Document_and_Entity_Informatio
Document and Entity Information | 9 Months Ended |
31-May-14 | |
DocumentAndEntityInformationAbstract | ' |
Entity Registrant Name | 'EFLO ENERGY, INC. |
Entity Central Index Key | '0001448806 |
Document Type | 'S-1 |
Document Period End Date | 31-May-14 |
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 |
CONSOLIDATED_BALANCE_SHEETS_Un
CONSOLIDATED BALANCE SHEETS (Unaudited) (USD $) | 31-May-14 | Aug. 31, 2013 | Aug. 31, 2012 |
ASSETS | ' | ' | ' |
Cash | $215,087 | $476,522 | $2,206,347 |
Accounts receivable from joint interest owners and other | 1,443,851 | ' | ' |
Accrued gas sales | ' | 0 | 178,225 |
Joint interest owners and other | ' | 912,458 | 122,745 |
Prepaids | 36,707 | 41,565 | 204,892 |
Other | 59,611 | 19,429 | 17,919 |
Total current assets | 1,755,256 | 1,449,974 | 2,730,128 |
OIL AND GAS PROPERTIES, full cost method, unproven | 49,833,036 | 48,897,972 | 22,107,381 |
OTHER ASSETS-Goodwill | 1,194,365 | 1,194,365 | 1,194,365 |
Total assets | 52,782,657 | 51,542,311 | 26,031,874 |
CURRENT LIABILITIES | ' | ' | ' |
Accounts payable and accrued liabilities | 4,024,669 | 3,117,627 | 1,483,041 |
Convertible notes, net of $326,213 of unamortized discount at May 31, 2014 | 1,928,787 | ' | ' |
Asset retirement obligation-current | 80,000 | 80,000 | 80,000 |
Total current liabilities | 6,033,456 | 3,197,627 | 1,563,041 |
NONCURRECT LIABILITIES | ' | ' | ' |
Asset retirement obligations | 17,583,889 | 17,066,750 | 7,057,716 |
Deferred income taxes | 2,779,849 | 2,779,849 | 0 |
Total liabilities | 26,397,194 | 23,044,226 | 8,620,757 |
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: 19,648,797 and 19,487,739 common shares at May 31, 2014 and August 31, 2013, respectively | 19,649 | 19,488 | 17,479 |
Additional paid-in capital | 30,184,768 | 29,153,194 | 21,830,083 |
Accumulated other comprehensive loss | -89,198 | -43,488 | -2,959 |
Accumulated deficit during the exploration stage | -3,729,756 | -631,109 | -4,433,486 |
Total stockholders' equity | 26,385,463 | 28,498,085 | 17,411,117 |
Total liabilities and stockholders' equity | $52,782,657 | $51,542,311 | $26,031,874 |
CONSOLIDATED_BALANCE_SHEETS_Pa
CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $) | 31-May-14 | Aug. 31, 2013 | Aug. 31, 2012 |
Statement of Financial Position [Abstract] | ' | ' | ' |
Unamortized Discount | $326,213 | $0 | $0 |
Stockholders Equity | ' | ' | ' |
Preferred Stock Shares Par value | $0.00 | $0.00 | $0.00 |
Preferred Stock Shares Authorized | 10,000,000 | 10,000,000 | 10,000,000 |
Common Stock Shares Par value | $0.00 | $0.00 | $0.00 |
Common Stock Shares Authorized | 150,000,000 | 150,000,000 | 150,000,000 |
Common Stock Shares Issued | 19,648,797 | 19,487,739 | 17,478,539 |
Common Stock Shares Outstanding | 19,648,797 | 19,487,739 | 17,478,539 |
CONDENSED_CONSOLIDATED_STATEME
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (USD $) | 3 Months Ended | 9 Months Ended | 12 Months Ended | 70 Months Ended | |||
31-May-14 | 31-May-13 | 31-May-14 | 31-May-13 | Aug. 31, 2013 | Aug. 31, 2012 | 31-May-14 | |
EXPENSES | ' | ' | ' | ' | ' | ' | ' |
Management and director's fees | $197,048 | $312,958 | $629,617 | $875,647 | $1,193,410 | $997,836 | $3,019,410 |
Stock-based compensation expense | 96,900 | 115,979 | 319,319 | 1,166,405 | 1,282,384 | 789,277 | 2,390,980 |
Consulting fees | 97,465 | 138,355 | 342,000 | 954,330 | 1,081,442 | 530,127 | 2,300,420 |
Professional fees | 234,859 | 101,643 | 480,764 | 510,642 | 629,666 | 217,487 | 1,490,674 |
Financing fees | 0 | 0 | 176,400 | 0 | ' | ' | 176,400 |
Office, travel and general | 54,470 | 139,196 | 291,823 | 400,841 | 453,138 | 223,464 | 1,061,570 |
Accretion of asset retirement obligations | 174,098 | 167,305 | 517,139 | 427,121 | 572,508 | 0 | 1,089,648 |
Oil and gas property impairment | 0 | 0 | 0 | 0 | 0 | 44,335 | 879,994 |
Total Expenses | 854,840 | 975,436 | 2,757,062 | 4,334,986 | 5,212,548 | 2,802,526 | 12,409,096 |
OPERATING LOSS | -854,840 | -975,436 | -2,757,062 | -4,334,986 | -5,212,548 | -2,802,526 | -12,409,096 |
OTHER INCOME (EXPENSE) | ' | ' | ' | ' | ' | ' | ' |
Interest expense | -204,665 | 0 | -341,585 | 0 | ' | ' | -341,585 |
Gain on acquisition of assets | 0 | 0 | 0 | 11,766,887 | 11,766,787 | 0 | 11,766,787 |
Gain on forgiveness of accounts payable | 0 | 28,008 | 0 | 28,008 | 27,987 | 0 | 33,987 |
NET INCOME (LOSS) before taxes | -1,059,505 | -947,428 | -3,098,647 | 7,459,909 | 6,582,226 | -2,802,526 | -949,907 |
Provision for income tax | 0 | 0 | 0 | -3,164,790 | -2,779,849 | 0 | -2,779,849 |
NET INCOME (LOSS) | -1,059,505 | -947,428 | -3,098,647 | 4,295,119 | 3,802,377 | -2,802,526 | -3,729,756 |
Foreign currency translation | -12,626 | -6,125 | -45,710 | -38,939 | -40,529 | -2,959 | -89,198 |
COMPREHENSIVE INCOME (LOSS) | ($1,072,131) | ($953,553) | ($3,144,357) | $4,256,180 | $3,761,848 | ($2,805,485) | ($3,818,954) |
EARNING (LOSS) PER SHARE | ' | ' | ' | ' | ' | ' | ' |
Basic | ($0.05) | ($0.05) | ($0.16) | $0.23 | $0.20 | ($0.33) | ' |
Diluted | ($0.05) | ($0.05) | ($0.16) | $0.21 | $0.19 | ($0.33) | ' |
WEIGHTED AVERAGE SHARES OUTSTANDING | ' | ' | ' | ' | ' | ' | ' |
Basic | 19,588,206 | 19,442,842 | 19,538,745 | 18,933,752 | 18,926,937 | 8,467,594 | ' |
Diluted | 19,588,206 | 19,442,842 | 19,538,745 | 20,276,434 | 20,338,199 | 8,467,594 | ' |
CONDENSED_CONSOLIDATED_STATEME1
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) | 9 Months Ended | 12 Months Ended | 70 Months Ended | ||
31-May-14 | 31-May-13 | Aug. 31, 2013 | Aug. 31, 2012 | 31-May-14 | |
CASH FLOWS FROM OPERATING ACTIVITIES | ' | ' | ' | ' | ' |
Net income (loss) | ($3,098,647) | $4,295,119 | $3,802,377 | ($2,802,526) | ($3,729,756) |
Adjustments to reconcile net income (loss) to net cash used in operating activities: | ' | ' | ' | ' | ' |
Stock-based compensation and fee payments | 340,432 | 2,006,837 | 2,234,104 | 2,035,808 | 4,610,344 |
Amortization of convertible note discount | 207,590 | 0 | ' | 0 | 207,590 |
Unrealized foreign exchange losses | -45,710 | -38,939 | -40,529 | -2,959 | -89,198 |
Gain on forgiveness of accounts payable | 0 | -28,008 | -27,987 | 0 | -33,987 |
Gain on acquisition of Nahanni assets | 0 | -11,766,887 | -11,766,787 | 0 | -11,766,787 |
Accretion of asset retirement obligations | 517,139 | 427,121 | 572,508 | 0 | 1,089,648 |
Oil and gas property impairment | 0 | 0 | 0 | 44,335 | 879,994 |
Deferred income tax provision | 0 | 3,164,790 | 2,779,849 | 0 | 2,779,849 |
Changes in working capital items- | ' | ' | ' | ' | ' |
Accounts receivable | -531,393 | -646,445 | -611,488 | -300,970 | -1,443,851 |
Prepaids and other | -35,323 | 181,099 | 161,817 | -197,500 | -96,317 |
Accounts payable and accrued liabilities | 556,227 | 104,160 | 38,730 | 305,039 | 1,174,536 |
Net cash used in operating activities | -2,089,685 | -2,301,153 | -2,857,406 | -918,773 | -6,417,935 |
CASH FLOWS FROM INVESTING ACTIVITIES | ' | ' | ' | ' | ' |
Expenditures on oil and gas properties, net | -426,750 | -917,631 | -917,631 | -15,051 | -2,083,932 |
Acquisition of oil and gas interests | 0 | -132,600 | -132,600 | -289,295 | -421,895 |
Net cash used in investing activities | -426,750 | -1,050,231 | -1,050,231 | -304,346 | -2,505,827 |
CASH FLOWS FROM FINANCING ACTIVITIES | ' | ' | ' | ' | ' |
Common stock sold for cash, net of fees | 0 | 2,177,812 | 2,177,812 | 2,944,949 | 6,779,612 |
Common stock redeemend for cash | 0 | 0 | 0 | 0 | -100 |
Proceeds from notes payable | 2,255,000 | 0 | 0 | 0 | 2,809,500 |
Repayments of notes payable | 0 | 0 | 0 | -2,500 | -484,500 |
Loans from related parties | 0 | 0 | 0 | 0 | 34,337 |
Net cash provided by financing activities | 2,255,000 | 2,177,812 | 2,177,812 | 2,942,449 | 9,138,849 |
INCREASE (DECREASE) IN CASH | -261,435 | -1,173,572 | -1,729,825 | 1,719,330 | 215,087 |
CASH, BEGINNING OF PERIOD | 476,522 | 2,206,347 | 2,206,347 | 487,017 | ' |
CASH, END OF PERIOD | 215,087 | 1,032,775 | 476,522 | 2,206,347 | 215,087 |
SUPPLEMENTAL DISCLOSURE | ' | ' | ' | ' | ' |
