Attached files
| file | filename |
|---|---|
| EX-32.2 - AXIOM OIL & GAS CORP. | exhibit32-2.htm |
| EX-31.1 - AXIOM OIL & GAS CORP. | exhibit31-1.htm |
| EX-32.1 - AXIOM OIL & GAS CORP. | exhibit32-1.htm |
| EX-31.2 - AXIOM OIL & GAS CORP. | exhibit31-2.htm |
| XML - IDEA: XBRL DOCUMENT - AXIOM OIL & GAS CORP. | R9999.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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X
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QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 31, 2015
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________________ to __________________
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Commission File Number: 000-53232
Axiom Oil and Gas Corp.
(Exact name of small business issuer as specified in its charter)
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Nevada
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27-0686445
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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100 Park Ave., Suite 1600, New York, New York 10017
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(Address of principal executive offices)
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(212) 984-0685
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(Issuer’s Telephone Number)
(Former address if changed since last report)
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Indicate by check mark whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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. X Yes oNo
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). o Yes X No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
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Large accelerated filer
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o
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Accelerated filer
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o
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Non-accelerated filer
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o
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(Do not check if a smaller reporting company)
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Smaller reporting company
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X
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). oYes X No
As of July 15, 2015, there were 19,780,650 shares of the issuer’s $.001 par value common stock issued and outstanding.
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The accompanying unaudited interim consolidated financial statements of Axiom Oil and Gas Corp. (“Axiom Oil and Gas”) as of May 31, 2015, and for the three and nine months ended May 31, 2015 and 2014 have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial statement presentation and in accordance with the instructions to Form 10-Q and the rules of the Securities and Exchange Commission (“SEC”), and should be read in conjunction with the audited financial statements and notes thereto contained in Axiom Oil and Gas’s Form 10-K filing with the SEC for the year ended August 31, 2014. In the opinion of management, the consolidated financial statements contain all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the consolidated financial position and the consolidated results of operations for the interim periods. The consolidated results of operations for the three and nine months ended May 31, 2015 are not necessarily indicative of the results that may be expected for the full year.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
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F-1
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Consolidated Balance Sheets as of May 31, 2015 (unaudited) and August 31, 2014.
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F-2
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Consolidated Statements of Operations for the three and nine months ended May 31, 2015 and 2014 and the period from Inception of Exploration Stage (September 1, 2010) through May 31, 2015 (unaudited).
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F-3
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Consolidated Statements of Comprehensive Loss for the three and nine months ended May 31, 2015 and 2014 and the period from Inception of Exploration Stage (September 1, 2010) through May 31, 2015 (unaudited).
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F-4
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Consolidated Statement of Changes in Stockholders’ Deficiency for the period from Inception of Exploration Stage (September 1, 2010) through May 31, 2015 (unaudited).
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F-8
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Consolidated Statements of Cash Flows for the nine months ended May 31, 2015 and 2014 and the period from Inception of Exploration Stage (September 1, 2010) through May 31, 2015 (unaudited).
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F-10-F-36
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Notes to Consolidated Financial Statements (unaudited).
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1
AXIOM OIL AND GAS CORP.
(An Exploration Stage Company)
Consolidated Balance Sheets
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May 31,
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August 31,
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|||||||
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2015
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2014
|
|||||||
|
(Unaudited)
|
||||||||
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ASSETS
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||||||||
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Current assets
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||||||||
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Cash
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$ | 123 | $ | 76 | ||||
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Total current assets
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123 | 76 | ||||||
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Property - Successful efforts method
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||||||||
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Leases - Toole County, Montana
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230,195 | -- | ||||||
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Investment in working interest in wells
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301,000 | -- | ||||||
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Totals
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531,195 | -- | ||||||
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Other
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1,400 | 1,400 | ||||||
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Total assets
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$ | 532,718 | $ | 1,476 | ||||
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LIABILITIES AND STOCKHOLDERS’ DEFICIENCY
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||||||||
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Current liabilities
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||||||||
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Accounts payable
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$ | 545,480 | $ | 357,921 | ||||
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Accrued expenses
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248,059 | 212,780 | ||||||
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Accrued interest
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201,565 | 35,940 | ||||||
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Loans payable, related parties
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344,268 | -- | ||||||
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Notes payable, related parties
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45,145 | 5,000 | ||||||
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Notes payable
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137,000 | 137,000 | ||||||
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Convertible debentures
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186,442 | 105,000 | ||||||
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Convertible debenture, related party
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89,324 | -- | ||||||
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Total current liabilities
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1,797,283 | 853,641 | ||||||
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Long-term liabilities
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||||||||
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Secured debenture
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1,137,482 | -- | ||||||
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Total liabilities
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2,934,765 | 853,641 | ||||||
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Commitments and contingencies
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-- | -- | ||||||
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Stockholders’ deficiency
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||||||||
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Preferred stock, $0.001 par value, 10,000,000 shares
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||||||||
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authorized, none issued
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-- | -- | ||||||
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Common stock, $0.001 par value, 300,000,000
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||||||||
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shares authorized, 19,030,650 and 11,352,774 shares
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||||||||
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issued and outstanding at May 31, 2015
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||||||||
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and August 31, 2014, respectively
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19,031 | 11,353 | ||||||
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Additional paid-in capital
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16,060,465 | 14,070,299 | ||||||
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Accumulated other comprehensive income
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138,373 | -- | ||||||
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Deficit accumulated from prior operations
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(121,862 | ) | (121,862 | ) | ||||
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Deficit accumulated during the exploration stage
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(18,498,054 | ) | (14,811,955 | ) | ||||
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Total stockholders’ deficiency
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(2,402,047 | ) | (852,165 | ) | ||||
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Total liabilities and stockholders’ deficiency
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$ | 532,718 | $ | 1,476 | ||||
See accompanying notes to consolidated financial statements.
