Document_and_Entity_Informatio
Document and Entity Information | 3 Months Ended | |
Nov. 30, 2013 | Nov. 14, 2013 | |
DocumentAndEntityInformationAbstract | ' | ' |
Entity Registrant Name | 'EFLO ENERGY, INC. | ' |
Entity Central Index Key | '0001448806 | ' |
Document Type | '10-Q | ' |
Document Period End Date | 30-Nov-13 | ' |
Amendment Flag | 'false | ' |
Current Fiscal Year End Date | '--08-31 | ' |
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 Common Stock, Shares Outstanding | ' | 19,538,648 |
Document Fiscal Period Focus | 'Q1 | ' |
Document Fiscal Year Focus | '2014 | ' |
CONSOLIDATED_BALANCE_SHEETS_Un
CONSOLIDATED BALANCE SHEETS (Unaudited) (USD $) | Nov. 30, 2013 | Aug. 31, 2013 |
ASSETS | ' | ' |
Cash | $1,706,874 | $476,522 |
Accounts receivable from joint interest owners and other | 1,061,735 | 912,458 |
Prepaids | 110,043 | 41,565 |
Other | 21,847 | 19,429 |
Total current assets | 2,900,499 | 1,449,974 |
OIL AND GAS PROPERTIES, full cost method, unproven | 49,134,810 | 48,897,972 |
OTHER ASSETS-Goodwill | 1,194,365 | 1,194,365 |
Total assets | 53,229,674 | 51,542,311 |
CURRENT LIABILITIES | ' | ' |
Accounts payable and accrued liabilities | 3,277,293 | 3,117,627 |
Asset retirement obligation-current | 80,000 | 80,000 |
Total current liabilities | 3,357,293 | 3,197,627 |
NONCURRECT LIABILITIES | ' | ' |
Asset retirement obligations | 17,237,418 | 17,066,750 |
Convertible notes, net of $518,497 of unamortized discount at November 30, 2013 | 1,736,503 | ' |
Deferred income taxes | 2,779,849 | 2,779,849 |
Total liabilities | 25,111,063 | 23,044,226 |
STOCKHOLDERS' EQUITY | ' | ' |
Capital Stock Authorized: 10,000,000 preferred shares, par value $0.001 per share 150,000,000 common shares, par value $0.001 per share Issued and outstanding: 19,538,648 and 19,487,739 common shares at November 30, 2013 and August 31, 2013, respectively | 19,539 | 19,488 |
Additional paid-in capital | 29,862,463 | 29,153,194 |
Accumulated other comprehensive loss | -37,387 | -43,488 |
Retained earnings (accumulated defict) during the exploration stage | -1,726,004 | -631,109 |
Total stockholders' equity | 28,118,611 | 28,498,085 |
Total liabilities and stockholders' equity | $53,229,674 | $51,542,311 |
CONSOLIDATED_BALANCE_SHEETS_Pa
CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $) | Nov. 30, 2013 | Aug. 31, 2013 |
Statement of Financial Position [Abstract] | ' | ' |
Unamortized Discount | $518,497 | $0 |
Stockholders Equity | ' | ' |
Preferred Stock Shares Par value | $0.00 | $0.00 |
Preferred Stock Shares Authorized | 10,000,000 | 10,000,000 |
Common Stock Shares Par value | $0.00 | $0.00 |
Common Stock Shares Authorized | 150,000,000 | 150,000,000 |
Common Stock Shares Issued | 19,538,648 | 19,487,739 |
Common Stock Shares Outstanding | 19,538,648 | 19,487,739 |
CONDENSED_CONSOLIDATED_STATEME
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (USD $) | 3 Months Ended | 64 Months Ended | |
Nov. 30, 2013 | Nov. 30, 2012 | Nov. 30, 2013 | |
EXPENSES | ' | ' | ' |
Management and director's fees | $213,892 | $273,836 | $2,603,686 |
Stock-based compensation expense | 115,979 | 694,703 | 2,187,640 |
Consulting fees | 157,798 | 665,389 | 2,116,218 |
Professional fees | 133,153 | 269,145 | 1,143,063 |
Financing fees | 176,822 | ' | 176,822 |
Office, travel and general | 91,879 | 143,013 | 861,626 |
Accretion of asset retirement obligations | 170,668 | 94,168 | 743,176 |
Oil and gas property impairment | ' | ' | 879,994 |
Total Expenses | 1,060,191 | 2,140,254 | 10,712,225 |
OPERATING LOSS | -1,060,191 | -2,140,254 | -10,712,225 |
OTHER INCOME (EXPENSE) | ' | ' | ' |
Interest expense | -34,704 | ' | -34,704 |
Gain on acquisition of assets | ' | 11,766,887 | 11,766,787 |
Gain on forgiveness of accounts payable | ' | ' | 33,987 |
INCOME (LOSS) before taxes | -1,094,895 | 9,626,633 | 1,053,845 |
Provision for income tax | ' | -3,164,790 | -2,779,849 |