Cash paid for interest | 0 | 0 | 0 | 0 | 0 |
Cash paid for income taxes | 0 | 0 | 0 | 0 | 0 |
Forgiveness of debt | 0 | 0 | 0 | 0 | 9,337 |
NON-CASH INVESTING ACTIVITIES: | ' | ' | ' | ' | ' |
Accrued expenditures on oil and gas properties | 508,314 | 0 | 346,406 | 33,135 | 508,314 |
Asset retirment obligation incrurred | 0 | 0 | 0 | 0 | 80,000 |
Asset retirement obligation acquired in Devon acquisition | 0 | 0 | 0 | 7,057,716 | 7,057,716 |
Asset retirement obligation acquired in Nahanni acquisition | 0 | 9,436,526 | 9,436,526 | 0 | 9,436,526 |
NON-CASH FINANCING ACTIVITIES | ' | ' | ' | ' | ' |
Common stock issued as repayment of note payable | 0 | 0 | 0 | 70,000 | 95,000 |
Common stock issued for services | 157,500 | 107,500 | 145,000 | 1,788,831 | 2,091,331 |
Common stock issued for Devon assets | 0 | 0 | 0 | 15,950,000 | 15,950,000 |
Exchangeable shares granted for Nahanni assets | $0 | $4,190,643 | $4,190,643 | $0 | $4,190,643 |
CONSOLIDATED_STATEMENT_OF_STOC
CONSOLIDATED STATEMENT OF STOCKHOLDERS' 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 | $0 | $0 | $0 | $0 | $0 |
Beginning Balance, Shares at Jul. 21, 2008 | 0 | ' | ' | ' | ' |
Common Stock issued for cash, Shares | 100,000,000 | ' | ' | ' | ' |
Common Stock issued for cash, Amount | 100,000 | -95,000 | ' | ' | 5,000 |
Comprehensive loss | ' | ' | ' | -5,145 | -5,145 |
Ending Balance, Amount at Aug. 31, 2008 | 100,000 | -95,000 | 0 | -5,145 | -145 |
Ending Balance, Shares at Aug. 31, 2008 | 100,000,000 | ' | ' | ' | ' |
Common Stock issued for cash, Shares | 3,300,000 | ' | ' | ' | ' |
Common Stock issued for cash, Amount | 3,300 | 1,650 | ' | ' | 4,950 |
Net loss | ' | ' | ' | -14,777 | -14,777 |
Ending Balance, Amount at Aug. 31, 2009 | 103,300 | -93,350 | 0 | -19,922 | -9,972 |
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 | 6,600 | 12,587 | 0 | -83,772 | -64,585 |
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 |
Comprehensive loss | ' | ' | ' | -1,547,188 | -1,547,188 |
Ending Balance, Amount at Aug. 31, 2011 | 7,197 | 1,683,890 | 0 | -1,630,960 | 60,127 |
Ending Balance, Shares at Aug. 31, 2011 | 7,196,870 | ' | ' | ' | ' |
Common Stock issued for cash, Shares | 2,525,001 | ' | ' | ' | ' |
Common Stock issued for cash, Amount | 2,525 | 2,942,425 | ' | ' | 2,944,950 |
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, Amount | ' | 246,976 | ' | ' | 246,976 |
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 Comprehesive 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 | ' | ' | ' | ' |
Common Stock issued for cash, Shares | 1,880,666 | ' | ' | ' | ' |
Common Stock issued for cash, Amount | 1,881 | 2,175,931 | ' | ' | 2,177,812 |
Issued for services, Shares | 78,534 | ' | ' | ' | ' |
Issued for services, Amount | 78 | 144,922 | ' | ' | 145,000 |
Stock-based compensation granted, Shares | 50,000 | ' | ' | ' | ' |
Stock-based compensation granted, Amount | 50 | 811,615 | ' | ' | 811,665 |
Noncontrolling Interest granted - Nahanni Asset Acquisition | ' | 4,190,643 | ' | ' | 4,190,643 |
Net loss | ' | ' | ' | 3,802,377 | 3,802,377 |
Foreign currency translation | ' | ' | -40,529 | ' | -40,529 |
Total Comprehesive loss | ' | ' | ' | ' | 3,761,848 |
Ending Balance, Amount at Aug. 31, 2013 | $19,488 | $29,153,194 | ($43,488) | ($631,109) | $28,498,085 |
Ending Balance, Shares at Aug. 31, 2013 | 19,487,739 | ' | ' | ' | ' |
1a_NATURE_AND_CONTINUANCE_OF_O
1a. NATURE AND CONTINUANCE OF OPERATIONS | 9 Months Ended | 12 Months Ended | ||||||||||||
31-May-14 | Aug. 31, 2013 | |||||||||||||
Accounting Policies [Abstract] | ' | ' | ||||||||||||
1. NATURE AND CONTINUANCE OF OPERATIONS | ' | ' | ||||||||||||
Unaudited Interim Consolidated Financial Statements | EFLO Energy, 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. During the period from July 18, 2012 through October 17, 2012, the Company acquired working interests totaling 53.65% (including a 100% working interest in one shut in gas well) in the Kotaneelee Gas Project (“KGP”) located on 30,542 gross acres in the Yukon Territory in Canada. (Note 4). | |||||||||||||
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 and nine month periods ended May 31, 2014 are not necessarily indicative of the results that may be expected for the year ending August 31, 2014. | 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 operating losses of $9,652,034 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. | |||||||||||||
Recent Accounting Pronouncements | Restatements | |||||||||||||
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. | During a re-evaluation of the oil and gas assets acquired in the Devon acquisition (see Note 4), 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 | 13,827,001 | |||||||||||
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 | 3,851 | |||||||||||
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 | ||||||||||
1_BASIS_OF_PRESENTATION
1. BASIS OF PRESENTATION | 9 Months Ended | 12 Months Ended | ||||||||||||
31-May-14 | Aug. 31, 2013 | |||||||||||||
Accounting Policies [Abstract] | ' | ' | ||||||||||||
1. BASIS OF PRESENTATION | ' | ' | ||||||||||||
Unaudited Interim Consolidated Financial Statements | EFLO Energy, 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. During the period from July 18, 2012 through October 17, 2012, the Company acquired working interests totaling 53.65% (including a 100% working interest in one shut in gas well) in the Kotaneelee Gas Project (“KGP”) located on 30,542 gross acres in the Yukon Territory in Canada. (Note 4). | |||||||||||||
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 and nine month periods ended May 31, 2014 are not necessarily indicative of the results that may be expected for the year ending August 31, 2014. | 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 operating losses of $9,652,034 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. | |||||||||||||
Recent Accounting Pronouncements | Restatements | |||||||||||||
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. | During a re-evaluation of the oil and gas assets acquired in the Devon acquisition (see Note 4), 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 | 13,827,001 | |||||||||||
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 | 3,851 | |||||||||||
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 | ||||||||||
2a_SUMMARY_OF_SIGNIFICANT_ACCO
2a. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 12 Months Ended |
Aug. 31, 2013 | |
Accounting Policies [Abstract] | ' |
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | ' |
Basis of Presentation | |
These consolidated financial statements include the accounts of the Company and its three wholly owned subsidiaries 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, 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. 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. 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, 2013 and 2012, 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. The Company periodically assesses potential impairment of its unproven properties by applying factors based on historical asset experience, average holding periods for unproven properties and other data such as remaining lease terms, and geological and geophysical information. 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, 2013 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 and the cost or estimated fair value of unproved properties included in the costs being amortized. If net capitalized costs exceed this limit, the excess is charged to expense in the current period. At August 31, 2013 and 2012, the Company recorded no write-downs of the carrying value of its proved oil and gas properties. | |
The Company reviewed its unproven properties for potential impairment as of August 31, 2013 and 2012 and determined that since the estimated fair values of such assets exceeded carrying values no impairment was warranted. The Company did not drill any oil or gas wells during the two years ended August 31, 2013 and 2012. | |
