Exercise Price Forfeited | |
Weighted Average Exercise Price Outstanding, Ending | $2.40 |
Weighted Average Exercise Price Exercisable | $2.15 |
Weighted Average Remaining Contractual Life (in years) Outstanding | 3 years 6 months |
Weighted Average Remaining Contractual Life (in years) Exercisable | 2 years |
Aggregate Intrinsic Value Outstanding | $0 |
Aggregate Intrinsic Value Exercisable | $0 |
9_INCOME_TAXES_Details
9. INCOME TAXES (Details) (USD $) | 12 Months Ended | |
Aug. 31, 2012 | Aug. 31, 2011 | |
United States | ||
Income Tax Expense (Benefit), at Federal Statutory Income Tax Rate | ($2,744,710) | ($1,547,188) |
Statutory tax rates | 35.00% | 35.00% |
Expected recovery of income taxes at statutory rates | 960,649 | 541,516 |
Valuation Allowances | -960,649 | -541,516 |
Provision for income taxes | 0 | 0 |
Canadian | ||
Income Tax Expense (Benefit), at Federal Statutory Income Tax Rate | -60,775 | |
Statutory tax rates | 30.00% | |
Expected recovery of income taxes at statutory rates | 18,233 | |
Valuation Allowances | -18,233 | |
Provision for income taxes | $0 |
9_INCOME_TAXES_Details_1
9. INCOME TAXES (Details 1) (USD $) | Aug. 31, 2012 | Aug. 31, 2011 |
United States | ||
Deferred income tax assets: | ||
Impairment | $307,998 | $292,480 |
Organization costs | 76,732 | 103,418 |
Accrued salaries | 0 | 36,242 |
US net operating loss carryforwards | 545,564 | 0 |
Canadian net operating loss carryforwards | 0 | 138,696 |
Stock Compensation | 599,273 | 0 |
Total deferred income tax assets | 1,529,567 | 570,836 |
Less: valuation allowance | -1,529,567 | -570,836 |
Deferred income tax assets, net | 0 | 0 |
Canadian | ||
Deferred income tax assets: | ||
Impairment | 0 | |
Organization costs | 0 | |
Accrued salaries | 0 | |
US net operating loss carryforwards | 0 | |
Canadian net operating loss carryforwards | 18,233 | |
Stock Compensation | 0 | |
Total deferred income tax assets | 18,233 | |
Less: valuation allowance | -18,233 | |
Deferred income tax assets, net | $0 |
7_RELATED_PARTY_TRANSACTIONS_D
7. RELATED PARTY TRANSACTIONS (Details Narrative) (USD $) | Aug. 31, 2012 |
Related Party Transactions Details Narrative | |
Finder's compensation | $844,282 |
7_RELATED_PARTY_TRANSACTIONS_D1
7. RELATED PARTY TRANSACTIONS (Details Narrative 1) (USD $) | Aug. 31, 2012 | Aug. 31, 2011 |
Related Party Transactions Details Narrative 1 | ||
Management Fees-CEO | $240,000 | $113,548 |
9_INCOME_TAXES_Details_Narrati
9. INCOME TAXES (Details Narrative) (USD $) | 12 Months Ended |
Aug. 31, 2012 | |
Income Taxes Tables | |
Accumulated non-capital loss carry-forwards - United States | $1,558,755 |
Accumulated non-capital loss carry-forwards - Canada | $60,775 |
Operating loss expiry date | Carry-forwards losses expires in 2032 |