Net income (loss) | -1,094,895 | 6,461,843 | -1,726,004 |
Gain (loss) on foreign currency translation | 6,101 | -435 | -37,387 |
COMPREHENSIVE INCOME (LOSS) | ($1,088,794) | $6,461,408 | ($1,763,391) |
EARNING (LOSS) PER SHARE | ' | ' | ' |
Basic | ($0.06) | $0.36 | ' |
Diluted | ($0.06) | $0.34 | ' |
WEIGHTED AVERAGE SHARES OUTSTANDING | ' | ' | ' |
Basic | 19,488,298 | 18,163,412 | ' |
Diluted | 19,488,298 | 19,067,343 | ' |
CONDENSED_CONSOLIDATED_STATEME1
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) | 3 Months Ended | 64 Months Ended | |
Nov. 30, 2013 | Nov. 30, 2012 | Nov. 30, 2013 | |
CASH FLOWS FROM OPERATING ACTIVITIES | ' | ' | ' |
Net income (loss) | ($1,094,895) | $6,461,843 | ($1,726,004) |
Adjustments to reconcile net income (loss) to net cash used in operating activities: | ' | ' | ' |
Stock-based compensation and fee payments | 123,016 | 710,865 | 4,392,928 |
Amortization of convertible note discount | 15,306 | ' | 15,306 |
Unrealized foreign exchange losses | 6,101 | 9,569 | -37,387 |
Gain on forgiveness of accounts payable | ' | ' | -33,987 |
Gain on acquisition of Nahanni assets | ' | -11,766,887 | -11,766,787 |
Accretion of asset retirement obligations | 170,668 | 94,168 | 743,176 |
Oil and gas property impairment | ' | ' | 879,994 |
Deferred income tax provision | ' | 3,164,790 | 2,779,849 |
Changes in working capital items- | ' | ' | ' |
Accounts receivable | -149,277 | -273,456 | -1,061,735 |
Prepaids and other | -70,896 | -3,298 | -131,890 |
Accounts payable and accrued liabilities | 212,167 | 814,872 | 830,477 |
Net cash used in operating activities | -787,810 | -787,534 | -5,116,060 |
CASH FLOWS FROM INVESTING ACTIVITIES | ' | ' | ' |
Expenditures on oil and gas properties | -236,838 | -145,094 | -1,894,020 |
Acquisition of oil and gas interest | ' | -132,600 | -421,895 |
Net cash used in investing activities | -236,838 | -277,694 | -2,315,915 |
CASH FLOWS FROM FINANCING ACTIVITIES | ' | ' | ' |
Common stock sold for cash, net of fees | ' | 1,772,511 | 6,779,612 |
Common stock redeemend for cash | ' | ' | -100 |
Proceeds from notes payable | 2,255,000 | ' | 2,809,500 |
Repayments of notes payable | ' | ' | -484,500 |
Loans from related parties | ' | ' | 34,337 |
Net cash provided by financing activities | 2,255,000 | 1,772,511 | 9,138,849 |
INCREASE IN CASH | 1,230,352 | 707,283 | 1,706,874 |
CASH, BEGINNING OF PERIOD | 476,522 | 2,206,347 | ' |
CASH, END OF PERIOD | 1,706,874 | 2,913,630 | 1,706,874 |
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 | ' | ' | 346,406 |
Asset retirment obligation incrurred | ' | ' | 80,000 |
Asset retirement obligation acquired in Devon acquisition | ' | ' | 7,057,716 |
Asset retirement obligation acquired in Nahanni acquisition | ' | 9,436,526 | 9,436,526 |
NON-CASH FINANCING ACTIVITIES | ' | ' | ' |
Common stock issued as repayment of note payable | ' | ' | 95,000 |
Common stock issued for services | 52,500 | 32,500 | 1,986,331 |
Common stock issued for Devon assets | ' | ' | 15,950,000 |
Exchangeable shares issued for Nahanni assets | ' | 4,190,643 | 4,190,643 |
Warrants issued in Convertible Note Financing | $533,803 | ' | $533,803 |
1_BASIS_OF_PRESENTATION
1. BASIS OF PRESENTATION | 3 Months Ended | ||||||||||||
Nov. 30, 2013 | |||||||||||||
Accounting Policies [Abstract] | ' | ||||||||||||
1. BASIS OF PRESENTATION | ' | ||||||||||||
Unaudited Interim Consolidated Financial Statements | |||||||||||||