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 leaseholds, which is in compliance with ASC Topic 805. In large part, however, the Company’s acquisitions of the KGP targeted its high-functioning infrastructure which is capable of being conducted and managed as a business in its hands. In connection with its acquisitions, the Company began its pursuit of the KGP’s principal business activities including the production of outputs, which have access to a proven customer base. Accordingly, the Company has recognized the fair value of all the assets acquired and liabilities assumed in connection with its KGP working interest acquisitions. | |
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. | |
Contingencies And Factors Which May Affect Future Operations | |
In the course of business affairs and operations, the Company is subject to possible loss contingencies arising from federal, state and local environmental, health and safety laws and regulations and third party litigation. At August 31, 2013 or 2012, the Company was not party to any legal actions arising incidental to its business nor is it aware of any threatened litigation. There are no matters which, in the opinion of management, will have an adverse effect on the financial position, results of operations or cash flows for the Company. | |
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 the Company’s Canadian subsidiary is the Canadian dollar. Financial statements of the Company's 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. At August 31, 2013 and 2012, the Company had 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. The Company’s Diluted EPS amounts differ from Basic EPS for the year ended ended August 31, 2013, as the Company has adjusted the weighted average number of shares outstanding during that period by 1,411,262 shares of one of the Company’s subsidiaries issued in connection with our acquisition of the KGP, which are exchangeable for 1,614,767 shares of the the Company’s restricted common stock. Our Diluted EPS amounts did not differ from Basic EPS during the year ended August 31, 2012, as we generated net losses during that period. | |
As of August 31, 2013 and 2012, the Company had 1,623,334 and 1,820,204 shares of its common stock available through the exercise of non-dilutive stock warrants, respectively (Note 7). | |
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. |
2_OIL_AND_GAS_PROPERTIES
2. OIL AND GAS PROPERTIES | 9 Months Ended | ||||||||||||
31-May-14 | |||||||||||||
Extractive Industries [Abstract] | ' | ||||||||||||
2. OIL AND GAS PROPERTIES | ' | ||||||||||||
Oil and Gas Acquisition – Kotaneelee Gas Project (the “KGP”) | |||||||||||||
The KGP covers 30,542 gross acres in the Yukon Territory in Canada, and includes; a gas dehydration plant (capacity: 70 MMcf/d), one shut in gas well, one water disposal well (capacity: 6,000 bbl/d), 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 a 24 person permanent camp facility. The KGP gas dehydration plant has a processing capacity of 70 MMcf/d, outlet gas compression of 1,200 psig and is tied-in to a 24-inch gas sales line to a gas processing plant in Fort Nelson, British Columbia. | |||||||||||||
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. | |||||||||||||
On October 17, 2012, the Company completed a Share 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”) which, in addition to the 69.337% working interest acquired from Devon on July 18, 2012, provided us with a 100% interest in one shut in gas well in the KGP. | |||||||||||||
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. | |||||||||||||
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 and the Devon Assets resulted in a valuation of $25,526,554 and $22,103,530, respectively. As a result of the Company’s purchase price allocation, it recognized a gain on bargain purchase of $11,766,787 on the Nahanni Assets. 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 excess of the consideration paid over the estimated fair value of the Devon Assets was $1,194,365. The Company has recorded this amount as goodwill. | |||||||||||||
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 | |||||||||||||
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 and nine month periods ended May 31, 2014, the Company offset $310,741 and $935,064, respectively of lease operating expense, net of oil and gas revenue, into the full cost pool related to its unproven interests. |
3_ASSET_RETIRMENT_OBLIGATIONS
3. ASSET RETIRMENT OBLIGATIONS | 9 Months Ended | 12 Months Ended | ||||||||
31-May-14 | Aug. 31, 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 to its portion of the abandonment, reclamation and environmental liabilities associated with the KGP. | In connection with its acquisition of the Devon Assets and the Nahanni Assets, the Company acquired $7,057,716 and $9,436,526 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 recorded $80,000 in asset retirement obligations related to the future plugging and abandonment of a test well on the San Miguel Lease. At May 31, 2014, 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. | 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 August 31, 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$9,225,000) and delivered a letter of credit in the amount of CAD$4,380,000 (USD$4,041,000) to Devon (the “Devon LOC”). The Company also delivered a letter of credit in the amount of CAD$625,000 (USD$577,000) 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 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 delivered a letter of credit in the amount of CAD$625,000 (USD$624,000) 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 May 31, 2014: | The following table summarizes the Company’s asset retirement obligation transactions for the fiscal years ended August 31, 2013 and 2012: | |||||||||
Asset Retirement Obligations | Asset Retirement Obligations | |||||||||
Balance, August 31, 2012 | $ | 7,137,716 | Balance, August 31, 2011 | $ | 80,000 | |||||
Liabilities incurred (acquired) | 9,436,526 | Liabilities incurred (acquired) | 7,057,716 | |||||||
Accretion expense | 572,508 | Accretion expense | –– | |||||||
Liabilities (settled) | –– | Liabilities (settled) | –– | |||||||
Changes in asset retirement obligations | –– | Changes in asset retirement obligations | –– | |||||||
Balance, August 31, 2013 | 17,146,750 | Balance, August 31, 2012 | 7,137,716 | |||||||
Liabilities incurred (acquired) | –– | Liabilities incurred (acquired) | 9,436,526 | |||||||
Accretion expense | 517,139 | Accretion expense | 572,508 | |||||||
Liabilities (settled) | –– | Liabilities (settled) | –– | |||||||
Changes in asset retirement obligations | –– | Changes in asset retirement obligations | –– | |||||||
Total Balance, May 31, 2014 | $ | 17,663,889 | Total Balance, August 31, 2013 | $ | 17,146,750 | |||||
Total Balance, May 31, 2014 – Current | $ | 80,000 | Total Balance, August 31, 2013 – Current | $ | 80,000 | |||||
Total Balance, May 31, 2014 – Long Term | $ | 17,583,889 | Total Balance, August 31, 2013 – Long Term | $ | 17,066,750 | |||||
3a_FAIR_VALUE_MEASUREMENTS
3a. FAIR VALUE MEASUREMENTS | 12 Months Ended | ||
Aug. 31, 2013 | |||
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 Notes 2 and 4, 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 $476,522 and $2,206,347 at August 31, 2013 and 2012, 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_CONVERTIBLE_NOTES_PAYABLE
4. CONVERTIBLE NOTES PAYABLE | 9 Months Ended | |
31-May-14 | ||
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 “2013 Convertible Notes”), to 22 accredited investors, under the following general terms (the " 2013 Convertible Note Offering"): | ||
● | the maturity date of the 2013 Convertible Notes is April 30, 2015; | |
● | the principal amount of the 2013 Convertible Notes is convertible into shares of the Company’s common stock at a price of $1.00 per share; | |
