Results of Operations
The following summary of our results of operations should be read in conjunction with our audited financial statements for the years ended
Our operating results for the years ended
February 28, 2014and 2013 are summarized as follows: Year Ended February 28, 2014 2013 Revenues $ 19,029 $ 63,635
$ (457,476 ) $ (353,041 )
Revenues for the year ended
Our operating expenses for the years ended
Year Ended February 28, 2014 2013 Oil and gas revenue
$ 19,029 $ 21,135Service revenue $ 0 $ 42,500Total operating expenses $ 474,608 $ 415,554Interest expense (income) $ 1,897 $ (1,122 )Net loss $ (457,476 ) $ (353,041 )
Our net loss for the year ended
During the year ended
Our net loss during the years ended
Liquidity and Capital Resources
Working Capital At At February 28, February 28, 2014 2013 Current Assets
$ 38,677 $ 35,892Current Liabilities $ 1,719,091 $ 1,315,865Working Capital (Deficit) $ (1,680,414 ) $ (1,279,943 )
Our current assets as of
Cash Flows Year Ended February 28, 2014 2013 Net Cash Provided by (Used in) Operating Activities
$ (368,686 ) $ (300,898 )Net Cash Provided by (Used in) Investing Activities $ (192,505 )$Nil Net Cash Provided by (Used in) Financing Activities $ 584,613 $ 293,283Increase (Decrease) in Cash and Cash Equivalents During the Period $ 23,422 $ (7,615 )Operating Activities
Cash used in operating activities was
We used cash of
Cash provided from financing activities was
Our cash balance at
The financial statements accompanying this report have been prepared on a going concern basis, which implies that our company will continue to realize its assets and discharge its liabilities and commitments in the normal course of business. Our company has not generated revenues since inception and has never paid any dividends and is unlikely to pay dividends or generate earnings in the immediate or foreseeable future. The continuation of our company as a going concern is dependent upon the continued financial support from our shareholders, the ability of our company to obtain necessary equity financing to achieve our operating objectives, and the attainment of profitable operations. As at
Due to the uncertainty of our ability to meet our current operating expenses and the capital expenses noted above in their report on the financial statements for the year ended
The continuation of our business is dependent upon us raising additional financial support. The issuance of additional equity securities by us could result in a significant dilution in the equity interests of our current stockholders. Obtaining commercial loans, assuming those loans would be available, will increase our liabilities and future cash commitments.
Plan of Operation
We are now investigating other properties on which exploration could be conducted and other business opportunities to enhance shareholder value. If we are unable to find another property or business opportunity, our shareholders will lose some or all of their investment and our business will likely fail.
Over the next 12 months we intend to carry on business as an enhanced oil and gas technology company. We anticipate that we will incur the following operating expenses during this period:
Estimated Funding Required During the Next 12 Months Expense Amount ($) Consulting Fees for Research and Development Nil Engineering 2,000,000 Fixed asset purchases 15,000 Management Consulting Fees 300,000 Professional fees 180,000 Rent 55,000 Sales, Travel and Marketing 120,000 Other general administrative expenses 74,000 Total 2,744,000
We will require funds of approximately
Purchase of Significant Equipment
We do not anticipate the purchase or sale of any plant or significant equipment during the next 12 months.
Off-Balance Sheet Arrangements
We do not have any 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 that is material to investors.
Critical Accounting Policies
The financial statements and the related notes of our company are prepared in accordance with generally accepted accounting principles in
Principles of Consolidation
The consolidated financial statements are prepared in accordance with accounting principles generally accepted in
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Our company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.
Allowance for Doubtful Accounts
Our company evaluates its accounts receivables for collectability and establishes an allowance for bad debts through a review of several factors including historical collection experience, current aging status of the customer accounts, and financial condition of our customers. As of
Oil and Gas Operations
Our company applies the successful efforts method of accounting for oil and gas properties. Under the successful efforts method, exploration costs such as exploratory geological and geophysical costs, delay rentals and exploration overhead are charged against earnings as incurred. Acquisition costs and costs of drilling exploratory wells are capitalized pending determination of whether proved reserves can be attributed to the area as a result of drilling the well. If management determines that commercial quantities of hydrocarbons have not been discovered, capitalized costs associated with exploratory wells are charged to exploration expense. Acquisition costs of unproved leaseholds are assessed for impairment during the holding period and transferred to proved oil and gas properties to the extent associated with successful exploration activities. Significant undeveloped leases are assessed individually for impairment based on our company's current exploration plans and a valuation allowance is provided if impairment is indicated.