The unaudited interim consolidated financial statements of EFLO Energy, Inc. (the “Company”), have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) for interim financial information and the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). They do not include all information and footnotes required by GAAP for complete financial statements. However, except as disclosed herein, there have been no material changes in the information disclosed in the notes to the consolidated financial statements for the year ended August 31, 2013 included in the Company’s Annual Report on Form 10-K filed with the SEC. The unaudited interim consolidated financial statements should be read in conjunction with those consolidated financial statements included in the Form 10-K. In the opinion of management, all adjustments considered necessary for fair presentation have been made. Operating results for the three month period ended November 30, 2013 are not necessarily indicative of the results that may be expected for the year ending August 31, 2014. | |||||||||||||
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. | |||||||||||||
Restatements | |||||||||||||
During a re-evaluation of the oil and gas assets acquired in the Devon and Nahanni acquisitions (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 unaudited consolidated financial statements included herein is as shown in tabular form below: | |||||||||||||
As previously | As | ||||||||||||
reported | Adjustments | restated | |||||||||||
Consolidated Statement of Operations for the three months ended November 30,2012 | |||||||||||||
Gas sales, net | 50,216 | (50,216 | ) | - | |||||||||
Lease operating expenses | -195,310 | 195,310 | - | ||||||||||
Depletion, depreciation and amortization | -91,843 | 91,843 | - | ||||||||||
Net income (loss) | 6,224,906 | 236,937 | 6,461,843 | ||||||||||
Consolidated Statement of Cash Flows for the three months ended November 30, 2012 | |||||||||||||
Net income (loss) | 6,224,906 | 236,937 | 6,461,843 | ||||||||||
Depletion, depreciation and amortization | 91,843 | (91,843 | ) | - | |||||||||
Net cash used in operating activities | (932,628 | ) | 145,094 | (787,534 | ) | ||||||||
Expenditures on oil and gas properties | - | (145,094 | ) | (145,094 | ) | ||||||||
Net cash used in investing activities | (132,600 | ) | (145,094 | ) | (277,694 | ) | |||||||
Notes to the Consolidated Financial Statements at November 30, 2012, Note 2. Oil and Gas Properties | |||||||||||||
Oil and Gas Acquisition - Kotaneelee Gas Project | |||||||||||||
Reserves and resources | 11,932,590 | (11,932,590 | ) | - | |||||||||
Leasehold Costs | 643,074 | (643,074 | ) | - | |||||||||
Unproved Leasehold Costs | 15,800,124 | 12,575,664 | 28,375,788 |
2_OIL_AND_GAS_PROPERTIES
2. OIL AND GAS PROPERTIES | 3 Months Ended | ||||||||||||
Nov. 30, 2013 | |||||||||||||
Extractive Industries [Abstract] | ' | ||||||||||||
2. OIL AND GAS PROPERTIES | ' | ||||||||||||
Oil and Gas Acquisition – Kotaneelee Gas Project (the “KGP”) | |||||||||||||
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”). | |||||||||||||
The KGP covers 30,542 gross acres in the Yukon Territory in Canada, and includes; a gas dehydration plant (capacity: 70 million cubic feet per day), one shut in gas well, 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. | |||||||||||||
As consideration for the Nahanni Assets, the Company paid Nahanni approximately $13,761,000. The consideration was comprised of approximately $133,000 in cash ($398,550 offset by $265,950 paid in connection with the acquisition of the Devon Assets in settlement of certain Nahanni indebtedness), 1,614,767 shares of one of the Company’s subsidiaries, which are exchangeable for 1,614,767 shares of the Company’s restricted common stock valued at approximately $4,191,000, and the absorption of approximately $9,437,000 in asset retirement obligations. The number of shares issued by the Company’s subsidiary was calculated by dividing the fair value of the exchangeable shares by the volume weighted average trading price of the Company’s stock for the ten (10) trading days prior to closing the Purchase Agreement. The fair value of the exchangeable shares has been recorded as additional paid in capital in the Company’s equity. The exchangeable shares enjoy no voting or revenue participation rights in the subsidiary. | |||||||||||||