● | the 2013 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; | |
● | the interest rate payable on the 2013 Convertible Notes will escalate to 12.5% or 15.0% per annum for the entire period during which the 2013 Convertible Notes are outstanding, in the event the Company does not complete its migration to a senior stock exchange (which may include the TSX Venture Exchange in Canada) by July 30, 2014 or October 31, 2014 , respectively, from date of issuance; and | |
● | the Company also issued stock purchase warrants in connection with the 2013 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 2013 Convertible Notes”) at an exercise price of $1.25 per share for a period of three years (the "Stock Purchase Warrants”). | |
In the event the Company completes its migration to a senior stock exchange after July 30, 2014 but before October 31, 2014, the interest the Company will pay on the convertible notes from the date of the issuance until maturity, assuming none of the notes are converted into shares of the Company’s common stock, will be $422,812. | ||
In the event the Company does not complete its migration to a senior stock exchange by October 31, 2014, the interest the Company will pay on the convertible notes from the date of the issuance until maturity, assuming none of the notes are converted into shares of the Company’s common stock, will be $507,375. | ||
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 2013 Convertible Note Offering. In applying the model, the Company used the following parameters: contractual lives of 3 years, historical stock price volatility of 73%, 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 2013 Convertible Notes. During the three and nine month periods ended May 31, 2014, $147,800 and $207,590, respectively, of the 2013 Convertible Note discount was amortized to interest expense. At May 31, 2014, the principal balance on the 2013 Convertible Notes, net of discount was $1,928,787, all of which is considered a current liability. | ||
During the nine months ended May 31, 2014, the Company also paid $176,400 in finder’s fees and recognized $132,148 in interest expense relating to the 2013 Convertible Notes. During the three months ended May 31, 2014, the Company recognized $56,375 in interest expense relating to the 2013 Convertible Notes. |
5_CAPITAL_STOCK_AND_STOCK_BASE
5. CAPITAL STOCK AND STOCK BASED COMPENSATION | 9 Months Ended |
31-May-14 | |
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | ' |
5. CAPITAL STOCK AND STOCK BASED COMPENSATION | ' |
Sales of Common Stock | |
During the three and nine months ended May 31, 2014 fees totaling $52,500 and $157,500, were paid using 61,257 and 161,058 shares of the Company’s restricted common stock, at weighted average prices of $0.857 and $0.978 per share, respectively. During the three and nine months ended May 31, 2013, fees totaling $37,500 and $107,500 were paid using 20,789 and 54,200 shares of the Company’s restricted common stock at weighted average prices of $1.80 and $1.98 per share, respectively. | |
Sale of Convertible Notes | |
On October 30, 2013 the Company issued 2013 Convertible Notes having an aggregate principal amount of $2,255,000. The Company also issued the Stock Purchase Warrants in connection with the 2013 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 2013 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), or such greater number of shares as may be issuable upon election of the interest repayment in common stock under the terms of the 2013 Convertible Notes, have 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 $176,400 in finder’s fees in connection with the 2013 Convertible Note Offering which were expensed as financing costs. | |
Stock-Based Compensation | |
During the three and nine months ended May 31, 2014, the Company recognized $103,928 and $340,432, respectively, of non-cash expense related to stock-based compensation under its 2012 Non-Qualified Stock Option Plan (the “Option Plan”). As of May 31, 2014, $143,474 of total unrecognized compensation cost remains under the Option Plan. Of this amount, $96,676 and $46,798 are expected to be recognized during fiscal 2014, and fiscal 2015, respectively. | |
During the three and nine months ended May 31, 2013, the Company recognized $123,016 and $591,648 respectively, of non-cash expense related to stock-based compensation under the Option Plan. On January 15, 2013, the Company also authorized the issuance of 50,000 bonus shares of its common stock to its new Chief Operating Officer pursuant to the 2012 Stock Bonus Plan. The fair market value of these bonus shares was $97,000 or $1.94 per share at that date. Stock-based compensation recognized during the nine months ended May 31, 2013 also includes $516,919 earned by a company controlled by the Company’s Chief Executive Officer, and its Chief Financial Officer, under the terms of the Finders Fees Agreement (see Note 6). |
6_RELATED_PARTY_TRANSACTIONS
6. RELATED PARTY TRANSACTIONS | 9 Months Ended | 12 Months Ended |
31-May-14 | Aug. 31, 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 nine months ended May 31, 2013, 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 nine months ended May 31, 2014. | In connection with its acquisition of the Devon Assets, the Company acquired $7,057,716 in asset retirement obligations. To secure this 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 also provided 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. Two of the Company’s 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 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. | 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 years ended August 31, 2013 and 2012, finder’s compensation of $844,282 and $755,399 has been accrued under the Finder’s Fee Agreement and recognized as stock based compensation and consulting fees in connection with the Company’s acquisition of the Devon Assets and Nahanni Assets, respectively. | |
Of the fees paid in stock during the three and nine month periods ended May 31, 2014 (see Note 5) consulting fees in the amount of $30,000 and $90,000, respectively, were earned by an entity controlled by the Company’s Chief Executive Officer, and fees in the amounts of $15,000 and $45,000, respectively, were paid to a subsidiary of the Company’s largest shareholder under the terms an administrative services agreement. | During each of the years ended August 31, 2013 and 2012, management fees totaling $240,000, 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 7). 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 $50,000 and $20,000 of this compensation remained unpaid as of August 31, 2013 and 2012, respectively. | |
Of the fees paid in stock during the three and nine month periods ended May 31, 2013, consulting fees in the amounts of $30,000 and $90,000, respectively, were earned by an entity controlled by the Company’s Chief Executive Officer. | During the year ended August 31, 2012, fees totaling $150,900 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. During the year ended August 31, 2013 fees in the amount of $227,272 were paid to that Chief Financial Officer. Of those fees incurred, $9,750 and $28,948 were accrued and unpaid as of August 31, 2013 and 2012, respectively. The fees were incurred as compensation for services rendered in the normal course of operations, were paid at the amount established and agreed to by the related parties, and were approved by the Company’s Board of Directors. | |
The Company’s Chief Executive Officer and President purchased $50,000 in 2013 Convertible Notes (including 25,000 Stock Purchase Warrants) and $150,000 in 2013 Convertible Notes (including 75,000 Stock Purchase Warrants), respectively, in the 2013 Convertible Note Offering (See Note 4). | During the years ended August 31, 2013 and 2012, management fees totaling $108,424 and $23,161, respectively 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. Amounts of $19,220 and $47,106 of fees and reimbursable expenses remained unpaid as of August 31, 2013 and 2012, respectively. | |
