UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period endedJuly 31, 2008
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________________ to _______________________
Commission File No.0-21255
IAS ENERGY, INC.
(Exact name of registrant in its Charter)
| Oregon | 91-1063549 |
| (State or Other Jurisdiction of | (I.R.S. Employer |
| incorporation or organization) | Identification No) |
#240-11780 Hammersmith Way
Richmond, BC V7A 5E9 Canada
(Address of Principal Executive Offices)
(604) 278-5996
Registrant’s telephone number
___________________________________________________________
(Former Name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
(1) Yes [X] No [ ] (1) Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filed, a non-accelerated filer, or
a smaller reporting company.
Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [ ] Smaller reporting company[X]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [ X ]
ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Not applicable
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:
September 8, 2008
Common – 70,013,817 shares
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The unaudited financial statements of IAS Energy, Inc. (“we,” “us,” “our,” “the Company” and “IAS”) as of July 31, 2008 and for the three months ended July 31, 2008 and July 31, 2007 are attached hereto. Our financial statements are stated in United States Dollars and are prepared in accordance with United States Generally Accepted Accounting Principles.
It is the opinion of management that the interim financial statements for the three months ended July 31, 2008 and July 31, 2007 include all adjustments necessary in order to ensure that the financial statements are not misleading. These statements reflect all adjustments, which are, in the opinion of management, necessary to present fairly the financial position, results of operations and cash flows for the interim periods presented in accordance with accounting principles generally accepted in the United States of America. Except where noted, these interim financial statements follow the same accounting policies and methods of their application as the Company’s April 30, 2008 annual financial statements. All adjustments are of a normal recurring nature. It is suggested that these interim financial statements be read in conjunction with the Company’s April 30, 2008 annual financial statements.
Operating results for the three months ended July 31, 2008 are not necessarily indicative of the results that can be expected for the year ending April 30, 2009.
- 2 -
IAS Energy, Inc.
(A Development Stage Company)
(Expressed in U.S. Dollars)
July 31, 2008
(Unaudited)
| Index | |
| Balance Sheets | F–1 |
| Statements of Operations | F–2 |
| Statements of Cash Flows | F–3 |
| Notes to the Financial Statements | F–4 |
IAS Energy, Inc.
(A Development Stage Company)
Balance Sheets
(Expressed in U.S. Dollars)
(Unaudited)
| July 31, | April 30, | |||||
| 2008 | 2008 | |||||
| $ | $ | |||||
| Assets | ||||||
| Current Assets | ||||||
| Cash | 283 | 785 | ||||
| Available-for-sale securities (Note 7) | 95,801 | 162,589 | ||||
| Accrued revenues from petroleum interests | 2,796 | 3,052 | ||||
| Prepaid expenses | 22,021 | 69,209 | ||||
| Due from related parties (Note 5(a)) | 21,139 | 21,139 | ||||
| Total Current Assets | 142,040 | 256,774 | ||||
| Investment (Note 12) | 4,556,136 | 4,444,010 | ||||
| Total Assets | 4,698,176 | 4,700,784 | ||||
| Liabilities and Stockholders’ Equity | ||||||
| Current Liabilities | ||||||
| Bank indebtedness | 5,284 | 6,004 | ||||
| Accounts payable | 51,566 | 67,654 | ||||
| Accrued liabilities | 40,430 | 6,126 | ||||
| Due to related parties (Note 5(b)) | 955,052 | 830,021 | ||||
| Debentures (Note 6) | 25,000 | 25,000 | ||||
| Total Liabilities | 1,077,332 | 934,805 | ||||
| Commitments (Note 13) | ||||||
| Stockholders’ Equity | ||||||
| Preferred Stock – 50,000 share authorized; none issued | – | – | ||||
| Common Stock and Paid-in Capital in Excess of Par | ||||||
| Class A voting – 100,000,000 shares authorized without par | ||||||
| value 58,913,817 (April 30, 2008 – | ||||||
| 58,408,039 shares) issued and outstanding | 10,951,185 | 10,770,353 | ||||
| Class “B” non-voting – 100,000,000 shares authorized without par | ||||||
| value; none issued | – | – | ||||
| Obligation to Issue Shares (Notes 11(a)) | 32,007 | 147,338 | ||||
| Accumulated Other Comprehensive Income | (28,977 | ) | 36,650 | |||
| Deficit Accumulated During the Development Stage | (7,333,371 | ) | (7,188,362 | ) | ||
| Total Stockholders’ Equity | 3,620,884 | 3,765,979 | ||||
| Total Liabilities and Stockholders’ Equity | 4,698,176 | 4,700,784 |
F-1
The Accompanying Notes are an Integral Part of these Financial Statements
IAS Energy, Inc.
(A Development Stage Company)
Statements of Operations
(Expressed in U.S. Dollars)
(Unaudited)
| Cumulative from | |||||||||
| December 13, | |||||||||
| 1994 (Date of | Three Months | Three Months | |||||||
| Inception) to | Ended | Ended | |||||||
| July 31, | July 31, | July 31, | |||||||
| 2008 | 2008 | 2007 | |||||||
| $ | $ | $ | |||||||
| Revenue | |||||||||
| Petroleum and natural gas sales | 77,616 | 5,407 | 6,967 | ||||||
| Total Revenue | 77,616 | 5,407 | 6,967 | ||||||
| Operating Expenses | |||||||||
| Depletion and depreciation | 5,897 | – | 263 | ||||||
| Interest on convertible debentures | 13,675 | 547 | 547 | ||||||
| License | 15,250 | 750 | 750 | ||||||
| Office | 414,371 | 63,334 | 2,902 | ||||||
| Professional fees | 585,063 | 72,299 | 24,975 | ||||||
| Transfer agent and regulatory | 26,873 | 2,105 | 1,866 | ||||||
| Total Operating Expenses | 1,061,129 | 139,035 | 31,303 | ||||||
| Loss from Operations | (983,513 | ) | (133,628 | ) | (24,336 | ) | |||
| Other Income (Expenses) | |||||||||
| Gain on sale of available-for-sale securities | 104,670 | – | 1,920 | ||||||
| Gain on license obligation | 1,000 | – | – | ||||||
| Gain on write-off of payables | 63,487 | – | – | ||||||
| Gain on settlement of obligation to issue shares (Note 12(c)) | 54,750 | 1,000 | – | ||||||
| Loss from equity accounted investment (Note (12)) | (36,837 | ) | (374 | ) | – | ||||
| Impairment loss – oil and gas properties (Notes 11(a)) | (482,196 | ) | (12,007 | ) | (12,276 | ) | |||
| Loss Before Discontinued Operations | (1,278,639 | ) | (145,009 | ) | (34,692 | ) | |||
| Discontinued Operations | (6,054,732 | ) | – | – | |||||
| Net Loss | (7,333,371 | ) | (145,009 | ) | (34,692 | ) | |||
| Other Comprehensive Income (Loss) | |||||||||
| Unrealized gain (loss) on available-for-sale securities | 93,343 | (65,627 | ) | (29,256 | ) | ||||
| Reclassification adjustment for gains included in net loss | (122,320 | ) | – | (2,320 | ) | ||||
| Net unrealized gain (loss) on available-for-sale securities | (28,977 | ) | (65,627 | ) | (31,576 | ) | |||
| Comprehensive Loss | (7,362,348 | ) | (210,636 | ) | (66,268 | ) | |||
| Loss Per Share – Basic and Diluted | (0.00 | ) | (0.00 | ) | |||||
| Weighted Average Number of Class A Common Shares | |||||||||
| Outstanding | 58,468,884 | 36,023,039 |
F-2
The Accompanying Notes are an Integral Part of these Financial Statements
IAS Energy, Inc.