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 shut in gas well) in the KGP. 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. | |||||||||||||
As a result of its purchase of the Nahanni Assets and Devon Assets, the Company now generally owns a 53.65% working interest in the KGP, including a 100% working interest in one shut in gas well. | |||||||||||||
The Company is pursuing the acquisition of additional working interests in the KGP. | |||||||||||||
The Company 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. The Company’s preliminary assessment of the fair value of the Nahanni Assets resulted in a valuation of $25,526,554. As a result of incorporating this information into the purchase price allocation, a gain on bargain purchase of $11,766,887 was recognized in the accompanying consolidated statement of operations. The gain on bargain purchase was primarily attributable to the strategic nature of the divestiture by the motivated seller, coupled with a confluence of certain favorable economic trends in the industry and the geographic region in which the Nahanni Assets are located. | |||||||||||||
The Company allocated the consideration paid for the Nahanni Assets and Devon Assets based upon its assessment of their fair value at the dates of purchase, as follows: | |||||||||||||
Fair Value of Assets Acquired (as restated) | |||||||||||||
Nahanni Assets | Devon Assets | Total | |||||||||||
Asset Description | |||||||||||||
Unproven Properties | |||||||||||||
Unproved leasehold costs | $ | 14,548,787 | $ | 13,827,001 | $ | 28,375,788 | |||||||
Plant and equipment | 8,594,362 | 6,484,001 | 15,078,363 | ||||||||||
Gathering systems | 2,383,405 | 1,788,001 | 4,171,406 | ||||||||||
Vehicles | – | 4,527 | 4,527 | ||||||||||
25,526,554 | 22,103,530 | 47,630,084 | |||||||||||
Goodwill | – | 1,194,365 | 1,194,365 | ||||||||||
Total Assets Acquired - KGP | $ | 25,526,554 | $ | 23,297,895 | $ | 48,824,449 | |||||||
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 three months ended November 30, 2013 and 2012, the Company capitalized $236,838 and $145,094, respectively, of lease operating expense, net of oil and gas revenue, into the full cost pool related to our unproven interests. | |||||||||||||
3_ASSET_RETIRMENT_OBLIGATIONS
3. ASSET RETIRMENT OBLIGATIONS | 3 Months Ended | ||||
Nov. 30, 2013 | |||||
Notes to Financial Statements | ' | ||||
3. ASSET RETIRMENT OBLIGATIONS | ' | ||||
In connection with its acquisition of the Nahanni Assets and the Devon Assets, the Company acquired $9,436,526 and $7,057,716 in asset retirement obligations, respectively, relating with its portion of the abandonment, reclamation and environmental liabilities associated with the KGP. | |||||
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, insofar as that lease covers from the surface to the base of the San Miguel formation (the “San Miguel Lease”). The San Miguel Lease, which is located in Zavala County, Texas, is unproven and has no current production. The Company incurred $80,000 in asset retirement obligations related to the future plugging and abandonment of a test well on the San Miguel Lease. At November 30, 2013, 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 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$9,439,000) and delivered a letter of credit in the amount of CAD$4,380,000 (USD$4,134,000) to Devon (the “Devon LOC”). The Company also delivered a letter of credit in the amount of CAD$625,000 (USD$590,000) to the government of the Yukon Territory (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 amounts comprising the Company’s asset retirement obligations as of November 30, 2013: | |||||
Asset Retirement Obligations | |||||
Balance, August 31, 2012 | $ | 7,137,716 | |||
Liabilities incurred (acquired) | 9,436,526 | ||||
Accretion expense | 572,508 | ||||
Liabilities (settled) | –– | ||||
Changes in asset retirement obligations | –– | ||||
Balance, August 31, 2013 | 17,146,750 | ||||
