Document_and_Entity_Informatio
Document and Entity Information | 6 Months Ended | |
Jun. 30, 2013 | Feb. 24, 2014 | |
Document And Entity Information | ' | ' |
Entity Registrant Name | 'VICTORY ENERGY CORP | ' |
Entity Central Index Key | '0000700764 | ' |
Document Type | '10-Q | ' |
Document Period End Date | 30-Jun-13 | ' |
Amendment Flag | 'false | ' |
Current Fiscal Year End Date | '--12-31 | ' |
Is Entity a Well-known Seasoned Issuer? | 'No | ' |
Is Entity a Voluntary Filer? | 'No | ' |
Is Entity's Reporting Status Current? | 'No | ' |
Entity Filer Category | 'Smaller Reporting Company | ' |
Entity Common Stock Shares Outstanding | ' | 27,563,619 |
Document Fiscal Year Focus | '2014 | ' |
Document Fiscal Period Focus | 'Q2 | ' |
Trading Symbol | 'VYEY | ' |
CONDENSED_CONSOLIDATED_BALANCE
CONDENSED CONSOLIDATED BALANCE SHEETS (USD $) | Jun. 30, 2013 | Dec. 31, 2012 |
CURRENT ASSETS | ' | ' |
Cash and cash equivalents | $359,290 | $158,165 |
Accounts receivable - less allowance for doubtful accounts of $200,000, and $200,000 for June 30, 2013 and December 31, 2012, respectively | 140,247 | 157,481 |
Accounts receivable - related party | 22,500 | ' |
Prepaid expenses | ' | 68,693 |
Total current assets | 522,037 | 384,339 |
FIXED ASSETS | ' | ' |
Furniture and equipment | 43,173 | 43,173 |
Accumulated depreciation | -8,559 | -5,521 |
Total furniture and fixtures, net | 34,614 | 37,652 |
Producing oil and natural gas properties, net of impairment | 3,849,906 | 2,583,504 |
Accumulated depletion | -1,220,375 | -1,145,514 |
Total oil and gas properties, net | 2,629,531 | 1,437,990 |
TOTAL ASSETS | 3,186,182 | 1,859,981 |
CURRENT LIABILITIES | ' | ' |
Accounts payable | 259,221 | 4,339 |
Accrued interest | ' | 25,639 |
Accrued liabilities | 174,150 | 216,444 |
Accrued liabilities - related parties | 55,389 | 17,504 |
Liability for unauthorized preferred stock issued | 9,283 | 9,283 |
Total current liabilities | 498,043 | 273,209 |
OTHER LIABILITIES | ' | ' |
Asset retirement obligation | 50,833 | 39,905 |
TOTAL LIABILITIES | 548,876 | 313,114 |
STOCKHOLDERS' EQUITY (DEFICIT) | ' | ' |
Common Stock, $0.001 par value, 47,500,000 shares authorized, 27,563,619 shares and 27,563,619 issued and outstanding, June 30, 2013, and December 31, 2012, respectively | 27,564 | 27,564 |
Additional paid in capital | 34,384,898 | 34,325,073 |
Accumulated deficit | -35,941,364 | -35,215,267 |
VICTORY ENERGY CORPORATION STOCKHOLDERS' EQUITY (DEFICIT) | -1,528,902 | -862,630 |
Non-controlling interest | 4,166,208 | 2,409,497 |
TOTAL STOCKHOLDER'S EQUITY (DEFICIT) | 2,637,306 | 1,546,867 |
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | $3,186,182 | $1,859,981 |
CONDENSED_CONSOLIDATED_BALANCE1
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $) | Jun. 30, 2013 | Dec. 31, 2012 |
CURRENT ASSETS | ' | ' |
Accounts receivable - less allowance for doubtful accounts | $200,000 | $200,000 |
STOCKHOLDERS' EQUITY (DEFICIT) | ' | ' |
Common Stock, par value | $0.00 | $0.00 |
Common Stock, shares authorized | 47,500,000 | 47,500,000 |
Common Stock, issued | 27,563,619 | 27,563,619 |
Common Stock, outstanding | 27,563,619 | 27,563,619 |
CONDENSED_CONSOLIDATED_STATEME
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (USD $) | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2013 | Jun. 30, 2012 | Jun. 30, 2013 | Jun. 30, 2012 | |
Condensed Consolidated Statements Of Operations | ' | ' | ' | ' |
REVENUE | $161,910 | $68,151 | $255,678 | $132,118 |
COSTS AND EXPENSES | ' | ' | ' | ' |
Lease operating expenses | 51,396 | 57,565 | 74,986 | 43,411 |
Production taxes | 11,655 | 5,671 | 20,603 | 12,150 |
Dry hole costs | ' | ' | 3,610 | ' |
Exploration | 2,419 | 70,329 | 15,577 | 167,196 |
General and administrative expense | 421,647 | 585,900 | 900,443 | 1,567,625 |
Depletion, depreciation, and accretion | 59,324 | 13,272 | 77,899 | 32,081 |
Total expenses | 546,441 | 732,737 | 1,093,118 | 1,822,463 |
INCOME (LOSS) FROM OPERATIONS | -384,531 | -664,586 | -837,440 | -1,690,345 |
OTHER INCOME (EXPENSE): | ' | ' | ' | ' |
Gain on sale of oil and gas assets | ' | 268,169 | ' | 268,169 |
Interest expense | -501 | -318 | -946 | -3,984,341 |
Total other income and expense | -501 | 267,851 | -946 | -3,716,172 |
LOSS BEFORE TAX EXPENSE | -385,032 | -396,735 | -838,386 | -5,406,517 |
TAX EXPENSE | ' | ' | ' | ' |
LOSS | -385,032 | -396,735 | -838,386 | -5,406,517 |
Less: net income (loss) attributable to non-controlling interest | -73,313 | 100,943 | -112,289 | 51,207 |
NET INCOME (LOSS) ATTRIBUTABLE TO VICTORY ENERGY CORPORATION | ($311,719) | ($497,678) | ($726,097) | ($5,457,724) |
Weighted average shares, basic and diluted | 27,563,619 | 27,150,695 | 27,563,619 | 19,012,735 |
Net loss per share, basic and diluted | ($0.01) | ($0.01) | ($0.03) | ($0.28) |
CONDENSED_CONSOLIDATED_STATEME1
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (Unaudited) (USD $) | 6 Months Ended | |
Jun. 30, 2013 | Jun. 30, 2012 | |
CASH FLOWS FROM OPERATING ACTIVITIES | ' | ' |
Net (loss) | ($838,386) | ($5,406,517) |
Adjustments to reconcile net loss from operations to net cash used in operating activities | ' | ' |
Amortization of debt discount and financing warrants | ' | 265,460 |
Accretion of asset retirement obligation | 1,998 | ' |
Gain from sale of oil and gas assets | ' | -268,169 |
Debt discount on debentures converted to common stock | ' | 3,661,780 |
Depletion and depreciation | 77,899 | 32,081 |
Stock based compensation | 43,325 | 126,531 |
Warrants for services | 16,500 | 487,679 |
Change in operating assets and liabilities | ' | ' |
Accounts receivable | 17,234 | 37,187 |
Accounts receivable - related parties | -22,500 | ' |
Prepaid expense | 68,693 | 1,310 |
Accounts payable | 254,882 | -263,331 |
Accrued liabilities | -42,294 | 56,464 |
Accrued interest | -25,639 | ' |
Accrued liabilities - related parties | 37,885 | -29,487 |
Net cash used in operating activities | -410,403 | -1,299,012 |
CASH FLOWS FROM INVESTING ACTIVITIES | ' | ' |
Drilling and completion costs | -1,335,922 | -159,494 |
Acquisition of oil and gas properties | -81,550 | -706,093 |
Proceeds from sale of oil and gas properties | ' | 200,000 |
Purchase of furniture and fixtures | ' | -10,359 |
Sale-farm out of leaseholds | 160,000 | ' |
Net cash (used) in investing activities | -1,257,472 | -675,946 |
CASH FLOWS FROM FINANCING ACTIVITIES | ' | ' |
Proceeds from issuance of senior secured convertible debentures | ' | 1,815,000 |
Exercise of warrants for cash | ' | 4,350 |
Non-controlling interest contributions | 1,869,000 | ' |
Net cash provided by financing activities | 1,869,000 | 1,819,350 |
Net change in cash and cash equivalents | 201,125 | -155,608 |
Beginning cash and cash equivalents | 158,165 | 475,623 |
Ending cash and cash equivalents | $359,290 | $320,015 |
Organization_and_Summary_of_Si
Organization and Summary of Significant Accounting Policies | 6 Months Ended | ||||||||
Jun. 30, 2013 | |||||||||
Organization And Summary Of Significant Accounting Policies | ' | ||||||||
Note 1 - Organization and Summary of Significant Accounting Policies | ' | ||||||||
Victory Energy Corporation (Victory) is an independent, growth oriented oil and natural gas company engaged in the acquisition, exploration and production of oil and natural gas properties, through its partnership with Aurora Energy Partners. The Company is engaged in the exploration, acquisition, development, and production of domestic oil and natural gas properties. Current operations are primarily located onshore in Texas and New Mexico. The Company was organized under the laws of the State of Nevada on January 7, 1982. The Company is authorized to issue 47,500,000 shares of $0.001 par value common stock, and has 27,563,619 shares of common stock outstanding as of June 30, 2013. On January 12, 2012 the Company implemented a 50:1 reverse stock split. All information in this report reflects the recent stock split. Our corporate headquarters are located at 3355 Bee Caves Rd. Ste. 608, Austin, TX 78746. | |||||||||
A summary of significant accounting policies followed in the preparation of the accompanying condensed consolidated financial statements is set forth below. | |||||||||
Basis of Presentation and Consolidation: | |||||||||