(A Development Stage Company)
Statements of Cash Flows
(Expressed in U.S. Dollars)
| Cumulative from | |||||||||
| December 13, 1994 | Three Months | Three Months | |||||||
| (Date of Inception) to | Ended | Ended | |||||||
| July 31, | July 31, | July 31, | |||||||
| 2008 | 2008 | 2007 | |||||||
| $ | $ | $ | |||||||
| Operating Activities | |||||||||
| Net loss | (7,333,371 | ) | (145,009 | ) | (34,692 | ) | |||
| Adjustments to reconcile net loss to net cash used in | |||||||||
| operating activities: | |||||||||
| Assets written-off | 455,957 | – | – | ||||||
| Depreciation | 189,109 | – | – | ||||||
| Gain on shares cancelled | (10 | ) | – | – | |||||
| Gain on sale of available-for-sale securities | (104,670 | ) | – | (1,920 | ) | ||||
| Gain on write-off of payables | (549,562 | ) | – | – | |||||
| Shares issued for services | 630,125 | – | – | ||||||
| Shares issued for convertible debenture interest | 18,786 | – | – | ||||||
| Gain on settlement of obligation to issue shares | (54,750 | ) | (1,000 | ) | – | ||||
| Additional paid-in capital on settlement of obligation to | |||||||||
| issue shares | 107,500 | – | – | ||||||
| Warrants issued for services | 18,681 | – | – | ||||||
| Stock-based compensation | 172,875 | 33,494 | – | ||||||
| Depletion | 4,074 | – | 263 | ||||||
| Loss from equity accounted investment | 36,837 | 374 | – | ||||||
| Impairment loss – oil and gas properties | 482,196 | 12,007 | 12,276 | ||||||
| Change in non-cash working capital: | |||||||||
| Prepaid expenses and deposits | 43,635 | 47,188 | (2,850 | ) | |||||
| Accounts receivable | – | – | 428 | ||||||
| Inventory | (28,615 | ) | – | – | |||||
| Accrued revenues from oil and gas properties | (2,796 | ) | 256 | (658 | ) | ||||
| Accounts payable and accrued liabilities | 797,260 | 18,216 | 21,256 | ||||||
| Due to related parties | 103,804 | 5,744 | (1,103 | ) | |||||
| Net Cash Used in Operating Activities | (5,012,935 | ) | (28,730 | ) | (7,000 | ) | |||
| Investing Activities | |||||||||
| Investment | (312,500 | ) | (112,500 | ) | – | ||||
| Purchase of property and equipment | (99,626 | ) | – | – | |||||
| Purchase of license | (250,000 | ) | – | – | |||||
| Increase in patent protection costs | (266,822 | ) | – | – | |||||
| Investment in oil and gas properties | (555,000 | ) | – | – | |||||
| Recoveries to oil and gas properties | 277,500 | – | – | ||||||
| Proceeds from sale of available-for-sale securities | 104,990 | – | 1,920 | ||||||
| Purchase of securities | (115,878 | ) | – | (4,394 | ) | ||||
| Net Cash Used in Investing Activities | (1,217,336 | ) | (112,500 | ) | (2,474 | ) | |||
| Financing Activities | |||||||||
| Advances from related parties | 1,490,943 | 121,448 | – | ||||||
| Bank indebtedness | 5,284 | (720 | ) | – | |||||
| Proceeds from issuance of common stock | 4,310,327 | – | – | ||||||
| Proceeds from convertible debentures | 400,000 | – | – | ||||||
| Proceeds from common stock subscribed | 24,000 | 20,000 | – | ||||||
| Net Cash Provided by Financing Activities | 6,230,554 | 140,728 | – | ||||||
| Net Increase (Decrease) in Cash | 283 | (502 | ) | (9,474 | ) | ||||
| Cash – Beginning of Period | – | 785 | 12,285 | ||||||
| Cash – End of Period | 283 | 283 | 2,811 | ||||||
| See note 15 for supplemental cash flow disclosures. |
F-3
The Accompanying Notes are an Integral Part of these Financial Statements
IAS Energy, Inc.
(A Development Stage Company)
Notes to the Financial Statements
Three Months Ended July 31, 2008
(Expressed in U.S. Dollars)
(Unaudited)
| 1. | INTERIM REPORTING |
The accompanying unaudited interim financial statements have been prepared by IAS Energy, Inc. (formerly IAS Communications, Inc.) (the "Company") pursuant to the rules and regulations of the United States Securities and Exchange Commission. Certain information and disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, all adjustments and disclosures necessary for a fair presentation of these financial statements have been included. Such adjustments consist of normal recurring adjustments. These interim financial statements should be read in conjunction with the audited financial statements of the Company for the fiscal year ended April 30, 2008, as filed with the United States Securities and Exchange Commission. | |
The results of operations for the three-months ended July 31, 2008 are not indicative of the results that may be expected for the full year. | |
| 2. | CONTINUANCE OF OPERATIONS |
IAS Energy, Inc. (the “Company”) was incorporated on December 13, 1994 pursuant to the laws of the State of Oregon, USA. The Company is a development stage company, as defined by Statement of Financial Accounting Standard (“SFAS”) No. 7, “Accounting and Reporting by Development Stage Enterprises”. On May 24, 2007, the Company changed its name from IAS Communications, Inc. to IAS Energy, Inc. The Company had been previously pursuing the development of oil and gas properties and, effective February 1, 2008 the Company changed its principal operations to acquiring and developing a video-sharing website, as described in Note 12. | |
In a development stage company, management devotes most of its activities to establishing a new business, including raising capital to acquire interest in the website. Planned principal activities have not yet produced any revenues and the Company has suffered operating losses as is normal in development stage companies. At July 31, 2008, the Company had a working capital deficiency of $935,292, which raises substantial concern of its ability to meet planned business objectives and ongoing operations for the next twelve months. The Company has accumulated losses of $7,333,371 since its inception. Its ability to continue as a going concern is dependent upon the ability of the Company to obtain the necessary financing to meet its obligations and pay its liabilities arising from normal business operations when they come due. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. The ability of the Company to emerge from the developmen t stage with respect to its planned principal business activity is dependent upon its successful efforts to raise additional equity financing, and receive funding from affiliates and controlling shareholders. Refer to Note 12. | |
| 3. | RECENT ACCOUNTING PRONOUNCEMENTS |
In May 2008, the FASB issued SFAS No. 163, “Accounting for Financial Guarantee Insurance Contracts – An interpretation of FASB Statement No. 60”. SFAS 163 requires that an insurance enterprise recognize a claim liability prior to an event of default when there is evidence that credit deterioration has occurred in an insured financial obligation. It also clarifies how Statement 60 applies to financial guarantee insurance contracts, including the recognition and measurement to be used to account for premium revenue and claim liabilities, and requires expanded disclosures about financial guarantee insurance contracts. It is effective for financial statements issued for fiscal years beginning after December 15, 2008, except for some disclosures about the insurance enterprise’s risk-management activities. SFAS 163 requires that disclosures about the risk-management activities of the insurance enterprise be effective for the first period beginning after issuance. Except for those disclosures, earlier application is not permitted. The adoption of this statement is not expected to have a material effect on the Company’s financial statements.
In May 2008, the FASB issued SFAS No. 162,“The Hierarchy of Generally Accepted Accounting Principles”. SFAS 162 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of non-governmental entities that are presented in conformity with generally accepted accounting principles in the United States. It is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411,“The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles”. The adoption of this statement is not expected to have a material effect on the Company’s financial statements.
F-4
IAS Energy, Inc.