Liabilities incurred (acquired) | –– | ||||
Accretion expense | 170,668 | ||||
Liabilities (settled) | –– | ||||
Changes in asset retirement obligations | –– | ||||
Total Balance, November 30, 2013 | $ | 17,317,418 | |||
Total Balance, November 30, 2013 – Current | $ | 80,000 | |||
Total Balance, November 30, 2013 – Long Term | $ | 17,237,418 | |||
4_CONVERTIBLE_NOTES_PAYABLE
4. CONVERTIBLE NOTES PAYABLE | 3 Months Ended | |
Nov. 30, 2013 | ||
Notes to Financial Statements | ' | |
4. CONVERTIBLE NOTES PAYABLE | ' | |
On October 30, 2013 the Company sold convertible notes having an aggregate principal amount of $2,255,000 (the “Convertible Notes”), to 22 accredited investors, under the following general terms (the "Convertible Note Offering"): | ||
A. | The maturity date of the Convertible Notes is eighteen months from the date of issuance (April 30, 2015). | |
B. | The principal amount of the Convertible Notes is convertible into shares of the Company’s common stock at a price of $1.00 per share. | |
C. | The Convertible Notes bear interest at 10% per annum payable, at the Company’s election, in cash or shares of its common stock at a rate of $1.25 per share. | |
D. | The interest rate payable on the Convertible Notes will escalate to 12.5% or 15.0% per annum for the entire period during which the Convertible Notes are outstanding, in the event the Company does not complete its migration to a senior stock exchange within 9 or 12 months, respectively, from date of issuance. | |
E. | The Company also issued stock purchase warrants in connection with the Convertible Note Offering providing for the purchase of up to 1,127,500 shares of its common stock (1 full share for each $2.00 invested in the Convertible Notes”) at an exercise price of $1.25 per share for a period of three years (the "Stock Purchase Warrants”). | |
The Company applied the Black-Scholes option pricing model to determine the fair market value of the stock purchase warrants issued in connection with the Convertible Note Offering. In applying the model, the Company used the following parameters: contractual lives of 3 years, historical stock price volatility of 77%, a risk-free rate of 4.5% and an annual dividend rate of 0%. As a result, the Company determined that the total fair market value of the stock purchase warrants was $533,803, and that amount was recognized as a discount against the principal of Convertible Notes. $15,306 of the Convertible Note discount was amortized to interest expense during the three months ended November 30, 2013. At November 30, 2013, the principal balance on the Convertible Notes, net of discount was $1,736,503, all of which is considered long term. | ||
During the three months ended November 30, 2013, the Company also paid $176,822 in finder’s fees and recognized $34,704 in interest expense relating to the Convertible Notes. |
5_CAPITAL_STOCK_AND_STOCK_BASE
5. CAPITAL STOCK AND STOCK BASED COMPENSATION | 3 Months Ended |
Nov. 30, 2013 | |
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | ' |
5. CAPITAL STOCK AND STOCK BASED COMPENSATION | ' |
Sale of Convertible Notes | |
On October 30, 2013 the Company sold Convertible Notes having an aggregate principal amount of $2,255,000. The Company also issued stock purchase warrants in connection with the Convertible Note Offering providing for the purchase of up to 1,127,500 shares of its common stock (1 full share for each $2.00 invested in the Convertible Notes”) at an exercise price of $1.25 per share for a period of three years (see Note 4). | |
In aggregate, 3,382,500 shares of the Company’s common stock (comprised of 2,255,000 shares issuable on conversion of the principal of the Convertible Notes and 1,127,500 shares issuable on exercise of the Stock Purchase Warrants having a fair market value of $533,803), or such greater number of shares as may be issuable upon election of the interest repayment in common stock under the terms of the Convertible Notes, has been reserved for issuance upon conversion of the Convertible Notes or exercise of the Stock Purchase Warrants in accordance with their terms. | |