During fiscal year 2013, management fees totaling $190,624 were incurred with an entity controlled by the Company’s Chief Operating Officer. The amount of compensation was established and approved by the Company’s Board of Directors. A balance of $13,541 remained unpaid as of August 31, 2013. No such fees were incurred during the year ended August 31, 2012. | ||
7_SUBSEQUENT_EVENTS
7. SUBSEQUENT EVENTS | 9 Months Ended | 12 Months Ended | ||
31-May-14 | Aug. 31, 2013 | |||
Subsequent Events [Abstract] | ' | ' | ||
7. SUBSEQUENT EVENTS | ' | ' | ||
Notes Payable | Sale of Convertible Notes | |||
During June 2014, the Company sold convertible notes having an aggregate principal amount of $1,400,000 (the “2014 Convertible Notes”), to two accredited investors, and one non-accredited investor, under the following general terms (the “2014 Convertible Note Offering”): | 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"): | |||
● | the maturity date of the 2014 Convertible Notes is December 31, 2014; | A. | The maturity date of the Convertible Notes is eighteen months from the date of issuance. | |
● | at the option of the note holder, the principal amount of the 2014 Convertible Notes may be convertible into shares of the Company’s common stock at a price per share to be determined in connection with the Company’s planned offering of shares upon migration to a senior stock exchange (which may include the TSX Venture Exchange in Canada), less a 10% discount (the “2014 Conversion Right”); | 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. | |
P | ||||
● | a 6% financing fee on the principal sum of the 2014 Convertible Notes, is payable: | 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. | |
a. | in the event the note holder exercises its 2014 Conversion Right, in 69,422 shares of the Company’s common stock; or | D. | The interest rate payable on the Convertible Notes is subject escalation 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. | |
b. | in the event the note holder does not exercise its 2014 Conversion Right, at the option of the note holder, in cash or in 69,422 shares of the Company’s common stock. | 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 2014 Convertible Notes are non-interest bearing so long as they are paid or converted prior to December 31, 2014. In the event of default, or if a 2014 Convertible Note is not paid, or converted on or before December 31, 2014: | 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), 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. | ||
a. | the notes will bear interest at 10% per annum, payable monthly; and | The Company relied upon the exemption provided by Section 4(2) of the Securities Act of 1933 with respect to the sale of Convertible Notes and Stock Purchase Warrants. The note holders were sophisticated investors who were provided full information regarding its business and operations. There was no general solicitation in connection with the offer or sale of these securities. The certificates representing the Convertible Notes and Stock Purchase Warrants bear a restricted legend providing that they cannot be sold unless pursuant to an effective registration statement or an exemption from registration. Any of the Company’s shares issued in connection with conversion or exercise of these securities will be similarly restricted. The Company paid $176,400 in finder’s fees with respect to the Convertible Note Offering. | ||
b. | an additional 4% financing fee (the Default Financing Fee) on the then outstanding principal balance of the 2014 Convertible Notes shall become due and payable. The Company is obligated to pay the Default Financing Fee in common shares at a conversion price equal to the closing market price of the common shares on the date of an event of default, or December 31, 2014, whichever is earliest. | Entities controlled by the Company’s Chief Executive Officer and President acquired $50,000 and $150,000 in Convertible Notes, and 25,000 and 75,000 Stock Purchase Warrants, respectively, in the Convertible Note Offering under these terms. | ||
Companies affiliated with the Company’s Chairman and one of its Directors purchased $1,000,000 and $350,000 in 2014 Convertible Notes, respectively, in the 2014 Convertible Note Offering. | ||||
Unregistered Sales of Securities | ||||
On June 2, 2014, $25,000 in principal payable on the 2013 Convertible Notes was converted to 25,000 shares of the Company’s common stock at a conversion price of $1.00 per share. | ||||
On June 2, 2014 James Hutton resigned as the Company’s President. On that date, $54,350 in fees remained payable to Hutton Capital Corp. (“Hutton Capital”), an entity controlled by Mr. Hutton. The Company issued Hutton Capital 67,938 shares of its restricted common stock in payment of those fees. The Company also granted Hutton Capital 100,000 shares of its common stock as additional compensation for Mr. Hutton’s efforts while serving as its President. On June 2, 2014, the closing price of the Company’s common stock was $0.80 per share. | ||||
During June 2014, the Company sold an aggregate principal amount of $1,400,000 in connection with the 2014 Convertible Note Offering (see discussion above). | ||||
The Company relied upon the exemption provided by Section 4(2) of the Securities Act of 1933 with respect to the sale of these securities. | ||||
8_INCOME_TAXES
8. INCOME TAXES | 12 Months Ended | |||||||||||||||
Aug. 31, 2013 | ||||||||||||||||
Income Tax Disclosure [Abstract] | ' | |||||||||||||||
8. 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: | ||||||||||||||||
Statutory tax rates | ||||||||||||||||
Canadian | United States | Canadian | United States | |||||||||||||
Year Ended | Year Ended | Year Ended | Year Ended | |||||||||||||
August 31, | August 31, | August 31, | August 31, | |||||||||||||
2013 | 2013 | 2012 | 2012 | |||||||||||||
Restated | Restated | |||||||||||||||
Net income (loss) before taxes | $ | 10,511,160 | $ | (3,928,955 | ) | $ | (60,775 | ) | $ | (2,744,7108 | ) | |||||
Statutory tax rates | 30 | % | 35 | % | 30 | % | 35 | % | ||||||||
Computed tax benefit (provision) at statuary rates | (3,153,348 | ) | 1,375,134 | 18,233 | 960,649 | |||||||||||
Net Operating Loss Carry Forward | 373,499 | 1,515,240 | --- | --- | ||||||||||||
Valuation Allowance | --- | (2,890,374 | ) | (18,233 | ) | (960,649 | ) | |||||||||
Provision for income taxes | $ | (2,779,849 | ) | $ | –– | $ | –– | $ | –– | |||||||
The significant components of deferred income tax assets and liabilities at August 31, 2013 and 2012 are as follows: | ||||||||||||||||
Canadian | United States | Canadian | United States | |||||||||||||
Year Ended | Year Ended | Year Ended August 31, | Year Ended | |||||||||||||
August 31, | August 31, | 2012 | August 31, | |||||||||||||
2013 | 2013 | 2012 | ||||||||||||||
Restated | Restated | |||||||||||||||
Deferred income tax assets: | ||||||||||||||||
Impairment | $ | --- | $ | 307,998 | $ | --- | $ | 307,998 | ||||||||
Organization costs | --- | 68,312 | --- | 76,732 | ||||||||||||
Accrued salaries | --- | 36,242 | --- | --- | ||||||||||||
US net operating loss carryforwards | --- | 1,339,258 | --- | 545,564 | ||||||||||||
Canadian net operating loss carryforwards | 517,585 | --- | 18,233 | --- | ||||||||||||
Stock Compensation | --- | 1,138,564 | --- | 599,273 | ||||||||||||
Total deferred income tax assets | 517,585 | 2,890,374 | 18,233 | 1,529,567 | ||||||||||||
Deferred income tax liabilities: | ||||||||||||||||
Gain on acquisition of assets | $ | (3,297,434 | ) | $ | --- | $ | --- | $ | --- | |||||||
Total deferred income tax liabilities | (3,297,434 | ) | --- | --- | --- | |||||||||||
Total net deferred income tax asset (liability) | $ | (2,779,849 | ) | $ | 2,890,374 | $ | 18,233 | $ | 1,529,567 | |||||||
Less: valuation allowance | --- | (2,890,374 | ) | (18,233 | ) | (1,529,567 | ) | |||||||||