(A Development Stage Company)
Notes to the Financial Statements
Three Months Ended July 31, 2008
(Expressed in U.S. Dollars)
(Unaudited)
| 3. | RECENT ACCOUNTING PRONOUNCEMENTS (continued) |
In March 2008, the FASB issued SFAS No. 161,“Disclosures about Derivative Instruments and HedgingActivities – an amendment to FASB Statement No. 133”.SFAS No. 161 is intended to improve financial standards for derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity's financial position, financial performance, and cash flows. Entities are required to provide enhanced disclosures about: (a) how and why an entity uses derivative instruments; (b) how derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations; and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows. It is effective for financial statements issued for fiscal years beginning after November 15, 2008, with early adoption encouraged. The adoption of this statement is not expected to have a material effect on the Company’s financial statements. | |
In December 2007, the FASB issued SFAS No. 141R,“Business Combinations”. This statement replaces SFAS 141 and defines the acquirer in a business combination as the entity that obtains control of one or more businesses in a business combination and establishes the acquisition date as the date that the acquirer achieves control. SFAS 141R requires an acquirer to recognize the assets acquired, the liabilities assumed, and any non- controlling interest in the acquiree at the acquisition date, measured at their fair values as of that date. SFAS 141R also requires the acquirer to recognize contingent consideration at the acquisition date, measured at its fair value at that date. This statement is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Earlier adoption is prohibited. The adoption of this statement is not expected to have a material effect on the Company's financial statements. | |
In December 2007, the FASB issued SFAS No. 160,“Non-controlling Interests in Consolidated FinancialStatements Liabilities – an Amendment of ARB No. 51”. This statement amends ARB 51 to establish accounting and reporting standards for the non-controlling interest in a subsidiary and for the de-consolidation of a subsidiary. This statement is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Earlier adoption is prohibited. The Company is in the process of assessing the impact of this new section on its financial statements. | |
In February 2007, the FASB issued SFAS No. 159,“The Fair Value Option for Financial Assets and FinancialLiabilities – Including an Amendment of FASB Statement No. 115”.This statement permits entities to choose to measure many financial instruments and certain other items at fair value. Most of the provisions of SFAS No. 159 apply only to entities that elect the fair value option. However, the amendment to SFAS No. 115,“Accounting forCertain Investments in Debt and Equity Securities”, applies to all entities with available-for-sale and trading securities. SFAS No. 159 is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007. Early adoption is permitted as of the beginning of a fiscal year that begins on or before November 15, 2007, provided the entity also elects to apply the provision of SFAS No. 157,“Fair ValueMeasurements”.The adoption of this statement did not have a material effect on the Company's financial statements. | |
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”. The objective of SFAS No. 157 is to increase consistency and comparability in fair value measurements and to expand disclosures about fair value measurements. SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS No. 157 applies under other accounting pronouncements that require or permit fair value measurements and does not require any new fair value measurements. The provisions of SFAS No. 157 are effective for fair value measurements made in fiscal years beginning after November 15, 2007. The adoption of this statement is not expected to have a material effect on the Company's financial statements. | |
In March 2006, the FASB issued SFAS No. 156, "Accounting for Servicing of Financial Assets, an amendment ofFASB Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments ofLiabilities". This statement requires all separately recognized servicing assets and servicing liabilities be initially measured at fair value, if practicable, and permits for subsequent measurement using either fair value measurement with changes in fair value reflected in earnings or the amortization and impairment requirements of Statement No. 140. The subsequent measurement of separately recognized servicing assets and servicing liabilities at fair value eliminates the necessity for entities that manage the risks inherent in servicing assets and servicing liabilities with derivatives to qualify for hedge accounting treatment and eliminates the characterization of declines in fair value as impairments or direct write-downs. SFAS No. 156 is effective for an entity's first fiscal year beginning after September 15, 2006. The adoption of this statement did not have a material effect on the Company's financial statements. |
F-5
IAS Energy, Inc.
(A Development Stage Company)
Notes to the Financial Statements
Three Months Ended July 31, 2008
(Expressed in U.S. Dollars)
(Unaudited)
| 4. | ASSET RETIREMENT OBLIGATION | |
The total future asset retirement obligation (“ARO”) was estimated by management based on the Company’s net ownership interest in all wells and facilities, estimated costs to reclaim and abandon the wells and facilities, and the estimated timing of the costs to be incurred in future periods. Although the Company’s wells are producing, the Company has estimated the total ARO to be $nil as at July 31, 2008 (2007 - $nil) because the costs to be incurred in shutting down the wells are estimated to be minimal. | ||
| 5. | RELATED PARTY TRANSACTIONS | |
| (a) | As at July 31, 2008, the Company was owed by related companies controlled or significantly influenced by the President of the Company $21,139 (April 30, 2008 - $21,139) comprised of advances and/or expenses paid by the Company. The amounts are non-interest bearing, unsecured and without specific terms of repayment | |
| (b) | As at July 31, 2008, the Company owed related companies controlled or significantly influenced by the President of the Company $955,052 (April 30, 2008 - $830,021) comprised of advances and/or expenses paid on behalf of the Company. The amounts are non-interest bearing, unsecured and without specific terms of repayment. | |
| (c) | On April 7, 2008, the Company entered into an agreement with Teryl Resources Corp. (“Teryl”) a related company, to sell to Teryl the remaining 40% working interest in the three gas wells located in Knox and Laurel County, Kentucky. In consideration, the Company received an initial payment of $25,000 and the balance will be determined after an independent valuation report prepared by a qualified petroleum geologist. During the fiscal quarter ended July 31, 2008, both parties agreed to indefinitely suspend the agreement due to the difficulty of obtaining an independent valuation report due to the vertical fracture of the wells. As such, the $25,000 remained in the Company and will be applied against future revenue until the balance is fully depleted. | |
| (d) | The Company shares office space with companies with related directors and officers. The Company occupied this space rent-free during the three months period ended July 31, 2008. | |
| 6. | DEBENTURES | |
On June 15, 1997, the Company offered three-year, 8¾% interest debentures. As at July 31, 2008, $25,000 of debentures remain outstanding. Interest is due annually. | ||
| 7. | AVAILABLE-FOR-SALE SECURITIES | |
| July 31, 2008 | April 30, 2008 | ||||||||||||||||||
| Gross | Gross | ||||||||||||||||||
| Unrealized | Unrealized | ||||||||||||||||||
| Cost | Gains | Fair Value | Cost | Gains | Fair Value | ||||||||||||||
| $ | $ | $ | $ | $ | $ | ||||||||||||||
| Equity security | 124,778 | (28,977 | ) | 95,801 | 125,939 | 36,650 | 162,589 | ||||||||||||
| Total available-for- sale securities | 124,778 | (28,977 | ) | 95,801 | 125,939 | 36,650 | 162,589 | ||||||||||||
| 8. | COMMON STOCK | |
| a. | On July 21, 2008, the Company issued 495,778 Class A shares to a private company controlled by the President of the Company to fulfill its obligation per agreement, as described in Note 11(a) | |
| b. | On May 28, 2008, the Company issued 10,000 units at $0.40 per unit pursuant to a private placement for cash proceeds of $4,000, received during the April 30, 2008 year-end. Each unit consists of one Class A common share and one warrant. Each warrant enables the holder to purchase one additional Class A common share at an exercise price of $0.50 per share for one year after closing date. | |
F-6
IAS Energy, Inc.
(A Development Stage Company)
Notes to the Financial Statements
Three Months Ended July 31, 2008
(Expressed in U.S. Dollars)
(Unaudited)
| 9. | STOCK OPTION PLAN |
The Company has a Stock Option Plan to issue up to 2,500,000 Class A common shares to certain key directors and employees, approved and registered October 2, 1996, as amended. Pursuant to the Plan, the Company has granted stock options to certain directors and employees. | |
On October 22, 2007, the Company approved the 2007 Stock Option Plan to issue up to 2,000,000 Class A common shares to directors and employees and registered them on Form S-8 with the Securities and Exchange Commission (“SEC”). | |
The following table summarizes stock option plan activities: |
| Weighted | |||||||||||||
| Average | |||||||||||||
| Remaining | |||||||||||||
| Weighted | Contractual | Aggregate | |||||||||||
| Average Exercise | Life | Intrinsic | |||||||||||
| Options | Price | (in years) | Value | ||||||||||
| # | $ | # | $ | ||||||||||
| Outstanding, May 1, 2008 | 2,212,500 | 0.29 | |||||||||||
| Granted | – | – | |||||||||||
| Exercised | – | – | |||||||||||
| Cancelled/Modified | – | – | |||||||||||
| Outstanding, July 31, 2008 | 2,212,500 | 0.29 | 3.72 | 33,375 | |||||||||
| Exercisable at end of period | 637,500 | 0.31 | 3.71 | 7,725 |
As at July 31, 2008, there was $368,414 of total unrecognized compensation costs related to non-vested stock options granted under the Plans, which are expected to be recognized over a weighted-average period of 48 months. The total fair value of stock options vested during the three months ended July 31, 2008 and 2007 was $33,494 and $nil, respectively.