The Company paid $176,822 in finder’s fees in connection with the Convertible Note Offering. | |
Stock-Based Compensation | |
During the three months ended November 30, 2013 and 2012, the Company recognized $123,016 and $193,947, respectively, of non-cash expense related to stock-based compensation under its 2012 Non-Qualified Stock Option Plan (the “Option Plan”). As of November 30, 2013, $360,889 of total unrecognized compensation cost remains under the Option Plan. Of this amount, $314,091 and $46,798 are expected to be recognized during fiscal 2014, and fiscal 2015, respectively. | |
During the three months ended November 30, 2013 and 2012, fees totaling $52,500 and $32,500 were paid using 50,909 and 12,815 shares of the Company’s restricted common stock at weighted average prices of $1.031 and $2.536 per share, respectively. |
6_RELATED_PARTY_TRANSACTIONS
6. RELATED PARTY TRANSACTIONS | 3 Months Ended |
Nov. 30, 2013 | |
Related Party Transactions [Abstract] | ' |
6. RELATED PARTY TRANSACTIONS | ' |
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 valued 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 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 Finders. During the three months ended November 30, 2012, finder’s compensation of $755,399 was accrued under the Finder’s Fee Agreement in connection with the Company’s acquisition of the Nahanni Assets. No such fees were incurred during three months ended November 30, 2013. | |
Effective September 1, 2013, The Company executed an administrative services agreement with its largest shareholder, Holloman Corporation. Under this agreement, fees of $5,000 per month are payable to Holloman Corporation covering; office and meeting space, supplies, utilities, office equipment, network access and other administrative facilities costs. These fees are payable quarterly in shares of the Company’s restricted common stock at the closing price of the stock on the last trading-day of the applicable monthly billing period. This administrative services agreement can be terminated by either party with 30-day notice. Proceeds from this administrative service agreement have been assigned to a wholly owned subsidiary of Holloman Corporation. | |
The Company’s Chief Executive Officer and President purchased $50,000 in Convertible Notes (25,000 Stock Purchase Warrants) and $150,000 in Convertible Notes (75,000 Stock Purchase Warrants), respectively, in the Convertible Note Offering (See Note 4). | |
Of the fees paid in stock during the three month period ended November 30, 2013 (see Note 5), fees totaling $30,000 and $15,000 were paid using 29,091 and 14,545 shares of the Company’s restricted common stock, to the Company’s Chief Executive Officer (Keith Macdonald) and a subsidiary of its largest shareholder (Holloman Value Holdings LLC) under the terms of two service agreements. | |
1_BASIS_OF_PRESENTATION_Tables
1. BASIS OF PRESENTATION (Tables) | 3 Months Ended | ||||||||||||
Nov. 30, 2013 | |||||||||||||
BasisOfPresentationTablesAbstract | ' | ||||||||||||
Effect of restatement on the financial statements | ' | ||||||||||||
As previously | As | ||||||||||||
reported | Adjustments | restated | |||||||||||
Consolidated Statement of Operations for the three months ended November 30,2012 | |||||||||||||
Gas sales, net | 50,216 | (50,216 | ) | - | |||||||||
Lease operating expenses | -195,310 | 195,310 | - | ||||||||||
Depletion, depreciation and amortization | -91,843 | 91,843 | - | ||||||||||
Net income (loss) | 6,224,906 | 236,937 | 6,461,843 | ||||||||||
Consolidated Statement of Cash Flows for the three months ended November 30, 2012 | |||||||||||||
Net income (loss) | 6,224,906 | 236,937 | 6,461,843 | ||||||||||
