| 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | Revision of prior period financial
statements In November 2015,
during the preparation of our condensed financial statements, the Company discovered an error in the computation of impairment
of Oklahoma properties for the quarterly period ended June 30, 2015. Specifically, the impairment calculation included
in the Companys financial statements for period ended June 30, 2015 did not take into account previously recorded impairment
on the Oklahoma properties resulting in improper recording of $1,350,000 in impairment which was the entirety of the impairment
recorded in the quarterly period ended June 30, 2015. The changes in the impairment resulted in a non-cash reduction
of the loss to the financial statements. The Company has determined that the impact of non-cash item on its quarterly
financial statements for the quarter ended June 30, 2015 to be sufficiently material to warrant restatement of the Companys
Quarterly Report on Form 10-Q. The line items that have been amended
and restated are set forth below: Balance Sheets
June 30, 2015
As Previously
Reported Adjustment As Restated
ASSETS
Oil and natural gas properties, successful efforts method, net of accumulated depletion $ 88,955 1,350 $ 90,305
Total oil and natural gas properties and other equipment, net
Total assets $ 96,809 1,350 $ 98,159
LIABILITIES AND STOCKHOLDERS' EQUITY
Accumulated deficit $ (19,176 ) 1,350 $ (17,826 )
Total stockholders' equity 37,469 1,350 38,819
Total liabilities and stockholders' equity $ 96,809 1,350 $ 98,159 Statements of Operations
Three Months Ended June 30, 2015 Six Months Ended June 30, 2015
As Previously As Previously
Reported Adjustment As Restated Reported Adjustment As Restated
Impairment of oil and gas properties $ 1,350 (1,350 ) $ - $ 1,350 (1,350 ) $ -
Net income (loss) $ (2,354 ) 1,350 $ (1,004 ) $ (5,043 ) 1,350 $ (3,693 )
Net income (loss) per basic and diluted common share $ (0.19 ) $ (0.08 ) $ (0.40 ) $ (0.29 Statements of Cash Flows
Six Months Ended June 30, 2015
As Previously
Reported Adjustment As Restated
Net loss $ (5,043 ) 1,350 $ (3,693 )
Impairment of oil and gas properties 1,350 (1,350 ) $ - Basis of Presentation The condensed consolidated
financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America
(GAAP). Additionally, the accompanying unaudited condensed consolidated financial statements as of September 30,
2015 and for the nine months ended September 30, 2015 and 2014 have been prepared in accordance with accounting principles generally
accepted in the United States of America for interim financial statements and with the instructions to Form 10-Q, and reflect,
in the opinion of management, all adjustments, which are of a normal and recurring nature, necessary for a fair presentation of
the results for such periods. Operating results for the nine months ended September 30, 2015 are not necessarily indicative of
the results that may be expected for the year ending December 31, 2015. Certain information and footnote disclosures normally included
in the consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted in this Form 10-Q
pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). These consolidated financial
statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Form
10-K for the year ended December 31, 2014. Principles of Consolidation The accompanying
condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, ImPetro Resources,
LLC (ImPetro) and ImPetro Operating (Operating) (Collectively the Company). All intercompany
transactions and balances have been eliminated in consolidation. Oil and Gas Natural Gas Properties The Company uses
the successful efforts method of accounting for oil and natural gas producing activities, as further defined under ASC 932, Extractive
Activities - Oil and Natural Gas Exploratory drilling
costs are capitalized when incurred pending the determination of whether a well has found proved reserves. A determination
of whether a well has found proved reserves is made shortly after drilling is completed. The determination is based
on a process that relies on interpretations of available geologic, geophysic and engineering data. If a well is determined
to be successful, the capitalized drilling costs will be reclassified as part of the cost of the well. Capitalized costs
of producing oil and natural gas interests are depleted on a unit-of-production basis at the field level. If an exploratory well
is determined to be unsuccessful, the capitalized drilling costs are charged to expense in the period the determination is made. If
a determination cannot be made as to whether the reserves that have been found can be classified as proved, the cost of drilling
the exploratory well is not carried as an asset for more than one year following completion of drilling. If, after that
year has passed, a determination that proved reserves exist cannot be made, the well is assumed to be impaired and its costs are
charged to expense. Its cost can, however, continue to be capitalized if a sufficient quantity of reserves is discovered
in the well to justify its completion as a producing well and the Company is making sufficient progress assessing the reserves
and the economic and operating viability of the project. The carrying value
of oil and gas properties is assessed for possible impairment on a field by field basis and on at least an annual basis, or as
circumstances warrant, based on geological analysis or changes in proved reserve estimates. When impairment occurs, an adjustment
is recorded as a reduction of the asset carrying value. For the nine months ended September 30, 2015 and the year December
31, 2014, the Companys impairment charge was $863,028 and $4,428,378. Other Property and Equipment Other property and