Victory is the managing partner of Aurora Energy Partners, a Texas General Partnership (“Aurora”), and holds a 50% partnership interest in Aurora. Aurora is consolidated with Victory for financial statement purposes, as the terms of the partnership agreement gives Victory effective control of the partnership. The condensed consolidated financial statements include the accounts of Victory and the accounts of Aurora. The Company’s management, in considering accounting policies pertaining to consolidation, has reviewed the relevant accounting literature. The Company follows that literature, in assessing whether the rights of the non-controlling interests should overcome the presumption of consolidation when a majority voting, or controlling interest in its investee “is a matter of judgment that depends on facts and circumstances.” In applying the circumstances and contractual provisions of the partnership agreement, management determined that the non-controlling rights do not, individually or in the aggregate, provide for the non-controlling interest to “effectively participate in significant decisions that would be expected to be made in the ordinary course of business.” The rights of the non-controlling interest are protective in nature. All intercompany balances have been eliminated in consolidation. | |||||||||
The accompanying condensed consolidated balance sheet as of December 31, 2012, which has been derived from audited consolidated financial statements, and the accompanying interim condensed consolidated financial statements as of June 30, 2013, for the three and six month periods ended June 30, 2013 and June 30, 2012, have been prepared by management pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") for interim financial reporting. These interim condensed consolidated financial statements are unaudited and, in the opinion of management, all adjustments, including normal recurring adjustments necessary to present fairly the financial condition, results of operations and cash flows of Victory Energy Corporation and subsidiary (hereinafter collectively referred to as the "Company") as of and for the periods presented in accordance with accounting principles generally accepted in the United States of America ("GAAP"), have been included. | |||||||||
Operating results for the three and six month periods ended June 30, 2013 are not necessarily indicative of the results that may be expected for the year ending December 31, 2013 or for any other interim period during such year. Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with GAAP have been omitted in accordance with the rules and regulations of the SEC. The accompanying consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2012 filed with the SEC on November 12, 2013. | |||||||||
Non-controlling Interests: | |||||||||
The Navitus Energy Group is a partner with Victory in Aurora. The two partners each own a 50% interest in Aurora. Victory is the Managing Partner and has contractual authority to manage the business affairs of Aurora. The Navitus Energy Group currently has four partners. They are James Capital Consulting, LLC ("JCC"), James Capital Energy, LLC ("JCE"), Rodinia Partners, LLC and Navitus Partners, LLC. Although this partnership has been in place since January 2008, its members and other elements have changed since that time. | |||||||||
The non-controlling interest in Aurora is held by Navitus Energy Group, a Texas general partnership. As of June 30, 2013, $4,166,208 was recorded as the equity of the non-controlling interest in our consolidated balance sheet representing the third-party investment in Aurora, with income or (losses) attributable to non-controlling interests of ($73,313) and $100,943 for the three months ended June 30, 2013 and 2012, respectively, and ($112,289) and $51,207 for the six months ended June 30, 2013 and 2012, respectively. As of December 31, 2012, $2,409,497 was recorded as the equity of the non-controlling interest in our consolidated balance sheet representing the third-party investment in Aurora. | |||||||||
Restatements and Reclassifications: | |||||||||
Certain prior year and quarterly amounts have been restated; to correctly present the non-controlling interest representing the third-party investment in Aurora in our condensed consolidated financial statements. Users of these financial statements should refer to the Company’s Annual Report Form 10K filed November 12, 2013 for more information regarding any restatements. | |||||||||
Certain reclassifications have been made between common stock and additional paid-in capital on the December 31, 2012 Condensed Consolidated Balance Sheet to conform to the presentation on the current period Condensed Consolidated Balance Sheet and reflect the 50:1 reverse stock-split. These reclassifications had no impact on the net income for the year ended December 31, 2012 or total stockholder’s equity at December 31, 2012. | |||||||||
Use of Estimates: | |||||||||
The preparation of our condensed consolidated financial statements in conformity with U.S. Generally Accepted Accounting Principles (“GAAP”) requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Estimates are used primarily when accounting for depreciation, depletion, and amortization (“DD&A”) expense, property costs, estimated future net cash flows from proved reserves, cost to abandon oil and natural gas properties, taxes, accruals of capitalized costs, operating costs and production revenue, capitalized general and administrative costs and interest, insurance recoveries, effectiveness and estimated fair value of derivative positions, the purchase price allocation on properties acquired, various common stock, warrants and option transactions, and contingencies. | |||||||||
Oil and Natural Gas Properties: | |||||||||
We follow the successful efforts method of accounting for oil and natural gas properties. Under this method, all costs associated with property acquisitions, successful exploratory wells, all development wells, including dry hole development wells, and asset retirement obligation assets are capitalized. Additionally, interest is capitalized while wells are being drilled and the underlying property is in development. Costs of exploratory wells are capitalized pending determination of whether each well has resulted in the discovery of proved reserves. Oil and natural gas mineral leasehold costs are capitalized as incurred. Items charged to expense generally include geological and geophysical costs, costs of unsuccessful exploratory wells, and oil and natural gas production costs. Capitalized costs of proved properties including associated salvage are depleted on a well-by-well or field-by-field (common reservoir) basis using the units-of-production method based upon proved producing oil and natural gas reserves. The depletion rate is the current period production as a percentage of the total proved producing reserves. The depletion rate is applied to the net book value of property costs to calculate the depletion expense. Proved reserves materially impact depletion expense. If the proved reserves decline, then the depletion rate (the rate at which we record depletion expense) increases, reducing net income. Dispositions of oil and natural gas properties are accounted for as adjustments to capitalized costs with gain or loss recognized upon sale. A gain (loss) is recognized to the extent the sales price exceeds or is less than original cost or the carrying value, net of impairment. Oil and natural gas properties are also reviewed for impairment at the end of each reporting period. Unproved property costs are excluded from depletable costs until the related properties are developed. See impairment discussed in “Long-lived assets and intangible assets” below. | |||||||||
We depreciate other property and equipment using the straight-line method based on estimated useful lives ranging from five to ten years. | |||||||||
The Company did not record impairment expense for the three and six months ended June 30, 2013 and 2012, respectively. | |||||||||
Long-lived Assets and Intangible Assets: | |||||||||
The Company accounts for intangible assets in accordance with ASC 360, “Property, Plant and Equipment”. Intangible assets that have defined lives are subject to amortization over the useful life of the assets. Intangible assets held having no contractual factors or other factors limiting the useful life of the asset are not subject to amortization but are reviewed at least annually for impairment or when indicators suggest that impairment may be needed. Intangible assets are subject to impairment review at least annually or when there is an indication that an asset has been impaired. | |||||||||