Depletion, depreciation and amortization | 91,843 | (91,843 | ) | - | |||||||||
Net cash used in operating activities | (932,628 | ) | 145,094 | (787,534 | ) | ||||||||
Expenditures on oil and gas properties | - | (145,094 | ) | (145,094 | ) | ||||||||
Net cash used in investing activities | (132,600 | ) | (145,094 | ) | (277,694 | ) | |||||||
Notes to the Consolidated Financial Statements at November 30, 2012, Note 2. Oil and Gas Properties | |||||||||||||
Oil and Gas Acquisition - Kotaneelee Gas Project | |||||||||||||
Reserves and resources | 11,932,590 | (11,932,590 | ) | - | |||||||||
Leasehold Costs | 643,074 | (643,074 | ) | - | |||||||||
Unproved Leasehold Costs | 15,800,124 | 12,575,664 | 28,375,788 |
2_OIL_AND_GAS_PROPERTIES_Table
2. OIL AND GAS PROPERTIES (Tables) | 3 Months Ended | ||||||||||||
Nov. 30, 2013 | |||||||||||||
Oil And Gas Properties Tables | ' | ||||||||||||
Schedule of Oil and Gas Acquisition | ' | ||||||||||||
Fair Value of Assets Acquired (as restated) | |||||||||||||
Nahanni Assets | Devon Assets | Total | |||||||||||
Asset Description | |||||||||||||
Unproven Properties | |||||||||||||
Unproved leasehold costs | $ | 14,548,787 | $ | 13,827,001 | $ | 28,375,788 | |||||||
Plant and equipment | 8,594,362 | 6,484,001 | 15,078,363 | ||||||||||
Gathering systems | 2,383,405 | 1,788,001 | 4,171,406 | ||||||||||
Vehicles | – | 4,527 | 4,527 | ||||||||||
25,526,554 | 22,103,530 | 47,630,084 | |||||||||||
Goodwill | – | 1,194,365 | 1,194,365 | ||||||||||
Total Assets Acquired - KGP | $ | 25,526,554 | $ | 23,297,895 | $ | 48,824,449 |
3_ASSET_RETIREMENT_OBLIGATIONS
3. ASSET RETIREMENT OBLIGATIONS (Tables) | 3 Months Ended | ||||
Nov. 30, 2013 | |||||
BalanceEnding1 | ' | ||||
Schedule of Asset Retirement Obligation | ' | ||||
Asset Retirement Obligations | |||||
Balance, August 31, 2012 | $ | 7,137,716 | |||
Liabilities incurred (acquired) | 9,436,526 | ||||
Accretion expense | 572,508 | ||||
Liabilities (settled) | –– | ||||
Changes in asset retirement obligations | –– | ||||
Balance, August 31, 2013 | 17,146,750 | ||||
Liabilities incurred (acquired) | –– | ||||
Accretion expense | 170,668 | ||||
Liabilities (settled) | –– | ||||
Changes in asset retirement obligations | –– | ||||
Total Balance, November 30, 2013 | $ | 17,317,418 | |||
Total Balance, November 30, 2013 – Current | $ | 80,000 | |||
Total Balance, November 30, 2013 – Long Term | $ | 17,237,418 |
1_BASIS_OF_PRESENTATION_Detail
1. BASIS OF PRESENTATION (Details) (USD $) | 3 Months Ended | 64 Months Ended | |
Nov. 30, 2013 | Nov. 30, 2012 | Nov. 30, 2013 | |
Consolidated Statement of Operations for the three months ended November 30, 2013 | ' | ' | ' |
Net income (loss) | ($1,094,895) | $6,461,843 | ($1,726,004) |
Consolidated Statement of Cash Flows for the three months ended November 30, 2013 | ' | ' | ' |
Net income (losses) | -1,094,895 | 6,461,843 | -1,726,004 |
Net cash used in operating activities | -787,810 | -787,534 | -5,116,060 |
Expenditures on oil and gas properties | -236,838 | -145,094 | -1,894,020 |
Net cash used in investing activities | -236,838 | -277,694 | -2,315,915 |
Previously Reported | ' | ' | ' |
Consolidated Statement of Operations for the three months ended November 30, 2013 | ' | ' | ' |
Gas sales, net | 50,216 | ' | ' |
Lease operating expenses | -195,310 | ' | ' |
Depletion, depreciation and amortization | -91,843 | ' | ' |
Net income (loss) | 6,224,906 | ' | ' |
Consolidated Statement of Cash Flows for the three months ended November 30, 2013 | ' | ' | ' |
Net income (losses) | 6,224,906 | ' | ' |
Depletion, depreciation and amortization | 91,843 | ' | ' |
Net cash used in operating activities | -932,628 | ' | ' |
Expenditures on oil and gas properties | ' | ' | ' |
Net cash used in investing activities | -132,600 | ' | ' |
Notes to the Consolidated Financial Statements at November 30, 2012, Note 2. Oil and Gas Properties | ' | ' | ' |