A summary of the status of the Company’s non-vested stock options as of July 31, 2008 and changes during the three months ended July 31, 2008 is presented below:
| Weighted Average | |||||||
| Grant Date | |||||||
| Stock Options | Fair Value | ||||||
| # | $ | ||||||
| Non-vested at May 1, 2008 | 1,700,000 | 0.29 | |||||
| Vested | (125,000 | ) | 0.27 | ||||
| Granted | – | – | |||||
| Non-vested at July 31, 2008 | 1,575,000 | 0.23 |
| 10. | SHARE PURCHASE WARRANTS |
The following table summarizes the continuity of the Company’s warrants: |
| Weighted Average | |||||||
| Warrants | Exercise Price | ||||||
| # | $ | ||||||
| Balance, April 30, 2008 | 368,000 | 0.42 | |||||
| Issued | – | – | |||||
| Exercised | – | – | |||||
| Balance, July 31, 2008 | 368,000 | 0.42 |
On September 28, 2007, the Company extended the expiry date of 250,000 warrants from September 29, 2007 to September 29, 2008.
F-7
IAS Energy, Inc.
(A Development Stage Company)
Notes to the Financial Statements
Three Months Ended July 31, 2008
(Expressed in U.S. Dollars)
(Unaudited)
| 11. | OIL AND GAS PROPERTIES |
| April 30, | July 31, | ||||||||||||
| 2008 | 2008 | ||||||||||||
| Net Carrying | Acquisition/ | Net Carrying | |||||||||||
| Value | Impairment | Depletion | Value | ||||||||||
| $ | $ | $ | $ | ||||||||||
| Proved Properties, Kentucky and Texas, USA | |||||||||||||
| Acquisition costs | 474,263 | 12,007 | – | 486,270 | |||||||||
| Depletion | (4,074 | ) | – | – | (4,074 | ) | |||||||
| Impairment | (470,189 | ) | (12,007 | ) | – | (482,196 | ) | ||||||
| Net Carrying Value | – | – | – | – |
| (a) | The Company entered into an agreement dated April 6, 2005 with a private company controlled by the President of the Company to acquire a working interest in two oil wells located in Burleson County, Texas. The Company agreed to issue up to 1,000,000 shares (issued – 775,255 shares) of restricted common stock at the rate of one share for every $0.10 of revenue from the wells. To July 31, 2008, revenue from the wells was approximately $42,886. During the three months ended July 31, 2008, the Company received/accrued $2,374 of revenue from the wells. The approximately 57,000 shares of restricted common stock issuable at July 31, 2008 pursuant to this agreement have been recorded at the quoted market price prevailing at the time of receipt of the oil and gas revenues and are accrued in the amount of $12,007 in obligation to issue shares. | |
The wells are producing but a value cannot be placed on them due to vertical fracture features that prevent the estimation of reserves. Accordingly, cumulative impairment loss of $196,763 equal to the investment in the oil wells that would have otherwise been recorded has been charged to operations. During the three months ended July 31, 2008, $12,007 (2007 - $12,276) of impairment loss was recognized. | ||
| (b) | On May 4, 2006, the Company entered into an agreement with Energy Source Inc. (“ESI”) to drill up to 24 gas wells located in Kentucky. The Company can earn a 100% working interest (60% net revenue interest) in four gas wells by paying $185,000 per well and has the option to acquire a 100% working interest (60% net revenue interest) in an additional 20 wells over an 18-month period at a price to be agreed upon. During the year ended April 30, 2008, the option for the additional 20 wells expired. Each well is subject to a 12.5% net revenue interest to the landowner and a 27.5% interest to ESI. On May 18, 2006, the Company entered into an agreement with Teryl, a public company related by common directors and officers, to farm-out a 40% working interest outlined above, subject to a 12.5% net revenue interest to the landowner and a 27.5% interest to ESI, in consideration for paying 50% of the total costs of the wells. The Company received $277,500 from Teryl during the year ended April 30, 2007, representing 50% of the cost of drilling the first, second and third wells. On September 28, 2006, the Company assigned a 20% working interest (12% net revenue interest) in the third well drilled as part of a financing agreement. | |
To July 31, 2008, the Company’s portion of the revenue from the wells was approximately $34,730. During the three months ended July 31, 2008, the Company received/accrued $3,033 of revenues from the wells, and recorded depletion of $nil on capitalized costs relating to this area. |
F-8
IAS Energy, Inc.
(A Development Stage Company)
Notes to the Financial Statements
Three Months Ended July 31, 2008
(Expressed in U.S. Dollars)
(Unaudited)
| 12. | INVESTMENTS | |
On November 26, 2007, the Company entered into an Option Agreement (the “Agreement”) with the two sole shareholders of Power Telecom, a company incorporated in Hong Kong, for the option to acquire 100% of the outstanding shares of Power Telecom in consideration for the issuance of 50,000,000 Class A shares of common stock of the Company and the requirement to invest $650,000 towards the further development of Power Telecom’s business. Power Telecom owns 100% of the rights to the Chinese website http://www.video1314.com, which is similar to the YouTube website. The Company paid a non-refundable deposit of $50,000 to Power Telecom upon execution of the Agreement, which funds have been used for the further development of Power Telecom’s business. | ||
Pursuant to the Agreement, the Company received a series of irrevocable exclusive options to purchase up to 100% of the shares of Power Telecom in stages as described below: | ||
| [i] | To purchase an initial 20% interest in Power Telecom, the Company must issue 10,000,000 Class A common shares, pay $50,000 to Power Telecom and issue 1,000,000 Class A common shares as a finder’s fee. The Company exercised this option on November 26, 2007. The 11,000,000 common shares issued were recorded at a fair value of $1,880,032. | |
| [ii] | To purchase an additional 20% interest in Power Telecom, the Company must issue an additional 10,000,000 Class A common shares, pay a further $100,000 to Power Telecom, and issue an additional 1,000,000 Class A common shares as a finder’s fee. The Company exercised this option on March 5, 2008. The 11,000,000 common shares issued were recorded at a fair value of $2,400,441. | |
| [iii] | To purchase an additional 20% interest in Power Telecom, the Company must issue an additional 10,000,000 Class A common shares, pay a further $150,000 to Power Telecom, and issue an additional 1,000,000 Class A common shares as a finder’s fee. Subsequent to the period, the Company completed payment of $150,000 and issued 10,000,000 Class A shares, plus 1,000,000 Class A shares as finder’s fees, to acquire the next 20% interest in Power Telecom Refer to Note 16. | |
| [iv] | To purchase an additional 20% interest in Power Telecom, the Company must issue an additional 10,000,000 Class A common shares, pay a further $150,000 to Power Telecom, and issue an additional 1,000,000 Class A common shares as a finder’s fee. | |
| [v] | To purchase an additional 20% interest in Power Telecom, the Company must issue an additional 10,000,000 Class A common shares, pay a further $150,000 to Power Telecom, and issue an additional 1,000,000 Class “A common shares as a finder’s fee. | |
Upon execution of the Agreement, the Company granted 1,000,000 stock options to purchase 1,000,000 Class A common shares of the Company at a price of $0.33 per share for a period of five years. The options vest as to 12.5% upon grant date and an additional 12.5% every 90 days thereafter. | ||
The investment is accounted for using the equity method as follows: | ||
| July 31, | April 30, | ||||||
| 2008 | 2008 | ||||||
| $ | $ | ||||||
| Cost of investment | 4,592,973 | 4,480,473 | |||||
| Share of losses since acquisition | (36,837 | ) | (36,463 | ) | |||
| Carrying value | 4,556,136 | 4,444,010 |
Summarized financial information for Power Telecom is as follows:
| July 31, | April 30, | ||||||
| 2008 | 2008 | ||||||
| $ | $ | ||||||
| Assets | |||||||
| Current Assets | 4,190 | 57 | |||||
| Total Assets | 4,190 | 57 | |||||
| Current Liabilities | 258,495 | 328,680 | |||||
| Common Stock and Paid-in Capital in Excess of Par | 276,271 | 201,431 | |||||
| Comprehensive Income | – | (74 | ) | ||||
| Deficit | (530,576 | ) | (529,980 | ) | |||
| Total Liabilities and Stockholders’ Equity | 4,190 | 57 |
F-9
IAS Energy, Inc.