For unproved property costs, management reviews these investments for impairment on a property-by-property basis if a triggering event should occur that may suggest that impairment may be required. | |||||||||
The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If the carrying amount of the asset, including any intangible assets associated with that asset, exceeds its estimated future undiscounted net cash flows, the Company will recognize an impairment loss equal to the difference between its carrying amount and its estimated fair value. The fair value used to calculate the impairment for producing oil and natural gas field that produces from a common reservoir is first determined by comparing the undiscounted future net cash flows associated with total proved properties to the carrying value of the underlying evaluated property. If the cost of the underlying evaluated property is in excess of the undiscounted future net cash flows, the future net cash flows are discounted at 10%, which the Company believes approximates fair value, to determine the amount of impairment. | |||||||||
Asset Retirement Obligations: | |||||||||
U.S. GAAP requires us to record our estimate of the fair value of liabilities related to future asset retirement obligations in the period the obligation is incurred. Asset retirement obligations relate to the removal of facilities and tangible equipment at the end of an oil and natural gas property’s useful life. The application of this rule requires the use of management’s estimates with respect to future abandonment costs, inflation, market risk premiums, useful life and cost of capital. U.S. GAAP requires that our estimate of our asset retirement obligations does not give consideration to the value the related assets could have to other parties. | |||||||||
The following table is a reconciliation of the ARO liability for continuing operations for the six months ended June 30, 2013 and the twelve months ended December 31, 2012. | |||||||||
June 30, | December 31, | ||||||||
2013 | 2012 | ||||||||
Asset retirement obligation at beginning of period | $ | 39,905 | $ | 30,004 | |||||
Liabilities incurred | 8,930 | 7,002 | |||||||
Revisions to previous estimates | 0 | 0 | |||||||
Accretion expense | 1,998 | 2,899 | |||||||
Asset retirement obligation at end of period | $ | 50,833 | $ | 39,905 | |||||
Other Property and Equipment: | |||||||||
Our office equipment in Austin, Texas is being depreciated on the straight-line method over their estimated useful life of 5 to 7 years. | |||||||||
Cash and Cash Equivalents: | |||||||||
The Company considers all liquid investments with a maturity of three months or less from the date of purchase that are readily convertible into cash to be cash equivalents. The Company had no cash equivalents at June 30, 2013 and December 31, 2012, respectively. | |||||||||
Accounts Receivable: | |||||||||
Our accounts receivable are primarily from purchasers of natural gas and oil and exploration and production companies which operate properties we own working interests in. | |||||||||
Allowance for Doubtful Accounts: | |||||||||
The Company recognizes an allowance for doubtful accounts to ensure trade receivables are not overstated due to uncollectability. Allowance for doubtful accounts are maintained for all customers based on a variety of factors, including the length of time receivables are past due, macroeconomic conditions, significant one-time events and historical experience. An additional allowance for individual accounts is recorded when they become aware of a customer’s inability to meet its financial obligations, such as in the case of bankruptcy filings or deterioration in the customer’s operating results or financial position. If circumstances related to customers change, estimates of the recoverability of receivables would be further adjusted. As of June 30, 2013 and December 31, 2012, the Company has deemed $200,000 from the sale of oil and gas properties associated with the Jones County prospect, to be uncollectible and thus, has recorded this amount as an allowance for doubtful accounts. | |||||||||
Fair Value: | |||||||||
At June 30, 2013 and December 31, 2012, the carrying value of the Company's financial instruments such as prepaid expenses and payables approximated their fair values based on the short-term maturities of these instruments. The carrying value of other long-term liabilities approximated their fair values because the underlying interest rates approximate market rates at the balance sheet dates. Management believes that due to the Company's current credit worthiness, the fair value of long-term debt could be less than the book value; however, due to current market conditions and available information, the fair value of such debt is not readily determinable. Financial Accounting Standard Board ("FASB") ASC Topic 820 established a hierarchical disclosure framework associated with the level of pricing observability utilized in measuring fair value. This framework defined three levels of inputs to the fair value measurement process and requires that each fair value measurement be assigned to a level corresponding to the lowest level input that is significant to the fair value measurement in its entirety. The three broad levels of inputs defined by | |||||||||
FASB ASC Topic 820 hierarchy are as follows: | |||||||||
Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date; | |||||||||
Leve1 2 - inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. If the asset or liability has a specified (contractual) term, a Leve1 2 input must be observable for substantially the full term of the asset or liability; and | |||||||||
Leve1 3 - unobservable inputs for the asset or liability. These unobservable inputs reflect the entity's own assumptions about the assumptions that market participants would use in pricing the asset or liability and are developed based on the best information available in the circumstances (which might include the reporting entity's own data). | |||||||||
The initial measurement of asset retirement obligations at fair value is calculated using discounted cash flows techniques and based on internal estimates of future retirement costs associated with proved oil and gas properties. Inputs used in the calculation of asset retirement obligations include plugging costs and reserve lives. A reconciliation of Victory’s asset retirement obligations is presented in Note 1. | |||||||||
The Company did not record impairment expense for the three months ended June 30, 2013 and 2012, respectively. The Company did not record impairment expense for the six months ended June 30, 2013 and 2012, respectively. | |||||||||
Revenue Recognition: | |||||||||
The Company uses the sales method of accounting for oil and natural gas revenues. Under this method, revenues are recognized based on actual volumes of gas and oil sold to purchasers. The volumes sold may differ from the volumes to which the Company is entitled based on our interests in the properties. Differences between volumes sold and entitled volumes create oil and natural gas imbalances which are generally reflected as adjustments to reported proved oil and natural gas reserves and future cash flows in their supplemental oil and natural gas disclosures. If their excess takes of natural gas or oil exceed their estimated remaining proved reserves for a property, a natural gas or oil imbalance liability is recorded in the Condensed Consolidated Balance Sheets. | |||||||||
Concentrations: | |||||||||
There is a ready market for the sale of crude oil and natural gas. During 2013 and 2012, our gas field and our producing wells sold their respective gas and oil production to one purchaser for each field or well. However, because alternate purchasers of oil and natural gas are readily available at similar prices, we believe that the loss of any of our purchasers would not have a material adverse effect on our financial results. | |||||||||
Earnings per Share: | |||||||||