Deferred income tax asset (liability) | $ | (2,779,849 | ) | $ | --- | $ | --- | $ | --- | |||||||
During the year ended August 31, 2013, a gain on bargain purchase of $11,766,787 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. See Note 4 for additional information regarding the purchase of assets and the related gain. This gain was not recognized for tax purposes. | ||||||||||||||||
At August 31, 2013, the Company has accumulated United States non-capital loss carry-forwards of approximately $3,826,451. At August 31, 2012, the Company had accumulated United States non-capital loss carry-forwards of approximately $1,558,755. The United States loss carry-forwards begin to expire in 2032. | ||||||||||||||||
At August 31, 2013, the Company has accumulated Canadian non-capital loss carry-forwards of approximately $1,725,284. At August 31, 2012, the Company has Canadian non-capital loss carry-forwards of approximately $60,775. The Canadian loss carry-forwards begin to expire in 2019. | ||||||||||||||||
Deferred tax assets have resulted primarily from the Company’s future deductible temporary differences. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion, or all, of the deferred tax asset will be realized. | ||||||||||||||||
The Company’s ability to realize its deferred tax assets depends upon the generation of sufficient future taxable income to allow the utilization of its deductible temporary differences and tax planning strategies. If such estimates and related assumptions change in the future, the Company may be required to record a valuation allowance against its deferred tax asset. Management evaluates the realizablity of the deferred tax assets and the need for a valuation allowance periodically. At this time, based on current facts and circumstances, management believes that it is more likely than not that the Company will realize benefit from its gross deferred tax assets. | ||||||||||||||||
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. |
2_SUMMARY_OF_SIGNIFICANT_ACCOU
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) | 12 Months Ended |
Aug. 31, 2013 | |
Summary Of Significant Accounting Policies Policies | ' |
Basis of Presentation | ' |
Basis of Presentation | |
These consolidated financial statements include the accounts of the Company and its three wholly owned subsidiaries 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, 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. 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. 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, 2013 and 2012, 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. The Company periodically assesses potential impairment of its unproven properties by applying factors based on historical asset experience, average holding periods for unproven properties and other data such as remaining lease terms, and geological and geophysical information. 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, 2013 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 and the cost or estimated fair value of unproved properties included in the costs being amortized. If net capitalized costs exceed this limit, the excess is charged to expense in the current period. At August 31, 2013 and 2012, the Company recorded no write-downs of the carrying value of its proved oil and gas properties. | |
The Company reviewed its unproven properties for potential impairment as of August 31, 2013 and 2012 and determined that since the estimated fair values of such assets exceeded carrying values no impairment was warranted. The Company did not drill any oil or gas wells during the two years ended August 31, 2013 and 2012. | |
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 leaseholds, which is in compliance with ASC Topic 805. In large part, however, the Company’s acquisitions of the KGP targeted its high-functioning infrastructure which is capable of being conducted and managed as a business in its hands. In connection with its acquisitions, the Company began its pursuit of the KGP’s principal business activities including the production of outputs, which have access to a proven customer base. Accordingly, the Company has recognized the fair value of all the assets acquired and liabilities assumed in connection with its KGP working interest acquisitions. | |
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. | |
Contingencies And Factors Which May Affect Future Operations | ' |
Contingencies And Factors Which May Affect Future Operations | |
In the course of business affairs and operations, the Company is subject to possible loss contingencies arising from federal, state and local environmental, health and safety laws and regulations and third party litigation. At August 31, 2013 or 2012, the Company was not party to any legal actions arising incidental to its business nor is it aware of any threatened litigation. There are no matters which, in the opinion of management, will have an adverse effect on the financial position, results of operations or cash flows for the Company. | |
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 the Company’s Canadian subsidiary is the Canadian dollar. Financial statements of the Company's 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. At August 31, 2013 and 2012, the Company had 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. The Company’s Diluted EPS amounts differ from Basic EPS for the year ended ended August 31, 2013, as the Company has adjusted the weighted average number of shares outstanding during that period by 1,411,262 shares of one of the Company’s subsidiaries issued in connection with our acquisition of the KGP, which are exchangeable for 1,614,767 shares of the the Company’s restricted common stock. Our Diluted EPS amounts did not differ from Basic EPS during the year ended August 31, 2012, as we generated net losses during that period. | |
As of August 31, 2013 and 2012, the Company had 1,623,334 and 1,820,204 shares of its common stock available through the exercise of non-dilutive stock warrants, respectively (Note 7). | |
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. |
1a_NATURE_AND_CONTINUANCE_OF_O1
1a. NATURE AND CONTINUANCE OF OPERATIONS (Tables) | 12 Months Ended | ||||||||||||
Aug. 31, 2013 | |||||||||||||
A. Nature And Continuance Of Operations Tables | ' | ||||||||||||
Restatements | ' | ||||||||||||
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 | 13,827,001 | ||||||||||
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 | 3,851 | ||||||||||
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_OIL_AND_GAS_PROPERTIES_Table
2. OIL AND GAS PROPERTIES (Tables) | 9 Months Ended | 12 Months Ended | ||||||||||||||||||||||||
31-May-14 | Aug. 31, 2013 | |||||||||||||||||||||||||
Oil And Gas Properties Tables | ' | ' | ||||||||||||||||||||||||
Schedule of Oil and Gas Acquisition | ' | ' | ||||||||||||||||||||||||
Fair Value of Assets Acquired | Fair Value of Assets Acquired (as restated) | |||||||||||||||||||||||||
Nahanni Assets | Devon Assets | Total | Nahanni Assets | Devon Assets | Total | |||||||||||||||||||||
Asset Description | Asset Description | (Restated) | ||||||||||||||||||||||||
Unproven Properties | Unproven Properties | |||||||||||||||||||||||||
Unproved leasehold costs | $ | 14,548,787 | $ | 13,827,001 | $ | 28,375,788 | Unproved leasehold costs | $ | 14,548,787 | $ | 13,827,001 | $ | 28,375,788 | |||||||||||||
Plant and equipment | 8,594,362 | 6,484,001 | 15,078,363 | Plant and equipment | 8,594,362 | 6,484,001 | 15,078,363 | |||||||||||||||||||
Gathering systems | 2,383,405 | 1,788,001 | 4,171,406 | Gathering systems | 2,383,405 | 1,788,001 | 4,171,406 | |||||||||||||||||||
Vehicles | – | 4,527 | 4,527 | Vehicles | – | 4,527 | 4,527 | |||||||||||||||||||
25,526,554 | 22,103,530 | 47,630,084 | Unproven Properties | 25,526,554 | 22,103,530 | 47,630,084 | ||||||||||||||||||||