Proved Oil & Gas Property Impairment
When circumstances indicate that an asset may be impaired, the Company compares expected undiscounted future cash flows at the field level to the unamortized capitalized cost of the asset. If the future undiscounted cash flows, based on the Company's estimate of future natural gas and oil prices and anticipated production from proved reserves and other relevant data, are lower than the unamortized capitalized cost, the capitalized cost is reduced to fair value. Fair value is calculated by discounting the future cash flows at an appropriate risk-adjusted discount rate. During the years ended
Property and Equipment
Property and equipment is recorded at cost. Expenditures for major additions and betterments are capitalized. Maintenance and repairs are charged to operations as incurred. Depreciation of property, plant and equipment is computed by the straight-line method (after taking into account their respective estimated residual values) over the assets estimated useful life. Upon sale or retirement of equipment, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in statements of operations. Depreciation expense for the years ended
Depletion and Amortization
Leasehold costs of producing properties are depleted using the unit-of-production method based on estimated proved oil and gas reserves. Amortization of intangible development costs is based on the unit-of-production method using estimated proved developed oil and gas reserves.
The master license is recorded at cost and is being amortized straight-line over 12 months. Amortization expense for the years ended
Asset Retirement Obligations
Our company follows ASC 410 of the FASB Accounting Standards Codification which requires entities to record the fair value of a liability for legal obligations associated with the retirement obligations of tangible long-lived assets in the period in which it is incurred. This standard requires our company to record a liability for the fair value of the dismantlement and plugging and abandonment costs excluding salvage values. When the liability is initially recorded, the entity increases the carrying amount of the related long-lived asset. Over time, accretion of the liability is recognized each period and the capitalized cost is amortized over the useful life of the related asset. Upon settlement of the liability, an entity either settles the obligation for its recorded amount or incurs a gain or loss upon settlement. During 2014 and 2013, our company has not recorded any asset retirement obligations.
Impairment of Long-Lived Assets
Our company follows paragraph 360-10-35-17 of the FASB Accounting Standards Codification for its long-lived assets. Our company's long-lived assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
Our company assesses the recoverability of our long-lived assets by comparing the projected undiscounted net cash flows associated with the related long-lived asset or group of long-lived assets over their remaining estimated useful lives against their respective carrying amounts. Impairment, if any, is based on the excess of the carrying amount over the fair value of those assets. Fair value is generally determined using the asset's expected future discounted cash flows or market value, if readily determinable. If long-lived assets are determined to be recoverable, but the newly determined remaining estimated useful lives are shorter than originally estimated, the net book values of the long-lived assets are depreciated over the newly determined remaining estimated useful lives. As of
Fair value of financial instruments
Our company follows paragraph 825-10-50-10 of the FASB Accounting Standards Codification for disclosures about fair value of its financial instruments and has adopted paragraph 820-10-35-37 of the FASB Accounting Standards Codification to measure the fair value of its financial instruments. Paragraph 820-10-35-37 of the FASB Accounting Standards Codification establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, paragraph 820-10-35-37 of the FASB Accounting Standards Codification establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three (3) levels of fair value hierarchy defined by paragraph 820-10-35-37 of the FASB Accounting Standards Codification are described below:
Level 1: Quoted market prices available in active markets for identical assets or
liabilities as of the reporting date.
Level 2: Pricing inputs other than quoted prices in active markets included in
Level 1, which are either directly or indirectly observable as of the reporting date.
Level 3: Pricing inputs that are generally observable inputs and not corroborated
by market data.
The carrying amounts of financial assets and liabilities, such as cash, accounts receivable, accounts payable, and accrued expenses, approximate their fair values because of the short maturity of these instruments.