Basic earnings per share are computed using the weighted average number of common shares outstanding. Diluted earnings per share reflect the potential dilutive effects of common stock equivalents such as options, warrants and convertible securities. Given the historical and projected future losses of the Company, all potentially dilutive common stock equivalents are considered anti-dilutive. | |||||||||
Income Taxes: | |||||||||
The Company accounts for income taxes in accordance with ASC 740 “Income Taxes” which requires an asset and liability approach for financial accounting and reporting of income taxes. Deferred income taxes reflect the impact of temporary differences between the amount of assets and liabilities for financial reporting purposes and such amounts as measured by tax laws and regulations. Deferred tax assets include tax loss and credit carry forwards and are reduced by a valuation allowance if, based on available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. | |||||||||
Stock Based Compensation: | |||||||||
The Company applies ASC 718, “Compensation-Stock Compensation” to account for its issuance of options and warrants to key partners, directors and officers. The standard requires all share-based payments, including employee stock options, warrants and restricted stock, be measured at the fair value of the award and expensed over the requisite service period (generally the vesting period). The fair value of options and warrants granted to key partners, directors and officers is estimated at the date of grant using the Black-Scholes option pricing model by using the historical volatility of the Company’s stock price. The calculation also takes into account the common stock fair market value at the grant date, the exercise price, the expected life of the common stock option or warrant, the dividend yield and the risk-free interest rate. | |||||||||
The Company from time to time may issue stock options, warrants and restricted stock to acquire goods or services from third parties. Restricted stock, options or warrants issued to third parties are recorded on the basis of their fair value, which is measured as of the date issued. The options or warrants are valued using the Black-Scholes option pricing model on the basis of the market price of the underlying equity instrument on the “valuation date,” which for options and warrants related to contracts that have substantial disincentives to non-performance, is the date of the contract, and for all other contracts is the vesting date. Expense related to the options and warrants is recognized on a straight-line basis over the shorter of the period over which services are to be received or the vesting period. | |||||||||
The Company recognized stock-based directors fee and service incentive fee compensation expense from warrants granted to directors for the three and six months ended June 30, 2013 of $7,500 and $16,500, respectively, and for the three and six months ended June 30, 2012 of $223,829 and $487,679, respectively. | |||||||||
The Company recognized stock-based compensation expense from stock options granted to officers and employees of the company for the three and six months ended June 30, 2013 was $21,044 and $43,325, respectively, and for the three and six months ended June 30, 2012 of $44,406 and $126,531, respectively. | |||||||||
Going Concern: | |||||||||
The accompanying condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. As presented in the condensed consolidated financial statements, the Company has incurred a net loss of $838,386 for the six months ended June 30, 2013. | |||||||||
The proceeds from the sale and conversion to stock of the Company’s 10% Senior Secured Convertible Debentures in 2012 and new contributions to the Aurora partnership by The Navitus Energy Group (“Navitus”) have allowed the Company to continue operations and invest in new oil and natural gas properties. Management anticipates that operating losses will continue in the near term until new wells are drilled, successfully completed and incremental production increases revenue. For the three months and the six months ended June 30, 2013 the Company has invested a net of $591,194 and $1,335,922, respectively in drilling and completion costs. | |||||||||
The Company remains in active discussions with Navitus and others related to longer term financing required for our capital expenditures planned for 2013. Without additional outside investment from the sale of equity securities and/or debt financing, our capital expenditures and overhead expenses must be reduced to a level commensurate with available cash flows. | |||||||||
The accompanying consolidated financial statements are prepared as if the Company will continue as a going concern. The consolidated financial statements do not contain adjustments, including adjustments to recorded assets and liabilities, which might be necessary if the Company were unable to continue as a going concern. |
Navitus_Energy_Group_Funding_T
Navitus Energy Group Funding, Tracking and Accrual | 6 Months Ended |
Jun. 30, 2013 | |
Navitus Energy Group Funding Tracking And Accrual | ' |
Note 2 - Navitus Energy Group Funding, Tracking and Accrual | ' |
Under terms of the Second Amended Partnership Agreement, the Navitus Energy Group partners are to accrue a net profits interest respective to their partnership interest. Any distributions of the net profits interest to partners are at the discretion of Victory, as managing partner, together with 100% of the partnership interests. As of June 30, 2013, there are no accrued, or accumulated, net profits interest of the Aurora Energy Partnership. The accumulated net deficits of Navitus Energy Group, along with historical contributions, net of distributions, are reported as non-controlling interests in the equity section of the Victory and Aurora consolidated financial statements. | |
10% Preferred Distributions | |
Under the terms of the Second Amended Aurora Partnership Agreement, Navitus Partners, LLC, the fourth partner of the partnership, admitted under the Navitus Private Placement Memorandum (Navitus PPM), is accrued a preferred distribution of 10% based upon capital contributions to Aurora. The preferred distribution is in addition to and does not reduce any net profits interest which may accrue. Since August 23, 2012, these accrued preferred distributions total $115,427 ($25,639 attributable to 2012 and $89,788 attributable to the first half of 2013). Victory, as managing partner, may, in its sole discretion, choose to distribute the preferred returns, or, apply these funds to other partnership purposes. Navitus Partners, LLC also receives warrants for Victory’s common stock, allocated as 50,000 warrants for every Unit purchased under the Navitus PPM (equivalent of 1 warrant for every $1.00 invested), exercisable under the terms of the Second Amended Partnership Agreement and the Navitus PPM. Since August 23, 2012, $2,958,900 of capital contributions have resulted in issuance of 2,958,900 common stock warrants (1,089,900 in 2012 and 1,869,000 in the first half of 2013). |
Oil_and_natural_gas_properties
Oil and natural gas properties | 6 Months Ended | ||||||||
Jun. 30, 2013 | |||||||||
Oil And Natural Gas Properties | ' | ||||||||
Note 3 - Oil and natural gas properties | ' | ||||||||
Oil and natural gas properties are comprised of the following: | |||||||||
June 30, | December 31, | ||||||||
2013 | 2012 | ||||||||
Total oil and natural gas properties, at cost | $ | 7,535,108 | $ | 6,268,706 | |||||
Less: accumulated impairment | (3,685,202 | ) | (3,368,202 | ) | |||||
Oil and natural gas properties, net impairment | 3,849,906 | 2,583,504 | |||||||
Less: accumulated depletion | (1,220,375 | ) | (1,145,514 | ) | |||||
Oil and natural gas properties, net | $ | 2,629,531 | $ | 1,437,990 | |||||
Depletion, depreciation, and accretion expense for the six months ended June 30, 2013 and 2012 was $77,899 and $32,081, respectively. The Company did not record impairment expense for the three and six months ended June 30, 2013 and 2012, respectively. |
Senior_Secured_Convertible_Deb
Senior Secured Convertible Debentures | 6 Months Ended |
Jun. 30, 2013 | |
Senior Secured Convertible Debentures | ' |
Note 4 - Senior Secured Convertible Debentures | ' |
All share references have been adjusted to reflect a 50:1 reverse stock split by the Company on January 12, 2012. | |