Goodwill | – | 1,194,365 | 1,194,365 | Goodwill | – | 1,194,365 | 1,194,365 | |||||||||||||||||||
Total Assets Acquired - KGP | $ | 25,526,554 | $ | 23,297,895 | $ | 48,824,449 | Total Assets Acquired - KGP | $ | 25,526,554 | $ | 23,297,895 | $ | 48,824,449 | |||||||||||||
Capitalized acquisition, exploration and development costs | ' | ' | ||||||||||||||||||||||||
KGP – Unproven Properties | ||||||||||||||||||||||||||
Balance, August 31, 2011 | $ | –– | ||||||||||||||||||||||||
Acquisition costs | 22,103,530 | |||||||||||||||||||||||||
Expenditures on oil and gas properties | 3,851 | |||||||||||||||||||||||||
Depletion and depreciation | –– | |||||||||||||||||||||||||
Oil and gas property impairment | –– | |||||||||||||||||||||||||
Balance, August 31, 2012 | 22,107,381 | |||||||||||||||||||||||||
Acquisition costs | 25,526,554 | |||||||||||||||||||||||||
Expenditures on oil and gas properties | 1,264,037 | |||||||||||||||||||||||||
Depletion and depreciation | –– | |||||||||||||||||||||||||
Oil and gas property impairment | –– | |||||||||||||||||||||||||
Balance, August 31, 2013 | $ | 48,897,972 | ||||||||||||||||||||||||
Total Unproven Properties | 2013 | 2012 | August 31, | |||||||||||||||||||||||
2013 | ||||||||||||||||||||||||||
Unproved properties acquired | $ | 25,526,554 | $ | 22,103,530 | $ | 47,630,084 | ||||||||||||||||||||
Unproven development costs | 1,264,031 | 3,851 | 1,267,882 | |||||||||||||||||||||||
Total unproven costs | $ | 26,790,585 | $ | 22,107,381 | $ | 48,897,966 |
3_ASSET_RETIREMENT_OBLIGATIONS
3. ASSET RETIREMENT OBLIGATIONS (Tables) | 9 Months Ended | 12 Months Ended | ||||||||
31-May-14 | Aug. 31, 2013 | |||||||||
BalanceEnding1 | ' | ' | ||||||||
Schedule of Asset Retirement Obligation | ' | ' | ||||||||
The following table summarizes amounts comprising the Company’s asset retirement obligations as of May 31, 2014: | Asset Retirement Obligations | |||||||||
Balance, August 31, 2011 | $ | 80,000 | ||||||||
Asset Retirement Obligations | Liabilities incurred (acquired) | 7,057,716 | ||||||||
Balance, August 31, 2012 | $ | 7,137,716 | Accretion expense | –– | ||||||
Liabilities incurred (acquired) | 9,436,526 | Liabilities (settled) | –– | |||||||
Accretion expense | 572,508 | Changes in asset retirement obligations | –– | |||||||
Liabilities (settled) | –– | Balance, August 31, 2012 | 7,137,716 | |||||||
Changes in asset retirement obligations | –– | Liabilities incurred (acquired) | 9,436,526 | |||||||
Balance, August 31, 2013 | 17,146,750 | Accretion expense | 572,508 | |||||||
Liabilities incurred (acquired) | –– | Liabilities (settled) | –– | |||||||
Accretion expense | 517,139 | Changes in asset retirement obligations | –– | |||||||
Liabilities (settled) | –– | Total Balance, August 31, 2013 | $ | 17,146,750 | ||||||
Changes in asset retirement obligations | –– | Total Balance, August 31, 2013 – Current | $ | 80,000 | ||||||
Total Balance, May 31, 2014 | $ | 17,663,889 | Total Balance, August 31, 2013 – Long Term | $ | 17,066,750 | |||||
Total Balance, May 31, 2014 – Current | $ | 80,000 | ||||||||
Total Balance, May 31, 2014 – Long Term | $ | 17,583,889 | ||||||||
8_INCOME_TAXES_Tables
8. INCOME TAXES (Tables) | 12 Months Ended | |||||||||||||||
Aug. 31, 2013 | ||||||||||||||||
Income Taxes Tables | ' | |||||||||||||||
Provision for Federal income tax | ' | |||||||||||||||
Canadian | United States | Canadian | United States | |||||||||||||
Year Ended | Year Ended | Year Ended | Year Ended | |||||||||||||
August 31, | August 31, | August 31, | August 31, | |||||||||||||
2013 | 2013 | 2012 | 2012 | |||||||||||||
Restated | Restated | |||||||||||||||
Net income (loss) before taxes | $ | 10,511,160 | $ | (3,928,955 | ) | $ | (60,775 | ) | $ | (2,744,7108 | ) | |||||
Statutory tax rates | 30 | % | 35 | % | 30 | % | 35 | % | ||||||||
Computed tax benefit (provision) at statuary rates | (3,153,348 | ) | 1,375,134 | 18,233 | 960,649 | |||||||||||
Net Operating Loss Carry Forward | 373,499 | 1,515,240 | --- | --- | ||||||||||||
Valuation Allowance | --- | (2,890,374 | ) | (18,233 | ) | (960,649 | ) | |||||||||
Provision for income taxes | $ | (2,779,849 | ) | $ | –– | $ | –– | $ | –– | |||||||
Net deferred tax assets | ' | |||||||||||||||
Canadian | United States | Canadian | United States | |||||||||||||
Year Ended | Year Ended | Year Ended August 31, 2012 | Year Ended | |||||||||||||
August 31, | August 31, | August 31, | ||||||||||||||
2013 | 2013 | 2012 | ||||||||||||||
Restated | Restated | |||||||||||||||
Deferred income tax assets: | ||||||||||||||||
Impairment | $ | --- | $ | 307,998 | $ | --- | $ | 307,998 | ||||||||
Organization costs | --- | 68,312 | --- | 76,732 | ||||||||||||
Accrued salaries | --- | 36,242 | --- | --- | ||||||||||||
US net operating loss carryforwards | --- | 1,339,258 | --- | 545,564 | ||||||||||||
Canadian net operating loss carryforwards | 517,585 | --- | 18,233 | --- | ||||||||||||
Stock Compensation | --- | 1,138,564 | --- | 599,273 | ||||||||||||
Total deferred income tax assets | 517,585 | 2,890,374 | 18,233 | 1,529,567 | ||||||||||||
Deferred income tax liabilities: | ||||||||||||||||
Gain on acquisition of assets | $ | (3,297,434 | ) | $ | --- | $ | --- | $ | --- | |||||||
Total deferred income tax liabilities | (3,297,434 | ) | --- | --- | --- | |||||||||||
Total net deferred income tax asset (liability) | $ | (2,779,849 | ) | $ | 2,890,374 | $ | 18,233 | $ | 1,529,567 | |||||||
Less: valuation allowance | --- | (2,890,374 | ) | (18,233 | ) | (1,529,567 | ) | |||||||||
Deferred income tax asset (liability) | $ | (2,779,849 | ) | $ | --- | $ | --- | $ | --- |
2_OIL_AND_GAS_PROPERTIES_Detai
2. OIL AND GAS PROPERTIES (Details) (USD $) | 31-May-14 | Aug. 31, 2013 |
Unproven Properties | ' | ' |
Unproved Leasehold costs | $28,375,788 | $28,375,788 |
Plant and equipment | 15,078,363 | 15,078,363 |
Gathering systems | 4,171,406 | 4,171,406 |
Vehicles | 4,527 | 4,527 |
Subtotal | 47,630,084 | 47,630,084 |
Goodwill | 1,194,365 | 1,194,365 |
Total Assets Acquired - KGP | 48,824,449 | 48,824,449 |
Nahanni Assets | ' | ' |
Unproven Properties | ' | ' |
Unproved Leasehold costs | 14,548,787 | 14,548,787 |
Plant and equipment | 8,594,362 | 8,594,362 |
Gathering systems | 2,383,405 | 2,383,405 |
Vehicles | 0 | 0 |
Subtotal | 25,526,554 | 25,526,554 |
Goodwill | 0 | 0 |
Total Assets Acquired - KGP | 25,526,554 | 25,526,554 |
Devon Assets | ' | ' |
Unproven Properties | ' | ' |
Unproved Leasehold costs | 13,827,001 | 13,827,001 |
Plant and equipment | 6,484,001 | 6,484,001 |
Gathering systems | 1,788,001 | 1,788,001 |
Vehicles | 4,527 | 4,527 |
Subtotal | 22,103,530 | 22,103,530 |
Goodwill | 1,194,365 | 1,194,365 |
Total Assets Acquired - KGP | $23,297,895 | $23,297,895 |
3_ASSET_RETIREMENT_OBLIGATIONS1
3. ASSET RETIREMENT OBLIGATIONS (Details) (USD $) | 9 Months Ended | 12 Months Ended | |
31-May-14 | Aug. 31, 2013 | Aug. 31, 2012 | |
Asset Retirement Obligations | ' | ' | ' |
Asset Retirement Obligation, Beginning | $17,146,750 | $7,137,716 | $80,000 |
Liabilities incurred (acquired) | 0 | 9,436,526 | 7,057,716 |
Accretion expense | 517,139 | 572,508 | 0 |
Liabilities (settled) | 0 | 0 | 0 |
Changes in asset retirement obligations | 0 | 0 | 0 |
Asset Retirement Obligation, Ending | 17,663,889 | 17,146,750 | 7,137,716 |
Total Balance, May 31, 2014 - Current | 80,000 | 80,000 | 80,000 |
Total Balance, May 31, 2014 - Long Term | $17,583,889 | $17,066,750 | $7,057,716 |
6_RELATED_PARTY_TRANSACTIONS_D
6. RELATED PARTY TRANSACTIONS (Details Narrative) (USD $) | 9 Months Ended | |
31-May-14 | 31-May-13 | |
Related Party Transactions Details Narrative | ' | ' |
Finder's compensation accrued | $0 | $755,399 |
2_OIL_AND_GAS_PROPERTIES_Capit
2. OIL AND GAS PROPERTIES: Capitalized acquisition, exploration and development costs (Details) (USD $) | 3 Months Ended | 9 Months Ended | 12 Months Ended | 24 Months Ended | 70 Months Ended | |||
31-May-14 | 31-May-13 | 31-May-14 | 31-May-13 | Aug. 31, 2013 | Aug. 31, 2012 | Aug. 31, 2013 | 31-May-14 | |