F-1
AXIOM OIL AND GAS CORP.
(An Exploration Stage Company)
Consolidated Statements of Operations
(Unaudited)
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Period From
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||||||||||||||||||||
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Inception of
|
||||||||||||||||||||
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Exploration
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||||||||||||||||||||
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Stage
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||||||||||||||||||||
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(September 1,
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||||||||||||||||||||
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For the Three Months Ended
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For the Nine Months Ended
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2010) through
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||||||||||||||||||
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May 31,
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May 31,
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May 31,
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||||||||||||||||||
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2015
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2014
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2015
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2014
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2015
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||||||||||||||||
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Revenues – gas sales
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$ | 1,857 | $ | -- | $ | 7,376 | $ | -- | $ | 7,376 | ||||||||||
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Cost of goods sold
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2,922 | -- | 8,076 | -- | 8,076 | |||||||||||||||
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Gross profit
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(1,065 | ) | -- | (700 | ) | -- | (700 | ) | ||||||||||||
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Expenses
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||||||||||||||||||||
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Compensation
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67,738 | 69,175 | 300,401 | 225,448 | 5,943,210 | |||||||||||||||
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General and administrative
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81,967 | 46,330 | 452,010 | 459,603 | 2,665,937 | |||||||||||||||
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Exploration
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3,568 | -- | 3,568 | -- | 355,251 | |||||||||||||||
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Impairment of goodwill
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-- | -- | 2,825,276 | -- | 3,350,753 | |||||||||||||||
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Total Expenses
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153,273 | 115,505 | 3,581,255 | 685,051 | 12,315,151 | |||||||||||||||
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Operating loss
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(154,338 | ) | (115,505 | ) | (3,581,955 | ) | (685,051 | ) | (12,315,851 | ) | ||||||||||
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Other income (expenses)
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||||||||||||||||||||
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Interest expense
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(29,843 | ) | (7,912 | ) | (74,120 | ) | (19,604 | ) | (110,060 | ) | ||||||||||
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Amortization of debt discount
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(12,024 | ) | -- | (19,724 | ) | -- | (19,724 | ) | ||||||||||||
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Forgiveness of debt income
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-- | -- | -- | 77,480 | 32,480 | |||||||||||||||
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Loss on expiration of leases
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(2,492 | ) | -- | (10,300 | ) | -- | (10,300 | ) | ||||||||||||
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Gain on sale of subsidiary
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-- | -- | -- | -- | 160,681 | |||||||||||||||
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Finance costs, share-based
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-- | -- | -- | -- | (6,154,322 | ) | ||||||||||||||
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Foreign currency loss
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-- | -- | -- | -- | (80,958 | ) | ||||||||||||||
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Net other income (expenses)
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(44,359 | ) | (7,912 | ) | (104,144 | ) | 57,876 | (6,182,203 | ) | |||||||||||
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Net loss
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$ | (198,697 | ) | $ | (123,417 | ) | $ | (3,686,099 | ) | $ | (627,175 | ) | $ | (18,498,054 | ) | |||||
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Basic and diluted loss per share
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$ | (0.01 | ) | $ | (0.01 | ) | $ | (0.21 | ) | $ | (0.06 | ) | ||||||||
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Weighted average number of common
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||||||||||||||||||||
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shares outstanding – basic and diluted
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19,030,650 | 11,252,774 | 17,718,978 | 10,822,442 | ||||||||||||||||
See accompanying notes to consolidated financial statements.