During the years ended December 31, 2011 and December 31, 2012 the Company raised $4,935,000 from accredited investors via 10% Senior Secured Convertible Debentures. Specifically the Company raised $3,120,000 in 2011 and $1,815,000 on February 29, 2012. These debentures were converted to 19,505,523 shares of the Company’s common stock in accordance with the terms of the debenture, on February 29, 2012. As of the periods ended June 30, 2013 and December 31, 2012, the Company no longer had any outstanding Senior Secured Convertible Debentures. |
Liability_for_Unauthorized_Pre
Liability for Unauthorized Preferred Stock Issued | 6 Months Ended | ||||||||
Jun. 30, 2013 | |||||||||
Liability For Unauthorized Preferred Stock Issued | ' | ||||||||
Note 5 - Liability for Unauthorized Preferred Stock Issued | ' | ||||||||
During the year ended December 31, 2006, the Company authorized the issuance of 10,000,000 shares of Preferred Stock, convertible at the shareholder’s option to common stock at the rate of 100 shares of common stock for every share of preferred stock. During the year ended December 31, 2006, the Company issued 715,517 shares of preferred stock for cash of $246,950. The Company subsequently issued additional preferred stock and had several preferred shareholders convert their shares into common stock during the years ended December 31, 2009, 2008, and 2007. | |||||||||
The Company’s legal counsel determined that the preferred shares had not been duly authorized by the State of Nevada. Since the Company had issued and received consideration for the preferred stock, notwithstanding that the stock was not legally authorized, the Company has presented the preferred stock as a liability in the consolidated balance sheets. The Company has offered to settle the debt with the remaining holders of the unauthorized preferred stock by honoring the terms of conversion of two shares of preferred stock into 100 shares of common stock. The Company intends to cancel the preferred stock once all remaining preferred stockholders have converted. | |||||||||
There were 68,966 shares of unconverted preferred stock outstanding at June 30, 2013. The Company needs approximately 138,000 common shares in order to settle the outstanding debt as stated below. | |||||||||
The remaining liability for the unconverted preferred stock is based on the original cash tendered and consisted of the following as of: | |||||||||
June 30, | December 31, | ||||||||
2013 | 2012 | ||||||||
Liability for unauthorized preferred stock | $ | 9,283 | $ | 9,283 |
Related_Party_Transactions
Related Party Transactions | 6 Months Ended |
Jun. 30, 2013 | |
Related Party Transactions | ' |
Note 6 - Related Party Transactions | ' |
The Company uses legal and accounting services of two members of its Board of Directors in the ordinary course of the Company’s business. Accounts receivables from related parties for the six months ended June 30, 2013 and the year ended December 31, 2012 were $22,500 and $0, respectively. Accrued liabilities to related parties for the six months ended June 30, 2013 and the year ended December 31, 2012 were $55,389 and $17,504, respectively. |
Shareholders_Equity
Shareholders Equity | 6 Months Ended |
Jun. 30, 2013 | |
Shareholders Equity | ' |
Note 7 - Shareholders Equity | ' |
Common stock | |
The Company estimates the fair value of employee stock options and warrants granted using the Black-Scholes Option Pricing Model. Key assumptions used to estimate the fair value of warrants and stock options include the exercise price of the award, the fair value of the Company’s common stock on the date of grant, the expected warrant or option term, the risk free interest rate at the date of grant, the expected volatility and the expected annual dividend yield on the Company’s common stock. | |
During the six months ended June 30, 2013, the Company granted 60,000 warrants to its directors for board services with an exercise price of $.30. The warrants vest immediately and the Company has valued the warrants for services using the Black Scholes Option Pricing Model, at $16,500. | |
During the six months ended June 30, 2013, and in consideration of capital contributions by Aurora of $1,869,000 pursuant to the Company’s capital contribution agreement with Aurora, the Company issued 1,869,000 warrants to Navitus with an exercise price of $.30. The warrants vest immediately and the Company has valued the warrants using the Black Scholes Option Pricing Model, at $568,950. |
Commitments_and_Contingencies
Commitments and Contingencies | 6 Months Ended |
Jun. 30, 2013 | |
Commitments And Contingencies | ' |
Note 8 - Commitments and Contingencies | ' |
Contingencies | |
Liabilities and other contingencies are recognized upon determination of an exposure, which when analyzed indicates that it is both probable that an asset has been impaired or that a liability has been incurred and that the amount of such loss is reasonably estimable. | |
Volatility of Oil and Natural Gas Prices | |
Our revenues, future rate of growth, results of operations, financial condition and ability to borrow funds or obtain additional capital, as well as the carrying value of our properties, are substantially dependent upon prevailing prices of oil and natural gas. |
Organization_and_Summary_of_Si1
Organization and Summary of Significant Accounting Policies (Policies) | 6 Months Ended | ||||||||
Jun. 30, 2013 | |||||||||
Organization And Summary Of Significant Accounting Policies Policies | ' | ||||||||
Basis of Presentation and Consolidation | ' | ||||||||
Victory is the managing partner of Aurora Energy Partners, a Texas General Partnership (“Aurora”), and holds a 50% partnership interest in Aurora. Aurora is consolidated with Victory for financial statement purposes, as the terms of the partnership agreement gives Victory effective control of the partnership. The condensed consolidated financial statements include the accounts of Victory and the accounts of Aurora. The Company’s management, in considering accounting policies pertaining to consolidation, has reviewed the relevant accounting literature. The Company follows that literature, in assessing whether the rights of the non-controlling interests should overcome the presumption of consolidation when a majority voting, or controlling interest in its investee “is a matter of judgment that depends on facts and circumstances.” In applying the circumstances and contractual provisions of the partnership agreement, management determined that the non-controlling rights do not, individually or in the aggregate, provide for the non-controlling interest to “effectively participate in significant decisions that would be expected to be made in the ordinary course of business.” The rights of the non-controlling interest are protective in nature. All intercompany balances have been eliminated in consolidation. | |||||||||
The accompanying condensed consolidated balance sheet as of December 31, 2012, which has been derived from audited consolidated financial statements, and the accompanying interim condensed consolidated financial statements as of June 30, 2013, for the three and six month periods ended June 30, 2013 and June 30, 2012, have been prepared by management pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") for interim financial reporting. These interim condensed consolidated financial statements are unaudited and, in the opinion of management, all adjustments, including normal recurring adjustments necessary to present fairly the financial condition, results of operations and cash flows of Victory Energy Corporation and subsidiary (hereinafter collectively referred to as the "Company") as of and for the periods presented in accordance with accounting principles generally accepted in the United States of America ("GAAP"), have been included. | |||||||||
Operating results for the three and six month periods ended June 30, 2013 are not necessarily indicative of the results that may be expected for the year ending December 31, 2013 or for any other interim period during such year. Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with GAAP have been omitted in accordance with the rules and regulations of the SEC. The accompanying consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2012 filed with the SEC on November 12, 2013. | |||||||||
Non controlling Interests | ' | ||||||||