(A Development Stage Company)
Notes to the Financial Statements
Three Months Ended July 31, 2008
(Expressed in U.S. Dollars)
(Unaudited)
| 12. | INVESTMENT(Continued) |
| Three Months | |||||||
| Ended | Year Ended | ||||||
| July 31, | April 30, | ||||||
| 2008 | 2008 | ||||||
| $ | $ | ||||||
| Revenue | 2,564 | 6,098 | |||||
| Operating Expenses | 3,498 | 322,337 | |||||
| Net Loss | (935 | ) | (316,239 | ) | |||
| Share of net loss | (374 | ) | (36,463 | ) |
The shares issued for the above investment have the following restrictions:
| (a) | Holding period of six months; | |
| (b) | After the six-month holding period, the number of shares to be sold during any 90-day period cannot exceed 1% of the outstanding shares of the same class; | |
| (c) | The sales must be handled as routine transactions with no solicitation; and | |
| (d) | A notice has to be filed with the SEC on Form 144 if the sale involves more than 500 shares or the aggregate dollar amount is greater than $10,000 in any 90-day period. |
The first tranche of 11,000,000 shares issued on November 26, 2007, used the five-day average trading price of $0.23, before the announcement was made October 23, 2007, in the calculation of the fair value. | |||
The second tranche of 11,000,000 shares issued on March 5, 2008, used the five-day average trading price of $0.28 in the calculation of the fair value. | |||
Since these shares have trading restrictions, the aggregate fair value was calculated using the above prices, over the estimated time (based on trading restrictions) to achieve free trading status, using a 10% discount factor. | |||
| 13. | COMMITMENTS | ||
| (a) | By sublicense agreements dated July 10, 1995, the Company was granted an exclusive worldwide sublicense by Integral Concepts Inc. (“ICI”) and West Virginia University Research Corporation (“WVURC”) to the Contrawound Toroidal Helical Antenna (“CTHA”) technology, excluding all military and governmental applications and resulting procurement interests. On March 17, 2005, the Company entered into settlement and release agreements with each of ICI and WVURC to terminate the July 10, 1995 agreements. Accordingly, the Company was released from all previously accrued royalty fees. | ||
On March 17, 2005, the Company entered into a non-exclusive license agreement with WVURC for the development, manufacture, use and sale of the CTHA technology. The agreement was retroactively effective on January 15, 2005. The terms of the non-exclusive sublicense agreement are as follows: | |||
| (i) | The Company will pay a license fee of $3,000 for each calendar year, payable on or before January 15 of each year (paid); | ||
| (ii) | The Company will pay a royalty of 10% of net sales; and | ||
| (iii) | The Company will pay a royalty of 50% of all other sublicense revenues. | ||
All royalties in items (ii) and (iii) are payable within 30 days of each calendar quarter. The terms of the agreement remain in effect until the expiration of the last patent to expire that is included in the CTHA technology. | |||
F-10
IAS Energy, Inc.
(A Development Stage Company)
Notes to the Financial Statements
Three Months Ended July 31, 2008
(Expressed in U.S. Dollars)
(Unaudited)
| 13. | COMMITMENTS (continued) | |
| (b) | On August 31, 2007, the Company entered into an agreement with America West Pacific International Invest Corporation (“America West”) to provide public and investor relations for a period of 18 months. America West was issued 100,000 shares of common stock of the Company and 100,000 share purchase warrants to acquire 100,000 shares at $0.40 per share for a period of two years. America West will also receive 15% of any funds they raise for the Company, which will be paid 10% in cash and 5% in units with the same price and exercise terms as those purchased by the subscriber referred by America West. The fair value of the 100,000 shares of common stock and warrants issued was $50,681, of which $30,972 was charged to professional fees and $19,709 is included in prepaid expenses. | |
| (c) | On December 1, 2007, the Company entered into an agreement with a consultant for investor relations at $7,500 per month and 300,000 shares of common stock of the Company with a market value of $225,000 at the date of the agreement. Of the 300,000 shares, 100,000 were required to be free trading and were to be delivered by a related party to which the Company would be indebted for an amount equal to their market value at the date of delivery. The remaining 200,000 would be restricted stock issued by the Company. The 100,000 shares to be delivered by a related party were considered a liability instrument as the obligation met the definition of a liability and were recorded as such. Effective April 30, 2008, a related company delivered all 300,000 shares on behalf of the Company when the value of the shares was $63,750. The Company realized a gain of $53,750 on settlement of the liability and recorded a credit to additional paid-in capital of $107,500 related to the 200,000 shares that were to be issued by the Company. | |
| 14. | INCOME TAX | |
| As at July 3, 2008, the Company has unused net operating losses for U.S. federal income tax purposes of approximately $7,333,371 that are available to offset future taxable income. This unused net operating loss carry forward balance for income tax purposes expires between the years 2024 and 2029. | ||
| 15. | SUPPLEMENTAL CASH FLOW DISCLOSURE | |
| Cumulative from | ||||||||||
| December 13, 1994 | Three | Three | ||||||||
| (Date of Inception) | Months | Months | ||||||||
| to | Ended | Ended | ||||||||
| July 31, | July 31, | July 31, | ||||||||
| 2008 | 2008 | 2007 | ||||||||
| $ | $ | $ | ||||||||
| Non-Cash Investing and Financing Activities | ||||||||||
| Issue of common stock to settle related party debt | 892,741 | – | – | |||||||
| Issue of common stock for convertible dentures and | ||||||||||
| accrued interest converted | 394,661 | – | – | |||||||
| Issue of common stock for technology | 1 | – | – | |||||||
| Issue of common stock to an officer donated back and | ||||||||||
| cancelled | (10 | ) | – | – | ||||||
| Issue of common stock for services | 573,173 | – | – | |||||||
| Issue of common stock for revenue interest | 196,763 | 143,338 | – | |||||||
| Issue of common stock for investment | 4,280,473 | – | – | |||||||
| Supplemental Disclosures | ||||||||||
| Interest paid on convertible debentures | 13,675 | 547 | 547 | |||||||
| Income tax paid | – | – | – |
| 16. | SUBSEQUENT EVENT |
On August 13, 2008, the Company paid the remainder of the $150,000 and issued 10,000,000 Class A shares, plus 1,000,000 Class A shares as finder’s fees, to acquire the next 20% interest in Power Telecom (for a total 60% interest) under the option agreement, as described in Note 12. The third option was completed on September 3, 2008 upon receipt by the Company of the Power Telecom shares. |
F-11
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR RESULTS OF OPERATIONS.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this Quarterly Report on Form 10-Q constitute "forward-looking statements." These statements, identified by words such as “plan,” "anticipate," "believe," "estimate," "should," "expect" and similar expressions include our expectations and objectives regarding our future financial position, operating results and business strategy. These statements reflect the current views of management with respect to future events and are subject to risks, uncertainties and other factors that may cause our actual results, performance or achievements, or industry results, to be materially different from those described in the forward-looking statements. Such risks and uncertainties include those set forth in our 10-KSB for the fiscal year ended April 30, 2008. We do not intend to update the forward-looking information to reflect actual results or changes in the factors affecting such forward-looking information. We advise you to carefully review the reports and documents we file from time to time with the Securities and Exchange Commission (the “SEC”), particularly our Annual Reports on Form 10-KSB or Form 10-K, our Quarterly Reports on Form 10-QSB or Form 10-Q and our Current Reports on Form 8-K.