F-2
AXIOM OIL AND GAS CORP.
(An Exploration Stage Company)
Consolidated Statements of Comprehensive Loss
(Unaudited)
|
Period From
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||||||||||||||||||||
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Inception of
|
||||||||||||||||||||
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Exploration
|
||||||||||||||||||||
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Stage
|
||||||||||||||||||||
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(September 1,
|
||||||||||||||||||||
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For the Three Months Ended
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For the Nine Months Ended
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2010) through
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||||||||||||||||||
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May 31,
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May 31,
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May 31,
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||||||||||||||||||
| 2015 | 2014 | 2015 | 2014 | 2015 | ||||||||||||||||
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Net loss
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$ | (198,697 | ) | $ | (123,417 | ) | $ | (3,686,099 | ) | $ | (627,175 | ) | $ | (18,498,054 | ) | |||||
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Other comprehensive income
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||||||||||||||||||||
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Foreign currency translation adjustment
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(3,818 | ) | -- | 138,373 | -- | 138,373 | ||||||||||||||
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Comprehensive loss
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$ | (202,515 | ) | $ | (123,417 | ) | $ | (3,547,726 | ) | $ | (627,175 | ) | $ | (18,359,681 | ) | |||||
See accompanying notes to consolidated financial statements.
F-3
AXIOM OIL AND GAS CORP.
(An Exploration Stage Company)
Consolidated Statement of Changes in Stockholders’ Deficiency
Period from Inception of Exploration Stage (September 1, 2010) through May 31, 2015
(Unaudited)
|
Deficit
|
||||||||||||||||||||||||||||
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Accumulated
|
Deficit
|
Accumulated
|
||||||||||||||||||||||||||
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Additional
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Other
|
Accumulated
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During the
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Total
|
||||||||||||||||||||||||
|
Common Stock
|
Paid-in
|
Comprehensive
|
From Prior
|
Exploration
|
Stockholders'
|
|||||||||||||||||||||||
|
Shares
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Amount
|
Capital
|
Income
|
Operations
|
Stage
|
Deficiency
|
||||||||||||||||||||||
|
Balance forward from prior operations, August 31, 2010
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979,336 | $ | 979 | $ | 115,010 | $ | -- | $ | (121,862 | ) | $ | -- | $ | (5,873 | ) | |||||||||||||
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Common stock issued for compensation at $6.25 per share
|
6,000 | 6 | 37,494 | -- | -- | -- | 37,500 | |||||||||||||||||||||
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Forgiveness of related party loan payable
|
-- | -- | 2,250 | -- | -- | -- | 2,250 | |||||||||||||||||||||
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Stock based compensation for options issued to employees
|
||||||||||||||||||||||||||||
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and directors
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-- | -- | 3,253,705 | -- | -- | -- | 3,253,705 | |||||||||||||||||||||
|
Common stock issued for compensation at $18.75
|
||||||||||||||||||||||||||||
|
per share
|
4,000 | 4 | 74,996 | -- | -- | -- | 75,000 | |||||||||||||||||||||
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Common stock issued for the acquisition of former
|
||||||||||||||||||||||||||||
|
subsidiary at $6.25 per share
|
80,000 | 80 | 499,920 | -- | -- | -- | 500,000 | |||||||||||||||||||||
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Related party rent expense
|
-- | -- | 3,000 | -- | -- | -- | 3,000 | |||||||||||||||||||||
|
Common stock issued for cash at $6.25 per share
|
172,960 | 173 | 1,080,827 | -- | -- | -- | 1,081,000 | |||||||||||||||||||||
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Offering costs
|
-- | -- | (96,850 | ) | -- | -- | -- | (96,850 | ) | |||||||||||||||||||
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Common stock issued for services at $48.75 per share
|
10,000 | 10 | 487,490 | -- | -- | -- | 487,500 | |||||||||||||||||||||
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Foreign currency translation
|
-- | -- | -- | 17,945 | -- | -- | 17,945 | |||||||||||||||||||||
|
Net loss for the year ended August 31, 2011
|
-- | -- | -- | -- | -- | (5,411,267 | ) | (5,411,267 | ) | |||||||||||||||||||
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Balance August 31, 2011 - Forward
|
1,252,296 | $ | 1,252 | $ | 5,457,842 | $ | 17,945 | $ | (121,862 | ) | $ | (5,411,267 | ) | $ | (56,090 | ) | ||||||||||||
See accompanying notes to consolidated financial statements.