The Navitus Energy Group is a partner with Victory in Aurora. The two partners each own a 50% interest in Aurora. Victory is the Managing Partner and has contractual authority to manage the business affairs of Aurora. The Navitus Energy Group currently has four partners. They are James Capital Consulting, LLC ("JCC"), James Capital Energy, LLC ("JCE"), Rodinia Partners, LLC and Navitus Partners, LLC. Although this partnership has been in place since January 2008, its members and other elements have changed since that time. | |||||||||
The non-controlling interest in Aurora is held by Navitus Energy Group, a Texas general partnership. As of June 30, 2013, $4,166,208 was recorded as the equity of the non-controlling interest in our consolidated balance sheet representing the third-party investment in Aurora, with income or (losses) attributable to non-controlling interests of ($73,313) and $100,943 for the three months ended June 30, 2013 and 2012, respectively, and ($112,289) and $51,207 for the six months ended June 30, 2013 and 2012, respectively. As of December 31, 2012, $2,409,497 was recorded as the equity of the non-controlling interest in our consolidated balance sheet representing the third-party investment in Aurora. | |||||||||
Restatements and Reclassifications: | ' | ||||||||
Certain prior year and quarterly amounts have been restated; to correctly present the non-controlling interest representing the third-party investment in Aurora in our condensed consolidated financial statements. Users of these financial statements should refer to the Company’s Annual Report Form 10K filed November 12, 2013 for more information regarding any restatements. | |||||||||
Certain reclassifications have been made between common stock and additional paid-in capital on the December 31, 2012 Condensed Consolidated Balance Sheet to conform to the presentation on the current period Condensed Consolidated Balance Sheet and reflect the 50:1 reverse stock-split. These reclassifications had no impact on the net income for the year ended December 31, 2012 or total stockholder’s equity at December 31, 2012. | |||||||||
Use of Estimates | ' | ||||||||
The preparation of our condensed consolidated financial statements in conformity with U.S. Generally Accepted Accounting Principles (“GAAP”) requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Estimates are used primarily when accounting for depreciation, depletion, and amortization (“DD&A”) expense, property costs, estimated future net cash flows from proved reserves, cost to abandon oil and natural gas properties, taxes, accruals of capitalized costs, operating costs and production revenue, capitalized general and administrative costs and interest, insurance recoveries, effectiveness and estimated fair value of derivative positions, the purchase price allocation on properties acquired, various common stock, warrants and option transactions, and contingencies. | |||||||||
Oil and Natural Gas Properties | ' | ||||||||
We follow the successful efforts method of accounting for oil and natural gas properties. Under this method, all costs associated with property acquisitions, successful exploratory wells, all development wells, including dry hole development wells, and asset retirement obligation assets are capitalized. Additionally, interest is capitalized while wells are being drilled and the underlying property is in development. Costs of exploratory wells are capitalized pending determination of whether each well has resulted in the discovery of proved reserves. Oil and natural gas mineral leasehold costs are capitalized as incurred. Items charged to expense generally include geological and geophysical costs, costs of unsuccessful exploratory wells, and oil and natural gas production costs. Capitalized costs of proved properties including associated salvage are depleted on a well-by-well or field-by-field (common reservoir) basis using the units-of-production method based upon proved producing oil and natural gas reserves. The depletion rate is the current period production as a percentage of the total proved producing reserves. The depletion rate is applied to the net book value of property costs to calculate the depletion expense. Proved reserves materially impact depletion expense. If the proved reserves decline, then the depletion rate (the rate at which we record depletion expense) increases, reducing net income. Dispositions of oil and natural gas properties are accounted for as adjustments to capitalized costs with gain or loss recognized upon sale. A gain (loss) is recognized to the extent the sales price exceeds or is less than original cost or the carrying value, net of impairment. Oil and natural gas properties are also reviewed for impairment at the end of each reporting period. Unproved property costs are excluded from depletable costs until the related properties are developed. See impairment discussed in “Long-lived assets and intangible assets” below. | |||||||||
We depreciate other property and equipment using the straight-line method based on estimated useful lives ranging from five to ten years. | |||||||||
The Company did not record impairment expense for the three and six months ended June 30, 2013 and 2012, respectively. | |||||||||
Long-lived Assets and Intangible Assets | ' | ||||||||
The Company accounts for intangible assets in accordance with ASC 360, “Property, Plant and Equipment”. Intangible assets that have defined lives are subject to amortization over the useful life of the assets. Intangible assets held having no contractual factors or other factors limiting the useful life of the asset are not subject to amortization but are reviewed at least annually for impairment or when indicators suggest that impairment may be needed. Intangible assets are subject to impairment review at least annually or when there is an indication that an asset has been impaired. | |||||||||
For unproved property costs, management reviews these investments for impairment on a property-by-property basis if a triggering event should occur that may suggest that impairment may be required. | |||||||||
The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If the carrying amount of the asset, including any intangible assets associated with that asset, exceeds its estimated future undiscounted net cash flows, the Company will recognize an impairment loss equal to the difference between its carrying amount and its estimated fair value. The fair value used to calculate the impairment for producing oil and natural gas field that produces from a common reservoir is first determined by comparing the undiscounted future net cash flows associated with total proved properties to the carrying value of the underlying evaluated property. If the cost of the underlying evaluated property is in excess of the undiscounted future net cash flows, the future net cash flows are discounted at 10%, which the Company believes approximates fair value, to determine the amount of impairment. | |||||||||
Asset Retirement Obligations | ' | ||||||||
U.S. GAAP requires us to record our estimate of the fair value of liabilities related to future asset retirement obligations in the period the obligation is incurred. Asset retirement obligations relate to the removal of facilities and tangible equipment at the end of an oil and natural gas property’s useful life. The application of this rule requires the use of management’s estimates with respect to future abandonment costs, inflation, market risk premiums, useful life and cost of capital. U.S. GAAP requires that our estimate of our asset retirement obligations does not give consideration to the value the related assets could have to other parties. | |||||||||
The following table is a reconciliation of the ARO liability for continuing operations for the six months ended June 30, 2013 and the twelve months ended December 31, 2012. | |||||||||
June 30, | December 31, | ||||||||
2013 | 2012 | ||||||||
Asset retirement obligation at beginning of period | $ | 39,905 | $ | 30,004 | |||||
Liabilities incurred | 8,930 | 7,002 | |||||||
Revisions to previous estimates | 0 | 0 | |||||||
Accretion expense | 1,998 | 2,899 | |||||||
Asset retirement obligation at end of period | $ | 50,833 | $ | 39,905 | |||||
Other Property and Equipment | ' | ||||||||
Our office equipment in Austin, Texas is being depreciated on the straight-line method over their estimated useful life of 5 to 7 years. | |||||||||