equipment, which includes field equipment, vehicles, and office equipment, is stated at cost less accumulated depreciation and
amortization. Depreciation and amortization is computed using the straight-line method over the estimated useful lives
of the assets. Vehicles and office equipment are generally depreciated over a useful life of five years and field equipment
is generally depreciated over a useful life of twenty years. Revenue Recognition and Natural Gas
Imbalances The Company utilizes
the accrual method of accounting for natural gas and crude oil revenues, whereby revenues are recognized based on the Companys
net revenue interest in the wells upon delivery to third parties. The Company will also enter into physical contract
sale agreements through its normal operations. Gas imbalances are
accounted for using the sales method. Under this method, revenues are recognized based on actual volumes of oil and gas sold
to purchasers. However, the Company has no history of significant gas imbalances. Income Taxes Deferred income tax
assets and liabilities are computed for differences between the financial statement and tax basis of assets and liabilities that
will result in future taxable or deductible amounts, based on enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred income
tax assets to the amount expected to be realized. The Company is required
to determine whether its tax positions are more likely than not to be sustained upon examination by the applicable taxing authority,
including resolution of any related appeals or litigation processes, based on the technical merits of the position. The tax benefit
recognized is measured as the largest amount of benefit that has a greater than fifty percent likelihood of being realized upon
ultimate settlement with the relevant taxing authority. De-recognition of a tax benefit previously recognized results in the Company
recording a tax liability that increases expense in that period. Based on its analysis, the Company has determined that it has
not incurred any liability for unrecognized tax benefits as of September 30, 2015. The Companys conclusions may be subject
to review and adjustment at a later date based on factors including, but not limited to, on-going analyses of and changes to tax
laws, regulations and interpretations thereof. The Company recognizes
interest and penalties related to unrecognized tax benefits in interest expense and other expenses, respectively. No interest expense
or penalties have been recognized as of September 30, 2015. The Companys tax returns for the last four years
remain subject to examination. Net Income
(Loss) Per Common Share Basic net income
(loss) per common share is computed by dividing the net income (loss) attributable to stockholders by the weighted average number
of common shares outstanding during the period. Diluted net income (loss) per common share is calculated in the same
manner, but also considers the impact to common shares for the potential dilution from stock options, non-vested share appreciation
rights and non-vested restricted shares. For the nine month period ended September 30, 2015, there were 900,000 potentially dilutive
non-vested and vested stock options and 2,542,397 stock warrants. For the nine month period ended September 30, 2014, there were
349,650 potentially dilutive non-vested restricted shares and stock options. The potentially dilutive shares, options,and warrants
for September 30, 2015 and 2014, are considered antidilutive since the Company is in a net loss position and thus result in
the basic net income (loss) per common share equaling the diluted net income (loss) per common share. Use of Estimates The preparation of
condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the condensed consolidated financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Companys
estimates of oil and natural gas reserves are, by necessity, projections based on geologic and engineering data, and there are
uncertainties inherent in the interpretation of such data as well as the projection of future rates of production and the timing
of development expenditures. Reserve engineering is a subjective process of estimating underground accumulations of natural gas
and oil that are difficult to measure. The accuracy of any reserve estimate is a function of the quality of available data, engineering
and geological interpretation and judgment. Estimates of economically recoverable natural gas and oil reserves and future net cash
flows necessarily depend upon a number of variable factors and assumptions, such as historical production from the area compared
with production from other producing areas, the assumed effect of regulations by governmental agencies, and assumptions governing
future natural gas and oil prices, future operating costs, severance taxes, development costs and workover costs, all of which
may in fact vary considerably from actual results. The future drilling costs associated with reserves assigned to prove undeveloped
locations may ultimately increase to the extent that these reserves are later determined to be uneconomic. For these reasons, estimates
of the economically recoverable quantities of expected natural gas and oil attributable to any particular group of properties,
classifications of such reserves based on risk of recovery, and estimates of the future net cash flows may vary substantially.
Any significant variance in the assumptions could materially affect the estimated quantity of the reserves, which could affect
the carrying value of the Companys oil and natural gas properties and/or the rate of depletion related to the oil and natural
gas properties. New Accounting Pronouncement |