As used in this Quarterly Report, the terms "we," "us," "our,” and “IAS” mean IAS Energy., Inc. unless otherwise indicated. All dollar amounts in this Quarterly Report are in U.S. dollars unless otherwise stated.
CORPORATE BACKGROUND AND OVERVIEW
IAS Communications, Inc. was incorporated on December 13, 1994 pursuant to the Laws of the State of Oregon, USA. On May 24, 2007, the name of the Company was changed to “IAS Energy, Inc.”. Our principal offices are located at 240-11780 Hammersmith Way, Richmond, British Columbia V7A 5E9, Canada. Our telephone number is (604) 278-5996 and our facsimile number is (604) 278-3409. Our website is www.iasenergy.com.
We are a development stage company, formerly engaged in the acquisition and exploration of oil and gas interests in North America, and the commercialization of an antenna technology. We are presently pursuing our option to acquire up to a 100% interest in Power Telecom Limited of Hong Kong. Power Telecom Limited owns the rights to the Chinese web site www.video1314.com. Video1314 is a fast growing Chinese Web 2.0 platform (similar to www.youtube.com) that allows users to share videos, music, and audio as well as sell goods and services using videos in its marketplace. Since its launch, Video1314 has attracted millions of users and is fast becoming one of Asia’s top Web2.0 destinations. Video1314 currently serves the Greater China region, which includes mainland China, Hong Kong, Macau and Taiwan. The features of the site are focused on free online photo, video and audio sharing; a marketplace to buy and sell goods using video, photo and audio technologies; and online educational gaming.
In a development stage company, management devotes most of its activities to establishing a new business. Planned principal activities have not yet produced significant revenues and we have suffered recurring operating losses as is normal in development stage companies. We also have a working capital deficiency of $935,292 as at July 31, 2008, which our auditors have stated raises substantial concern on our ability to meet planned business objectives and ongoing operations for the next twelve months. Our ability to emerge from the development stage with respect to our planned principal business activity is dependent upon our successful efforts to raise additional equity financing, receive funding from affiliates and controlling shareholders.
The following discussion of our financial condition, changes in financial condition and results of operations for the three-month period ended July 31, 2008 and July 31, 2007 should be read in conjunction with our most recent audited annual financial statements for the financial year ended April 30, 2008, the unaudited interim financial statements included herein, and, in each case, the related notes.
PLAN OF OPERATION
The following contains forward-looking statements relating to revenues, expenditures and sufficiency of capital resources. Actual results may differ from those projected in the forward-looking statements for a number of reasons, including those described in this quarterly report.
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The financial statements for the three months ended July 31, 2008 have been prepared assuming that the Company will continue as a going-concern. As discussed in note 2 to the financial statements, the Company has minimal revenues and limited capital, which together raise substantial doubt about its ability to continue as a going-concern. Management’s plans in regard to these matters are also described in note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
RESULTS OF OPERATIONS
Three months ended July 31, 2008 (“2008”) compared to the three months ended July 31, 2007 (“2007”)
Summary
| Three Months Ended July 31, | |||||||||
| Percentage | |||||||||
| Increase / | |||||||||
| 2008 | 2007 | (Decrease) | |||||||
| $ | $ | % | |||||||
| Revenue | 5,407 | 6,967 | (22.4 | ) | |||||
| Expenses | (139,035 | ) | (31,303 | ) | (344.2 | ) | |||
| Other Income (Loss) | (11,381 | ) | (10,356 | ) | (9.9 | ) | |||
| Net Income (Loss) | (145,009 | ) | (34,692 | ) | (318.0 | ) | |||
Expenses
Our expenses for the three months ended July 31, 2008 and 2007 consisted of the following:
| Three Months Ended July 31, | |||||||||
| Percentage | |||||||||
| Increase / | |||||||||
| 2008 | 2007 | (Decrease) | |||||||
| $ | $ | % | |||||||
| General and administrative: | |||||||||
| Depletion and depreciation | – | 263 | (100.0 | ) | |||||
| Interest on convertible debentures | 547 | 547 | Nil | ||||||
| License | 750 | 750 | Nil | ||||||
| Office | 63,334 | 2,902 | (2,182.4 | ) | |||||
| Professional fees | 72,299 | 24,975 | (189.5 | ) | |||||
| Transfer agent and regulatory | 2,105 | 1,866 | (12.8 | ) | |||||
| Total | 139,035 | 31,303 | (344.2 | ) | |||||
The increase of $107,732 in our administrative expenses for the three months ended July 31, 2008 as compared to the three months ended July 31, 2007 was attributable to the increase in office expenses of $60,432 and professional fees of $47,324.
Revenues
We earned $5,407 in revenue from our oil and gas wells. We do not expect to earn any other sources of revenue in the near future.
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LIQUIDITY AND CAPITAL RESOURCES
Working Capital
| At July 31, 2008 | At April 30, 2008 | |||||
| Current Assets | $ | 142,040 | $ | 256,774 | ||
| Current Liabilities | (1,077,332 | ) | (934,805 | ) | ||
| Working Capital (Deficit) | $ | (935,292 | ) | $ | (687,031 | ) |
Cash Flows
| Three Months Ended July 31, | ||||||
| 2008 | 2007 | |||||
| Cash Flows (Used In) Operating Activities | $ | (28,730 | ) | $ | (7,000 | ) |
| Cash Flows (Used In) Investing Activities | (112,500 | ) | (2,474 | ) | ||
| Cash Flows From Financing Activities | 140,728 | - | ||||
| Net Increase (Decrease) In Cash During Period | $ | (502 | ) | $ | (9,474 | ) |
During the three months ended July 31, 2008, we financed our operations by receiving financial support from related parties in the amount of $121,448 compared to $nil in 2007. These amounts are unsecured, non-interest bearing and due on demand. We also received $20,000 from subscriptions for our common stock as compared to $nil in 2007.
During the three months ended July 31, 2008, we paid $112,500 to Power Telecom, being the remainder of the $150,000 option payment owing for the third option.
Our cash position as at the end of July 31, 2008 was $283 ($2,811 in 2007), and our working capital deficit as at July 31, 2008 was $935,292 compared to $297,275 as at July 31, 2007. We anticipate that we will need $500,000 to finance our operations over the next 12 months and anticipate that we will obtain said financing by receiving financial support from related parties or through the sale of our securities. Working capital is not adequate to meet development costs for the next twelve months.
There were no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Financing Requirements
Working capital is not adequate to meet development costs for the next twelve months. We will require additional financing if we are to continue as a going concern.
The Company receives interim support from affiliated companies and plans to raise additional capital through debt and/or equity financings. The Company may also raise additional funds through the exercise of warrants and stock options, if exercised. We have been successful in the past in acquiring capital through the issuance of shares of our Common Stock, and through advances from related parties. We do not have any arrangements in place for the sale of any of our securities and there is no assurance that we will be able to raise the additional capital that we require to continue operations.
We anticipate that our cash requirements for the next twelve months ending July 31, 2009 will remain consistent with those for the previous twelve months.