Cash and Cash Equivalents | ' | ||||||||
The Company considers all liquid investments with a maturity of three months or less from the date of purchase that are readily convertible into cash to be cash equivalents. The Company had no cash equivalents at June 30, 2013 and December 31, 2012, respectively. | |||||||||
Accounts Receivable | ' | ||||||||
Our accounts receivable are primarily from purchasers of natural gas and oil and exploration and production companies which operate properties we own working interests in. | |||||||||
Allowance for Doubtful Accounts | ' | ||||||||
The Company recognizes an allowance for doubtful accounts to ensure trade receivables are not overstated due to uncollectability. Allowance for doubtful accounts are maintained for all customers based on a variety of factors, including the length of time receivables are past due, macroeconomic conditions, significant one-time events and historical experience. An additional allowance for individual accounts is recorded when they become aware of a customer’s inability to meet its financial obligations, such as in the case of bankruptcy filings or deterioration in the customer’s operating results or financial position. If circumstances related to customers change, estimates of the recoverability of receivables would be further adjusted. As of June 30, 2013 and December 31, 2012, the Company has deemed $200,000 from the sale of oil and gas properties associated with the Jones County prospect, to be uncollectible and thus, has recorded this amount as an allowance for doubtful accounts. | |||||||||
Fair Value: | ' | ||||||||
At June 30, 2013 and December 31, 2012, the carrying value of the Company's financial instruments such as prepaid expenses and payables approximated their fair values based on the short-term maturities of these instruments. The carrying value of other long-term liabilities approximated their fair values because the underlying interest rates approximate market rates at the balance sheet dates. Management believes that due to the Company's current credit worthiness, the fair value of long-term debt could be less than the book value; however, due to current market conditions and available information, the fair value of such debt is not readily determinable. Financial Accounting Standard Board ("FASB") ASC Topic 820 established a hierarchical disclosure framework associated with the level of pricing observability utilized in measuring fair value. This framework defined three levels of inputs to the fair value measurement process and requires that each fair value measurement be assigned to a level corresponding to the lowest level input that is significant to the fair value measurement in its entirety. The three broad levels of inputs defined by | |||||||||
FASB ASC Topic 820 hierarchy are as follows: | |||||||||
Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date; | |||||||||
Leve1 2 - inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. If the asset or liability has a specified (contractual) term, a Leve1 2 input must be observable for substantially the full term of the asset or liability; and | |||||||||
Leve1 3 - unobservable inputs for the asset or liability. These unobservable inputs reflect the entity's own assumptions about the assumptions that market participants would use in pricing the asset or liability and are developed based on the best information available in the circumstances (which might include the reporting entity's own data). | |||||||||
The initial measurement of asset retirement obligations at fair value is calculated using discounted cash flows techniques and based on internal estimates of future retirement costs associated with proved oil and gas properties. Inputs used in the calculation of asset retirement obligations include plugging costs and reserve lives. A reconciliation of Victory’s asset retirement obligations is presented in Note 1. | |||||||||
The Company did not record impairment expense for the three months ended June 30, 2013 and 2012, respectively. The Company did not record impairment expense for the six months ended June 30, 2013 and 2012, respectively. | |||||||||
Revenue Recognition | ' | ||||||||
The Company uses the sales method of accounting for oil and natural gas revenues. Under this method, revenues are recognized based on actual volumes of gas and oil sold to purchasers. The volumes sold may differ from the volumes to which the Company is entitled based on our interests in the properties. Differences between volumes sold and entitled volumes create oil and natural gas imbalances which are generally reflected as adjustments to reported proved oil and natural gas reserves and future cash flows in their supplemental oil and natural gas disclosures. If their excess takes of natural gas or oil exceed their estimated remaining proved reserves for a property, a natural gas or oil imbalance liability is recorded in the Condensed Consolidated Balance Sheets. | |||||||||
Concentrations | ' | ||||||||
There is a ready market for the sale of crude oil and natural gas. During 2013 and 2012, our gas field and our producing wells sold their respective gas and oil production to one purchaser for each field or well. However, because alternate purchasers of oil and natural gas are readily available at similar prices, we believe that the loss of any of our purchasers would not have a material adverse effect on our financial results. | |||||||||
Earnings per share | ' | ||||||||
Basic earnings per share are computed using the weighted average number of common shares outstanding. Diluted earnings per share reflect the potential dilutive effects of common stock equivalents such as options, warrants and convertible securities. Given the historical and projected future losses of the Company, all potentially dilutive common stock equivalents are considered anti-dilutive. | |||||||||
Income Taxes | ' | ||||||||
The Company accounts for income taxes in accordance with ASC 740 “Income Taxes” which requires an asset and liability approach for financial accounting and reporting of income taxes. Deferred income taxes reflect the impact of temporary differences between the amount of assets and liabilities for financial reporting purposes and such amounts as measured by tax laws and regulations. Deferred tax assets include tax loss and credit carry forwards and are reduced by a valuation allowance if, based on available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. | |||||||||
Stock Based Compensation | ' | ||||||||
The Company applies ASC 718, “Compensation-Stock Compensation” to account for its issuance of options and warrants to key partners, directors and officers. The standard requires all share-based payments, including employee stock options, warrants and restricted stock, be measured at the fair value of the award and expensed over the requisite service period (generally the vesting period). The fair value of options and warrants granted to key partners, directors and officers is estimated at the date of grant using the Black-Scholes option pricing model by using the historical volatility of the Company’s stock price. The calculation also takes into account the common stock fair market value at the grant date, the exercise price, the expected life of the common stock option or warrant, the dividend yield and the risk-free interest rate. | |||||||||
The Company from time to time may issue stock options, warrants and restricted stock to acquire goods or services from third parties. Restricted stock, options or warrants issued to third parties are recorded on the basis of their fair value, which is measured as of the date issued. The options or warrants are valued using the Black-Scholes option pricing model on the basis of the market price of the underlying equity instrument on the “valuation date,” which for options and warrants related to contracts that have substantial disincentives to non-performance, is the date of the contract, and for all other contracts is the vesting date. Expense related to the options and warrants is recognized on a straight-line basis over the shorter of the period over which services are to be received or the vesting period. | |||||||||