Our company does not have any assets or liabilities measured at fair value on a recurring basis, consequently, our company did not have any fair value adjustments for assets and liabilities measured at fair value at
Our company follows the guidance of paragraph 605-10-S99-1 of the FASB Accounting Standards Codification for revenue recognition. Our company recognizes revenue when it is realized or realizable and earned. Our company considers revenue realized or realizable and earned when all of the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) the product has been shipped or the services have been rendered to the customer, (iii) the sales price is fixed or determinable, and (iv) collectability is reasonably assured.
Under the royalty agreements obtained as part of the service and gross overriding royalty agreements, Our company recognizes revenue when production occurs. The royalty income is calculated monthly and our company recognizes royalty income as production is reported by well.
Under the success fees obtained as part of the service and gross overriding royalty agreements, our company recognizes revenue when the success fees are earned as defined by the agreements
Stock-Based Compensation for Obtaining Employee Services
Our company accounted for its stock based compensation under the recognition and measurement principles of the fair value recognition provisions of paragraph 718-10-30-3 of the FASB Accounting Standards Codification using the modified prospective method for transactions in which our company obtains employee services in share-based payment transactions. 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. The measurement date used to determine the fair value of the equity instrument issued is the earlier of the date on which the third-party performance is complete or the date on which it is probable that performance will occur.
The fair value of options, if any, is estimated on the date of grant using a Black-Scholes option-pricing valuation model. The ranges of assumptions for inputs are as follows:
- Our company uses historical data to estimate employee termination behaviour. The expected life of options granted is derived from paragraph 718-10-S99-1 of the FASB Accounting Standards Codification and represents the period of time the options are expected to be outstanding. - The expected volatility is based on a combination of the historical volatility of the comparable companies' stock over the contractual life of the options. - The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods within the contractual life of the option. - The expected dividend yield is based on our company's current dividend yield as the best estimate of projected dividend yield for periods within the contractual life of the option.
Our company's policy is to recognize compensation cost for awards with only service conditions and a graded vesting schedule on a straight-line basis over the requisite service period for the entire award, if any. Additionally, our company's policy is to issue new shares of common stock to satisfy stock option exercises.
Equity instruments issued to parties other than employees for acquiring goods or services
Our company accounted for instruments issued to parties other than employees for acquiring goods or services under the recognition and measurement principles of the fair value recognition provisions of section 505-50-30 of the FASB Accounting Standards Codification. 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. The measurement date used to determine the fair value of the equity instrument issued is the earlier of the date on which the third-party performance is complete or the date on which it is probable that performance will occur.
The fair value of the warrants is estimated on the date of grant using a Black-Scholes option-pricing valuation model. The ranges of assumptions for inputs are as follows:
- The expected life of warrants granted is derived from paragraph 718-10-S99-1 of the FASB Accounting Standards Codification and represents the period of time the warrants are expected to be outstanding. - The expected volatility is based on a combination of the historical volatility of the comparable companies' stock over the contractual life of the warrants. - The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods within the contractual life of the warrants. - The expected dividend yield is based on our company's current dividend yield as the best estimate of projected dividend yield for periods within the contractual life of the warrants. Income Taxes
Our company accounts for income taxes under paragraph 710-10-30-2 of the FASB Accounting Standards Codification. Deferred income tax assets and liabilities are determined based upon differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the statements of operations in the period that includes the enactment date.
Net Loss Per Common Share
Net loss per common share is computed pursuant to paragraph 260-10-45-10 of the FASB Accounting Standards Codification. Basic net loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share is computed by dividing net loss by the weighted average number of shares of common stock and potentially outstanding shares of common stock during each period to reflect the potential dilution that could occur from common shares issuable through stock warrants.
Commitments and Contingencies
Our company follows subtopic 450-20 of the FASB Accounting Standards Codification to report accounting for contingencies. Liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated.
Recently Issued Accounting Pronouncements
We do not expect the adoption of recently issued accounting pronouncements to have a significant impact on our results of operations, financial position or cash flow.