Acquisition costs (unproved properties) | ' | ' | ' | ' | $25,526,554 | $22,103,530 | $47,630,084 | ' |
Oil and gas property impairment | 0 | 0 | 0 | 0 | 0 | 44,335 | ' | 879,994 |
KGP | ' | ' | ' | ' | ' | ' | ' | ' |
KGP b Unproven Properties, beginning balance | ' | ' | ' | 22,107,381 | 22,107,381 | 0 | 0 | ' |
Acquisition costs (unproved properties) | ' | ' | ' | ' | 25,526,554 | 22,103,530 | ' | ' |
Expenditures on oil and gas properties | ' | ' | ' | ' | 1,264,037 | 3,851 | ' | ' |
Depletion and depreciation | ' | ' | ' | ' | 0 | 0 | ' | ' |
Oil and gas property impairment | ' | ' | ' | ' | 0 | 0 | ' | ' |
KGP b Unproven Properties, ending balance | ' | ' | ' | ' | $48,897,972 | $22,107,381 | $48,897,972 | ' |
2_OIL_AND_GAS_PROPERTIES_Total
2. OIL AND GAS PROPERTIES - Total Unproven Properties (Details) (USD $) | 12 Months Ended | 24 Months Ended | |
Aug. 31, 2013 | Aug. 31, 2012 | Aug. 31, 2013 | |
Oil And Gas Properties - Total Unproven Properties Details | ' | ' | ' |
Acquisition costs (unproved properties) | $25,526,554 | $22,103,530 | $47,630,084 |
Unproven development costs | 1,264,031 | 3,851 | 1,267,882 |
Total unproven costs | $26,790,585 | $22,107,381 | $48,897,966 |
6_RELATED_PARTY_TRANSACTIONS_D1
6. RELATED PARTY TRANSACTIONS (Details Narrative 1) (USD $) | 12 Months Ended | |
Aug. 31, 2013 | Aug. 31, 2012 | |
Chief Executive Officer Finders Fee | ' | ' |
Related party transaction | $258,495 | $281,399 |
Chief Financial Officer Finders Fee | ' | ' |
Related party transaction | 258,421 | 281,421 |
Entity controlled by the Company Chief Executive Officer | ' | ' |
Related party transaction | 240,000 | 240,000 |
Compensation/fees unpaid, owed to related party | 50,000 | 20,000 |
Director who became the Company Chief Financial Officer | ' | ' |
Related party transaction | 227,272 | 150,900 |
Compensation/fees unpaid, owed to related party | 9,750 | 28,948 |
Entity controlled by the Company President | ' | ' |
Related party transaction | 108,424 | 23,161 |
Compensation/fees unpaid, owed to related party | 19,220 | 47,106 |
Chief Operating Officer | ' | ' |
Management fees | 190,624 | ' |
Management fees accrued but not yet paid | $13,541 | ' |
7_CAPITAL_STOCK_AND_STOCKBASED
7. CAPITAL STOCK AND STOCK-BASED COMPENSATION (Details) (USD $) | 3 Months Ended |
Aug. 31, 2013 | |
Stock Option A | Chief Operating Officer [Member] | ' |
Outstanding, ending | 100,000 |
Weighted Average Exercise Price Outstanding, Ending | $2.30 |
Vesting period | '0 days |
First Date Exercisable | '1/15/2013 |
Expiration Date | '1/15/2015 |
Stock Option B | Chief Operating Officer [Member] | ' |
Outstanding, ending | 100,000 |
Weighted Average Exercise Price Outstanding, Ending | $2.50 |
Vesting period | '1 year |
First Date Exercisable | '1/14/2014 |
Expiration Date | '1/15/2016 |
Stock Option C | Chief Operating Officer [Member] | ' |
Outstanding, ending | 100,000 |
Weighted Average Exercise Price Outstanding, Ending | $2.75 |
Vesting period | '2 years |
First Date Exercisable | '1/14/2015 |
Expiration Date | '1/15/2017 |
Stock Option D | Chief Operating Officer [Member] | ' |
Outstanding, ending | 100,000 |
Weighted Average Exercise Price Outstanding, Ending | $3 |
Vesting period | '2 years 6 months |
First Date Exercisable | '7/14/2015 |
Expiration Date | '7/15/2017 |
Chief Operating Officer [Member] | ' |
Outstanding, ending | 400,000 |
7_CAPITAL_STOCK_AND_STOCKBASED1
7. CAPITAL STOCK AND STOCK-BASED COMPENSATION (Details 1) (Granted to Officers, Directors, and Consultants, USD $) | 0 Months Ended |
Aug. 31, 2012 | |
Outstanding, ending | 1,200,000 |
Stock Option 1 | ' |
Outstanding, ending | 300,000 |
Weighted Average Exercise Price Outstanding, Ending | $2.15 |
Vesting period | '0 days |
First Date Exercisable | '8/27/2012 |
Expiration Date | '8/27/2014 |
Stock Option 2 | ' |
Outstanding, ending | 300,000 |
Weighted Average Exercise Price Outstanding, Ending | $2.30 |
Vesting period | '6 months |
First Date Exercisable | '2/27/2013 |
Expiration Date | '8/27/2014 |
Stock Option 3 | ' |
Outstanding, ending | 300,000 |
Weighted Average Exercise Price Outstanding, Ending | $2.50 |
Vesting period | '2 years |
First Date Exercisable | '8/27/2014 |
Expiration Date | '8/27/2017 |
Stock Option 4 | ' |
Outstanding, ending | 300,000 |
Weighted Average Exercise Price Outstanding, Ending | $2.65 |
Vesting period | '2 years |
First Date Exercisable | '8/27/2014 |
Expiration Date | '8/27/2017 |
7_CAPITAL_STOCK_AND_STOCK_BASE
7. CAPITAL STOCK AND STOCK BASED COMPENSATION (Details 2) (Stock Option, USD $) | 12 Months Ended | |
Aug. 31, 2013 | Aug. 31, 2012 | |
Stock Option | ' | ' |
Outstanding, beginning | 1,200 | 0 |
Number of Options Granted | 400 | 1,200 |
Number of Options Exercised | 0 | 0 |
Number of Options Forfeited or Expired | 0 | 0 |
Outstanding, ending | 1,600 | 1,200 |
Number of Options Exercisable | 300 | ' |
Weighted Average Exercise Price Outstanding, Beginning | $2.40 | $0 |
Weighted Average Exercise Price Granted | $2.64 | $2.40 |
Weighted Average Exercise Price Exercised | $0 | $0 |
Weighted Average Exercise Price Forfeited or Expired | $0 | $0 |
Weighted Average Exercise Price Outstanding, Ending | $2.46 | $2.40 |
Weighted Average Exercise Price Exercisable | $2.24 | ' |
Weighted Average Remaining Contractual Life (in years) Outstanding | '3 years 8 months 5 days | '3 years 5 months 26 days |
Weighted Average Remaining Contractual Life (in years) Exercisable | '1 year 14 days | ' |
Aggregate Intrinsic Value Outstanding | $0 | $0 |
Aggregate Intrinsic Value Exercisable | $0 | ' |
7_CAPITAL_STOCK_AND_STOCK_BASE1
7. CAPITAL STOCK AND STOCK BASED COMPENSATION (Details Narrative) (USD $) | 12 Months Ended | |
Aug. 31, 2013 | Aug. 31, 2012 | |
Non-cash expense related to stock-based compensation | $714,665 | $246,976 |
Unrecognized compensation cost remaining under Option Plan | 483,905 | ' |
Fees paid with restricted common stock paid to related party | $120,000 | $323,548 |
Restricted stock shares issued in payment for fees | 64,344 | 160,360 |
weighted-average grant-date fair value of options granted | $0.94 | $0.78 |
Warrants | ' | ' |
Warrant outstanding | 23,334 | ' |
Warrrants remaining life | '2 months | ' |
Warrants issued | 0 | 23,334 |
Warrants forfeited | 596,870 | 0 |
8_INCOME_TAXES_Details
8. INCOME TAXES (Details) (USD $) | 12 Months Ended | |||
Aug. 31, 2013 | Aug. 31, 2012 | Aug. 31, 2013 | Aug. 31, 2012 | |
Canadian | Canadian | United States | United States | |
As Restated | As Restated | |||
Net income (loss) before taxes | $10,511,160 | ($60,775) | ($3,928,955) | ($27,447,108) |
Statutory tax rates | 30.00% | 30.00% | 35.00% | 35.00% |
Computed tax benefit (provision) at statuary rates | -3,153,348 | 18,233 | 1,375,134 | 960,649 |
Net Operating Loss Carry Forward | 373,499 | 0 | 1,515,240 | 0 |
Valuation Allowance | 0 | -18,233 | -2,904,701 | -960,649 |
Provision for income taxes | ($2,779,849) | $0 | $0 | $0 |
8_INCOME_TAXES_Details_1
8. INCOME TAXES (Details 1) (USD $) | Aug. 31, 2013 | Aug. 31, 2012 | Aug. 31, 2013 | Aug. 31, 2012 |
Canadian | Canadian | United States | United States | |
As Restated | As Restated | |||
Deferred income tax assets: | ' | ' | ' | ' |
Impairment | $0 | $0 | $307,998 | $307,998 |
Organization costs | 0 | 0 | 68,312 | 76,732 |
Accrued salaries | 0 | 0 | 36,242 | 0 |
US net operating loss carryforwards | 0 | 0 | 1,339,258 | 545,564 |
Canadian net operating loss carryforwards | 517,585 | 18,233 | 0 | 0 |
Stock Compensation | 0 | 0 | 1,138,564 | 599,273 |
Total deferred income tax assets | 517,585 | 18,233 | 2,904,701 | 1,529,567 |
Deferred income tax liabilities: | ' | ' | ' | ' |
Gain on acquisition of assets | -3,297,434 | 0 | 0 | 0 |
Total deferred income tax liabilities | -3,297,434 | 0 | 0 | 0 |
Total net deferred income tax asset (liability) | -2,779,849 | 1,823 | 2,890,374 | 1,529,567 |
Less: valuation allowance | 0 | -18,233 | -2,890,374 | -1,529,567 |
Deferred income tax asset (liability) | ($2,779,849) | $0 | $0 | $0 |