Reserves and resources | 11,932,590 | ' | ' |
Leasehold Costs | 643,074 | ' | ' |
Unproved Leasehold Costs | 15,800,124 | ' | ' |
Adjustments | ' | ' | ' |
Consolidated Statement of Operations for the three months ended November 30, 2013 | ' | ' | ' |
Gas sales, net | -50,216 | ' | ' |
Lease operating expenses | 195,310 | ' | ' |
Depletion, depreciation and amortization | 91,843 | ' | ' |
Net income (loss) | 236,937 | ' | ' |
Consolidated Statement of Cash Flows for the three months ended November 30, 2013 | ' | ' | ' |
Net income (losses) | 236,937 | ' | ' |
Depletion, depreciation and amortization | -91,843 | ' | ' |
Net cash used in operating activities | 145,094 | ' | ' |
Expenditures on oil and gas properties | -145,094 | ' | ' |
Net cash used in investing activities | -145,094 | ' | ' |
Notes to the Consolidated Financial Statements at November 30, 2012, Note 2. Oil and Gas Properties | ' | ' | ' |
Reserves and resources | -11,932,590 | ' | ' |
Leasehold Costs | -643,074 | ' | ' |
Unproved Leasehold Costs | 12,575,664 | ' | ' |
As Restated | ' | ' | ' |
Consolidated Statement of Operations for the three months ended November 30, 2013 | ' | ' | ' |
Gas sales, net | ' | ' | ' |
Lease operating expenses | ' | ' | ' |
Depletion, depreciation and amortization | ' | ' | ' |
Net income (loss) | 6,461,843 | ' | ' |
Consolidated Statement of Cash Flows for the three months ended November 30, 2013 | ' | ' | ' |
Net income (losses) | 6,461,843 | ' | ' |
Depletion, depreciation and amortization | ' | ' | ' |
Net cash used in operating activities | -787,534 | ' | ' |
Expenditures on oil and gas properties | -145,094 | ' | ' |
Net cash used in investing activities | -277,964 | ' | ' |
Notes to the Consolidated Financial Statements at November 30, 2012, Note 2. Oil and Gas Properties | ' | ' | ' |
Reserves and resources | ' | ' | ' |
Leasehold Costs | ' | ' | ' |
Unproved Leasehold Costs | $28,375,788 | ' | ' |
2_OIL_AND_GAS_PROPERTIES_Detai
2. OIL AND GAS PROPERTIES (Details) (USD $) | Nov. 30, 2013 |
Unproven Properties | ' |
Unproved Leasehold costs | $28,375,788 |
Plant and equipment | 15,078,363 |
Gathering systems | 4,171,406 |
Vehicles | 4,527 |
Subtotal | 47,630,084 |
Goodwill | 1,194,365 |
Total Assets Acquired - KGP | 48,824,449 |
Nahanni Assets | ' |
Unproven Properties | ' |
Unproved Leasehold costs | 14,548,787 |
Plant and equipment | 8,594,362 |
Gathering systems | 2,383,405 |
Vehicles | ' |
Subtotal | 25,526,554 |
Goodwill | ' |
Total Assets Acquired - KGP | 25,526,554 |
Devon Assets | ' |
Unproven Properties | ' |
Unproved Leasehold costs | 13,827,001 |
Plant and equipment | 6,484,001 |
Gathering systems | 1,788,001 |
Vehicles | 4,527 |
Subtotal | 22,103,530 |
Goodwill | 1,194,365 |
Total Assets Acquired - KGP | $23,297,895 |
3_ASSET_RETIREMENT_OBLIGATIONS1
3. ASSET RETIREMENT OBLIGATIONS (Details) (USD $) | 3 Months Ended | |
Nov. 30, 2013 | Nov. 30, 2012 | |
Asset Retirement Obligations | ' | ' |
Balance, Beginning | $17,146,750 | $7,137,716 |
Liabilities incurred (acquired) | ' | 9,436,526 |
Accretion expense | 170,668 | 572,508 |
Liabilities (settled) | ' | ' |
Changes in asset retirement obligations | ' | ' |
Balance, Ending | 17,317,418 | 17,146,750 |
Total Balance, November 30, 2013 | 17,317,418 | ' |
Total Balance, November 30, 2013 - Current | 80,000 | ' |
Total Balance, November 30 b Long Term | $17,237,418 | ' |
5_CAPITAL_STOCK_AND_STOCK_BASE1
5. CAPITAL STOCK AND STOCK BASED COMPENSATION (Details Narrative) (USD $) | 3 Months Ended | |
Nov. 30, 2013 | Nov. 30, 2012 | |
Capital Stock And Stock Based Compensation Details Narrative | ' | ' |
Non cash based expense | $123,016 | $193,947 |
Unrecognized compensation cost | $360,889 | ' |
6_RELATED_PARTY_TRANSACTIONS_D
6. RELATED PARTY TRANSACTIONS (Details Narrative) (USD $) | Nov. 30, 2013 | Nov. 30, 2012 |
Related Party Transactions Details Narrative | ' | ' |
Finder's compensation | $0 | $755,399 |