The Company recognized stock-based directors fee and service incentive fee compensation expense from warrants granted to directors for the three and six months ended June 30, 2013 of $7,500 and $16,500, respectively, and for the three and six months ended June 30, 2012 of $223,829 and $487,679, respectively. | |||||||||
The Company recognized stock-based compensation expense from stock options granted to officers and employees of the company for the three and six months ended June 30, 2013 was $21,044 and $43,325, respectively, and for the three and six months ended June 30, 2012 of $44,406 and $126,531, respectively. | |||||||||
Going Concern | ' | ||||||||
The accompanying condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. As presented in the condensed consolidated financial statements, the Company has incurred a net loss of $838,386 for the six months ended June 30, 2013. | |||||||||
The proceeds from the sale and conversion to stock of the Company’s 10% Senior Secured Convertible Debentures in 2012 and new contributions to the Aurora partnership by The Navitus Energy Group (“Navitus”) have allowed the Company to continue operations and invest in new oil and natural gas properties. Management anticipates that operating losses will continue in the near term until new wells are drilled, successfully completed and incremental production increases revenue. For the three months and the six months ended June 30, 2013 the Company has invested a net of $591,194 and $1,335,922, respectively in drilling and completion costs. | |||||||||
The Company remains in active discussions with Navitus and others related to longer term financing required for our capital expenditures planned for 2013. Without additional outside investment from the sale of equity securities and/or debt financing, our capital expenditures and overhead expenses must be reduced to a level commensurate with available cash flows. | |||||||||
The accompanying consolidated financial statements are prepared as if the Company will continue as a going concern. The consolidated financial statements do not contain adjustments, including adjustments to recorded assets and liabilities, which might be necessary if the Company were unable to continue as a going concern. |
Organization_and_Summary_of_Si2
Organization and Summary of Significant Accounting Policies (Tables) | 6 Months Ended | ||||||||
Jun. 30, 2013 | |||||||||
Organization And Summary Of Significant Accounting Policies Tables | ' | ||||||||
Asset Retirement Obligations | ' | ||||||||
The following table is a reconciliation of the ARO liability for continuing operations for the six months ended June 30, 2013 and the twelve months ended December 31, 2012. | |||||||||
June 30, | December 31, | ||||||||
2013 | 2012 | ||||||||
Asset retirement obligation at beginning of period | $ | 39,905 | $ | 30,004 | |||||
Liabilities incurred | 8,930 | 7,002 | |||||||
Revisions to previous estimates | 0 | 0 | |||||||
Accretion expense | 1,998 | 2,899 | |||||||
Asset retirement obligation at end of period | $ | 50,833 | $ | 39,905 |
Oil_and_natural_gas_properties1
Oil and natural gas properties (Tables) | 6 Months Ended | ||||||||
Jun. 30, 2013 | |||||||||
Oil And Natural Gas Properties Tables | ' | ||||||||
Components of Oil and Natural Gas Properties | ' | ||||||||
Oil and natural gas properties are comprised of the following: | |||||||||
June 30, | December 31, | ||||||||
2013 | 2012 | ||||||||
Total oil and natural gas properties, at cost | $ | 7,535,108 | $ | 6,268,706 | |||||
Less: accumulated impairment | (3,685,202 | ) | (3,368,202 | ) | |||||
Oil and natural gas properties, net impairment | 3,849,906 | 2,583,504 | |||||||
Less: accumulated depletion | (1,220,375 | ) | (1,145,514 | ) | |||||
Oil and natural gas properties, net | $ | 2,629,531 | $ | 1,437,990 |
Liability_for_Unauthorized_Pre1
Liability for Unauthorized Preferred Stock Issued (Tables) | 6 Months Ended | ||||||||
Jun. 30, 2013 | |||||||||
Liability For Unauthorized Preferred Stock Issued Tables | ' | ||||||||
Composition of Unconverted Preferred Stock Liability | ' | ||||||||
The remaining liability for the unconverted preferred stock is based on the original cash tendered and consisted of the following as of: | |||||||||
June 30, | December 31, | ||||||||
2013 | 2012 | ||||||||
Liability for unauthorized preferred stock | $ | 9,283 | $ | 9,283 |
Organization_and_Summary_of_Si3
Organization and Summary of Significant Accounting Policies (Details) (USD $) | 6 Months Ended | 12 Months Ended |
Jun. 30, 2013 | Dec. 31, 2012 | |
Organization And Summary Of Significant Accounting Policies Details | ' | ' |
Asset retirement obligation at beginning of period | $39,905 | $30,004 |
Liabilities incurred | 8,930 | 7,002 |
Revisions to previous estimates | 0 | 0 |
Accretion expense | 1,998 | 2,899 |
Asset retirement obligation at end of period | $50,833 | $39,905 |
Organization_and_Summary_of_Si4
Organization and Summary of Significant Accounting Policies (Details Narrative) (USD $) | 3 Months Ended | 6 Months Ended | |||
Jun. 30, 2013 | Jun. 30, 2012 | Jun. 30, 2013 | Jun. 30, 2012 | Dec. 31, 2012 | |
Common Stock, shares authorized | 47,500,000 | ' | 47,500,000 | ' | 47,500,000 |
Common Stock, par value | $0.00 | ' | $0.00 | ' | $0.00 |
Common Stock, outstanding | 27,563,619 | ' | 27,563,619 | ' | 27,563,619 |
Non-controlling interest | $4,166,208 | ' | $4,166,208 | ' | $2,409,497 |
Net income (loss) attributable to non-controlling interest | 73,313 | -100,943 | 112,289 | -51,207 | ' |
Impairment expense | ' | ' | 344,353 | ' | ' |
Allowance for doubtful accounts | 200,000 | ' | 200,000 | ' | 200,000 |
Stock Based Compensation | ' | ' | 43,325 | 126,531 | ' |
Net Loss | 385,032 | 396,735 | 838,386 | 5,406,517 | ' |
Drilling and completion cost | 591,194 | ' | 1,335,922 | ' | ' |
Directors [Member] | ' | ' | ' | ' | ' |
Stock Based Compensation | 7,500 | 223,829 | 16,500 | 487,679 | ' |
Officer and Employees [Member] | ' | ' | ' | ' | ' |
Stock Based Compensation | $21,044 | $44,406 | $43,325 | $126,531 | ' |
Navitus_Energy_Group_Funding_T1
Navitus Energy Group Funding, Tracking and Accrual (Details Narrative) (USD $) | 6 Months Ended | 12 Months Ended |
Jun. 30, 2013 | Dec. 31, 2012 | |
Navitus Energy Group Funding Tracking And Accrual Details Narrative | ' | ' |
Accrued preferred distributions | $89,788 | $25,639 |
Common stock warrants issued under Navitus PPM | 1,869,000 | 1,089,900 |
Oil_and_natural_gas_properties2
Oil and natural gas properties (Details) (USD $) | Jun. 30, 2013 | Dec. 31, 2012 |
Oil And Natural Gas Properties Details | ' | ' |
Total oil and natural gas properties, at cost | $7,535,108 | $6,268,706 |
Less: accumulated impairment | -3,685,202 | -3,368,202 |
Oil and natural gas properties, net impairment | 3,849,906 | 2,583,504 |
Less: accumulated depletion | -1,220,375 | -1,145,514 |
Oil and natural gas properties, net | $2,629,531 | $1,437,990 |
Oil_and_natural_gas_properties3
Oil and natural gas properties (Details Narrative) (USD $) | 6 Months Ended | |
Jun. 30, 2013 | Jun. 30, 2012 | |
Oil And Natural Gas Properties Details Narrative | ' | ' |
Depletion, depreciation, and accretion expense | $77,899 | $32,081 |
Liability_for_Unauthorized_Pre2
Liability for Unauthorized Preferred Stock Issued (Details) (USD $) | Jun. 30, 2013 | Dec. 31, 2012 |
Liability For Unauthorized Preferred Stock Issued Details | ' | ' |
Liability for unauthorized preferred stock | $9,283 | $9,283 |
Liability_for_Unauthorized_Pre3
Liability for Unauthorized Preferred Stock Issued (Details Narrative) | Jun. 30, 2013 |
Liability For Unauthorized Preferred Stock Issued Details Narrative | ' |
Number of unconverted preferred stock shares | 68,966 |
Related_Party_Transactions_Det
Related Party Transactions (Details Narrative) (USD $) | Jun. 30, 2013 | Dec. 31, 2012 |
Related Party Transactions Details Narrative | ' | ' |
Accounts receivables from related parties | $22,500 | ' |
Accrued liabilities - related parties | $55,389 | $17,504 |
Stockholders_Equity_Details_Na
Stockholders' Equity (Details Narrative) (USD $) | 6 Months Ended |
Jun. 30, 2013 | |
Board Services [Member] | ' |
Warrants granted | 60,000 |
Value of warrants using the Black Scholes Option Pricing Model | $16,500 |
Warrants exercised for cash | 0.3 |
Auror [Member] | ' |
Warrants granted | 1,869,000 |
Value of warrants using the Black Scholes Option Pricing Model | $568,950 |
Warrants exercised for cash | 0.3 |