OFF-BALANCE SHEET ARRANGEMENTS
There were no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
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CRITICAL ACCOUNTING POLICIES
We have identified certain accounting policies, described below, that are most important to the portrayal of our current financial condition and results of operations. Our significant accounting policies are disclosed in Note 2 to our audited financial statements for the fiscal year ended April 30, 2008, filed with our 10-KSB on August 27, 2008.
| (a) | Basic and Diluted Loss Per Share | |
The Company computes net income (loss) per share in accordance with SFAS No. 128, "Earnings per Share", which requires presentation of both basic and diluted earnings per share (”EPS”) on the face of the income statement. Basic EPS is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of common shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of common shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive. | ||
| (b) | Stock-Based Compensation | |
The Company records stock-based compensation in accordance with SFAS No. 123R, “Share Based Payments”, using the fair value method. | ||
All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. Equity instruments issued to employees and the cost of the services received as consideration are measured and recognized based on the fair value of the equity instruments issued. | ||
| (c) | Long-Lived Assets | |
In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, the Company tests long-lived assets or asset groups for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable. Circumstances that could trigger a review include, but are not limited to: significant decreases in the market price of the asset; significant adverse changes in the business climate or legal factors; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset; and current expectation that the asset will more likely than not be sold or disposed of significantly before the end of its estimated useful life. | ||
Recoverability is assessed based on the carrying amount of the asset and its fair value, which is generally determined based on the sum of the undiscounted cash flows expected to result from the use and the eventual disposal of the asset, as well as specific appraisal in certain instances. An impairment loss is recognized when the carrying amount is not recoverable and exceeds fair value. | ||
| (d) | Oil and Gas Properties | |
The Company utilizes the full-cost method of accounting for oil and natural gas properties. Under this method, the Company capitalizes all costs associated with acquisition, exploration and development of oil and natural gas reserves, including leasehold acquisition costs, geological and geophysical expenditures, lease rentals on undeveloped properties and costs of drilling productive and non-productive wells into the full-cost pool on a country-by-country basis. When the Company obtains proven oil and gas reserves, capitalized costs, including estimated future costs to develop the proved reserves and estimated abandonment costs, net of salvage, are depleted on the unit-of-production method using estimates of proved reserves. When proved reserves are not available, the Company uses the projected reserve estimates as provided by the operator. These reserve estimates are based upon the historical experience of similar wells in the same area. | ||
The costs of unproved properties are not amortized until it is determined whether proved reserves can be assigned to the properties. Until such determination is made the Company assesses annually whether impairment has occurred, and includes in the amortization base drilling exploratory dry holes associated with unproved properties. | ||
The Company applies a ceiling test to the capitalized cost in the full-cost pool. The ceiling test limits such cost to the estimated present value, using a ten percent discount rate, of the future net revenue from proved reserves, based on current economic and operating conditions. Specifically, the Company computes the ceiling test so that capitalized cost, less accumulated depletion and related deferred income tax, do not exceed an amount (the ceiling) |
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equal to the sum of: (a) the present value of estimated future net revenue computed by applying current prices of oil and gas reserves (with consideration of price changes only to the extent provided by contractual arrangements) to estimated future production of proved oil and gas reserves as of the date of the latest balance sheet presented, less estimated future expenditures (based on current cost) to be incurred in developing and producing the proved reserves computed using a discount factor of ten percent and assuming continuation of existing economic conditions; plus (b) the cost of property not being amortized; plus (c) the lower of cost or estimated fair value of unproven properties included in the costs being amortized; less (d) income tax effects related to differences between the book and tax basis of the property. When proved reserves are not available, the Company uses the projected reserve estimates as provided by the operator. These reserve estimates are based upon the historical experience of similar wells in the same area. | ||
For unproven properties, the Company excludes from capitalized costs subject to depletion all costs directly associated with the acquisition and evaluation of the unproved property until it is determined whether proved reserves can be assigned to the property. Until such a determination is made, the Company assesses the property at least annually to ascertain whether impairment has occurred. In assessing impairment the Company considers factors such as historical experience and other data such as primary lease terms of the property, average holding periods of unproved property, and geographic and geologic data. The Company adds the amount of impairment assessed to the cost to be amortized subject to the ceiling test. | ||
| (e) | Income Taxes | |
Potential benefits of income tax losses are not recognized in the accounts until realization is more likely than not. The Company has adopted SFAS No. 109, “Accounting for Income Taxes”, as of its inception. Pursuant to SFAS No. 109, the Company is required to compute tax asset benefits for net operating losses carried forward. The potential benefits of net operating losses have not been recognized in these financial statements because the Company cannot be assured it is more likely than not it will utilize the net operating losses carried forward in future years. | ||
In July 2006, the Financial Accounting Standards Board (“FASB”) issued Financial Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes”, as an interpretation of FASB Statement No. 109, “Accounting for Income Taxes” (“SFAS 109”). This Interpretation clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS 109 and prescribes a recognition threshold of more-likely-than-not to be sustained upon examination. Measurement of the tax uncertainty occurs if the recognition threshold has been met. This Interpretation also provides guidance on de- recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. Differences between the amounts recognized in the balance sheet prior to the adoption of FIN 48 and the amounts reported after adoption should be accounted for as a cumulative-effect adjustment recorded to the beginning balance of retained earnings. The adoption of FIN 48 had no impact to the Company. |
Recent Accounting Pronouncements
In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles”. SFAS 162 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of non-governmental entities that are presented in conformity with generally accepted accounting principles in the United States. It is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles”. The adoption of this statement is not expected to have a material effect on the Company’s financial statements.
In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities – an amendment to FASB Statement No. 133”. SFAS No. 161 is intended to improve financial standards for derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity's financial position, financial performance, and cash flows. Entities are required to provide enhanced disclosures about: (a) how and why an entity uses derivative instruments; (b) how derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations; and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows. It is effective for financial statements issued for fiscal years beginning after November 15, 2008, with early adoption encouraged. The adoption of this statement is not expected to have a material effect on the Company’s financial statements.
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In December 2007, the FASB issued SFAS No. 141R, “Business Combinations”. This statement replaces SFAS 141 and defines the acquirer in a business combination as the entity that obtains control of one or more businesses in a business combination and establishes the acquisition date as the date that the acquirer achieves control. SFAS 141R requires an acquirer to recognize the assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree at the acquisition date, measured at their fair values as of that date. SFAS 141R also requires the acquirer to recognize contingent consideration at the acquisition date, measured at its fair value at that date. This statement is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Earlier adoption is prohibited. The adoption of this statement is not expected to have a material effect on the Company's financial statements.
In December 2007, the FASB issued SFAS No. 160, “Non-controlling Interests in Consolidated Financial Statements Liabilities – an Amendment of ARB No. 51”. This statement amends ARB 51 to establish accounting and reporting standards for the non-controlling interest in a subsidiary and for the de-consolidation of a subsidiary. This statement is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Earlier adoption is prohibited. The Company is in the process of assessing the impact of this new section on its financial statements.
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities – Including an Amendment of FASB Statement No. 115”. This statement permits entities to choose to measure many financial instruments and certain other items at fair value. Most of the provisions of SFAS No. 159 apply only to entities that elect the fair value option. However, the amendment to SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities”, applies to all entities with available-for-sale and trading securities. SFAS No. 159 is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007. Early adoption is permitted as of the beginning of a fiscal year that begins on or before November 15, 2007, provided the entity also elects to apply the provision of SFAS No. 157, “Fair Value Measurements”. The adoption of this statement is not expected to have a material effect on the Company's financial statements.
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”. The objective of SFAS No. 157 is to increase consistency and comparability in fair value measurements and to expand disclosures about fair value measurements. SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS No. 157 applies under other accounting pronouncements that require or permit fair value measurements and does not require any new fair value measurements. The provisions of SFAS No. 157 are effective for fair value measurements made in fiscal years beginning after November 15, 2007. The adoption of this statement is not expected to have a material effect on the Company's financial statements.
In March 2006, the FASB issued SFAS No. 156, "Accounting for Servicing of Financial Assets, an amendment of FASB Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities". This statement requires all separately recognized servicing assets and servicing liabilities be initially measured at fair value, if practicable, and permits for subsequent measurement using either fair value measurement with changes in fair value reflected in earnings or the amortization and impairment requirements of Statement No. 140. The subsequent measurement of separately recognized servicing assets and servicing liabilities at fair value eliminates the necessity for entities that manage the risks inherent in servicing assets and servicing liabilities with derivatives to qualify for hedge accounting treatment and eliminates the characterization of declines in fair value as impairments or direct write-downs. SFAS No. 156 is effective for an entity's first fiscal year beginning after September 15, 2006. The adoption of this statement did not have a material effect on the Company's financial statements.
Progress Report from May 1, 2008 to September 11, 2008
Oil and Gas Properties
The Company entered into an agreement dated April 6, 2005 with a private company controlled by the President of the Company to acquire a working interest in two oil wells located in Burleson County, Texas. The Company agreed to issue up to 1,000,000 shares (issued - 775,255) of restricted common stock at the rate of one share for every $0.10 of revenue from the wells. To July 31, 2008, revenue from the wells was approximately $42,886. During the three months ended July 31, 2008, the Company received/accrued $2,374 of revenue from the wells. The approximately 57,000 shares of restricted common stock issuable at July 31, 2008 pursuant to this agreement have been recorded at the quoted market price prevailing at the time of receipt of the oil and gas revenues and are accrued in the amount of $12,007 in obligation to issue shares.
On July 21, 2008, the Company issued 495,778 Class A shares of restricted common stock to a private company controlled by the President of the Company to fulfill its obligation pursuant to this agreement.
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On May 4, 2006, the Company entered into an agreement with Energy Source Inc. (“ESI”) to drill up to 24 gas wells located in Kentucky. The Company can earn a 100% working interest (60% net revenue interest) in four gas wells by paying $185,000 per well. On May 18, 2006, the Company entered into an agreement with Teryl Resources Corp. (“Teryl”), a public company related by common directors and officers, to farm-out a 40% working interest outlined above, subject to a 12.5% net revenue interest to the landowner and a 27.5% interest to ESI, in consideration for paying 50% of the total costs of the wells. The Company received $277,500 from Teryl during the year ended April 30, 2007, representing 50% of the cost of drilling the first, second and third wells. On September 28, 2006, the Company assigned a 20% working interest (12% net revenue interest) in the third well drilled as part of a financing agreement.
On April 7, 2008, the Company entered into an agreement with Teryl to sell to Teryl the remaining 40% working interest in the three gas wells located in Knox and Laurel County, Kentucky. In consideration, the Company received an initial payment of $25,000 and the balance will be determined after an independent valuation report prepared by a qualified petroleum geologist. During the three months ended July 31, 2008, both parties agreed to indefinitely suspend the agreement due to the difficulty of obtaining an independent valuation report due to the vertical fracture of the wells. As such, the $25,000 remained in the Company and will be applied against future revenue until the balance is fully depleted. To July 31, 2008, the Company’s portion of the revenue from the wells was approximately $34,730. During the three months ended July 31, 2008, the Company received/accrued $3,033 of revenues from the wells, and recorded depletion of $nil on capitalized costs relating to this area.
Video1314.com
On November 26, 2007 we entered into an option agreement (“Option Agreement”) with each of the two shareholders of Power Telecom Limited, (Mr. Samuel Kam [“Kam”] and Biotonus Clinique Bon Port (Hong Kong) Limited [“Biotonus”]; together Kam and Biotonus shall be referred to as the “Vendors”) and Power Telecom Limited, to acquire up to a 100% interest in Power Telecom.
Pursuant to the Option Agreement, the Vendors granted the Company a series of irrevocable exclusive options to purchase up to 100% of the shares of Power Telecom. The Company may issue up to 50 million shares of common stock of the Company in exchange for up to all outstanding shares of Power Telecom held by the Vendors. Additionally, the Company may invest up to an aggregate of $650,000 cash in Power Telecom as a capital contribution.
Effective September 3, 2008, we completed the exercise of the third option, made a payment of $150,000, and issued 10,000,000 common shares to acquire a further 20% interest in Power Telecom for a total holding of 60%. Additionally, we issued one million shares of our common stock to Ramon Mabanta as a finder’s fee.
On June 16, 2008 we announced that video1314.com had entered into a partnership and cross-marketing agreement with Queen Productions Limited, a leading Chinese Artist management, music and film production company. We believe this partnership will significantly increase the activity on our site and anticipate enhanced commercial activities. Queen Products represents many popular Chinese entertainers, and we hope its relationships may expand the audience for Video1314.com at a time when we have made significant enhancements to improve its functionality and content.
Under this agreement Video1314.com's site will be promoted by Queen Production's Artistes at public events, venues, in print material and in music and film publications. In exchange, Queen Productions has engaged Video1314 to exclusively promote on the Internet, their Artists, music and films via Video1314.com's site.
In conjunction with the agreement, Video1314.com will exclusively debut the music single and video of Cindy Lee Si Nga. Si Nga is one of Queen Productions' new and upcoming star artists and is a professional athlete, actress, sports anchor and singer. She appeared on television during the Beijing 2008 Olympics as one of TVB's Olympic sports anchors. She will also be Video1314's ambassador at various public events.
On July 7, 2008 we announced that video1314.com had record web site traffic with over 14.3 million monthly hits to its site in June, 2008. We are now averaging more than half a million clicks to our site each day and expect this to increase substantially in the coming months through the introduction of more user-friendly interfaces in the future.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company is a smaller reporting company and is not required to provide the disclosure under this item.
ITEM 4(T). CONTROLS AND PROCEDURES.
(a) Disclosure controls and procedures.
We carried out an evaluation, under the supervision and with the participation of our management, including the President and Chief Executive Officer, and the Chief Financial Officer, of the effectiveness of the design and operation of our “disclosure controls and procedures” [as defined in the Exchange Act Rule 13a-15(e)] as of the end of the period covered by this report. Based upon the evaluation of the effectiveness of the disclosure controls and procedures as of the end of the period covered by this quarterly report, our officers concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable, and not absolute assurance, of achieving the desired control objectives, and management necessarily was required to apply its judgement in evaluating the cost-benefit relationship of possible controls and procedures.
(b) Changes in internal control over financial reporting.
There was no significant change in our internal control over financial reporting that occurred during the three months ended July 31, 2008 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Nor were there any significant deficiencies or material weaknesses in our internal controls requiring corrective actions.
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Under the supervision and with the participation of our President and Chief Financial Officer, management conducted an evaluation of the effectiveness of our internal control over financial reporting, as of the evaluation date, based on the framework set forth in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on its evaluation under this framework, management concluded that our internal control over financial reporting was effective as of the evaluation date.
There were no changes in the Company’s internal controls that have materially affected, or are reasonably likely to materially affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
This quarterly report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the our registered public accounting firm pursuant to temporary rules of the SEC that permit us to provide only management's report in this quarterly report.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 1A. RISK FACTORS.
The Company is a smaller reporting company and is not required to provide the disclosure under this item.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
| (a) | On May 28, 2008, the Company issued 10,000 units at $0.40 per unit pursuant to a private placement for cash proceeds of $4,000, received during the April 30, 2008 year-end. Each unit consists of one Class A common share and one warrant. Each warrant enables the holder to purchase one additional Class A common share at an exercise price of $0.50 per share for one year after closing date. | |
| (b) | On July 21, 2008, the Company issued 495,778 Class A shares to a private company controlled by the President of the Company to fulfill its obligation per agreement, as described herein at Item 2 above, and at Notes 8(a) and 11(a) of the financial statements herein. |
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
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ITEM 6. EXHIBITS
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SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Dated: September 15, 2008 | IAS Energy, Inc. | |
| By: | /s/ John G. Robertson | |
| John G. Robertson, President and Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| By: | /s/ James Vandeberg | |
| James Vandeberg, Chief Operating Officer and | ||
| Chief Financial Officer | ||
| (Principal Financial Officer) | ||
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