F-4
AXIOM OIL AND GAS CORP.
(An Exploration Stage Company)
Consolidated Statement of Changes in Stockholders’ Deficiency
Period from Inception of Exploration Stage (September 1, 2010) through May 31, 2015
(Unaudited)
|
Deficit
|
||||||||||||||||||||||||||||
|
Accumulated
|
Deficit
|
Accumulated
|
||||||||||||||||||||||||||
|
Additional
|
Other
|
Accumulated
|
During the
|
Total
|
||||||||||||||||||||||||
|
Common Stock
|
Paid-in
|
Comprehensive
|
From Prior
|
Exploration
|
Stockholders'
|
|||||||||||||||||||||||
|
Shares
|
Amount
|
Capital
|
Income
|
Operations
|
Stage
|
Deficiency
|
||||||||||||||||||||||
|
Balance August 31, 2011 - Forwarded
|
1,252,296 | $ | 1,252 | $ | 5,457,842 | $ | 17,945 | $ | (121,862 | ) | $ | (5,411,267 | ) | $ | (56,090 | ) | ||||||||||||
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Stock based compensation for options issued to employees
|
||||||||||||||||||||||||||||
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and directors
|
-- | -- | 1,070,337 | -- | -- | -- | 1,070,337 | |||||||||||||||||||||
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Common stock issued for compensation at $25.25 per share
|
6,000 | 6 | 151,494 | -- | -- | -- | 151,500 | |||||||||||||||||||||
|
Common stock issued for cash at $6.25 per share
|
45,745 | 46 | 285,858 | -- | -- | -- | 285,904 | |||||||||||||||||||||
|
Common stock issued for accrued compensation and
|
||||||||||||||||||||||||||||
|
expenses
|
8,488,720 | 8,489 | 6,358,051 | -- | -- | -- | 6,366,540 | |||||||||||||||||||||
|
Common stock issued for cash at $0.625 per share
|
16,000 | 16 | 9,984 | -- | -- | -- | 10,000 | |||||||||||||||||||||
|
Offering costs
|
-- | -- | (1,000 | ) | -- | -- | -- | (1,000 | ) | |||||||||||||||||||
|
Foreign currency translation
|
-- | -- | -- | (17,945 | ) | -- | -- | (17,945 | ) | |||||||||||||||||||
|
Net loss for the year ended August 31, 2012
|
-- | -- | -- | -- | -- | (8,276,490 | ) | (8,276,490 | ) | |||||||||||||||||||
|
Balance August 31, 2012
|
9,808,761 | 9,809 | 13,332,566 | -- | (121,862 | ) | (13,687,757 | ) | (467,244 | ) | ||||||||||||||||||
|
Common stock issued for cash at $0.625 per share
|
54,000 | 54 | 33,696 | -- | -- | -- | 33,750 | |||||||||||||||||||||
|
Offering costs
|
-- | -- | (3,375 | ) | -- | -- | -- | (3,375 | ) | |||||||||||||||||||
|
Common stock issued for accrued compensation
|
||||||||||||||||||||||||||||
|
and expenses
|
50,000 | 50 | 132,450 | -- | -- | -- | 132,500 | |||||||||||||||||||||
|
Net loss for the year ended August 31, 2013
|
-- | -- | -- | -- | -- | (301,408 | ) | (301,408 | ) | |||||||||||||||||||
|
Balance - August 31, 2013 - Forward
|
9,912,761 | $ | 9,913 | $ | 13,495,337 | $ | -- | $ | (121,862 | ) | $ | (13,989,165 | ) | $ | (605,777 | ) | ||||||||||||
See accompanying notes to consolidated financial statements.
F-5
AXIOM OIL AND GAS CORP.
(An Exploration Stage Company)
Consolidated Statement of Changes in Stockholders’ Deficiency
Period from Inception of Exploration Stage (September 1, 2010) through May 31, 2015
(Unaudited)
|
Deficit
|
||||||||||||||||||||||||||||
|
Accumulated
|
Deficit
|
Accumulated
|
||||||||||||||||||||||||||
|
Additional
|
Other
|
Accumulated
|
During the
|
Total
|
||||||||||||||||||||||||
|
Common Stock
|
Paid-in
|
Comprehensive
|
From Prior
|
Exploration
|
Stockholders'
|
|||||||||||||||||||||||
|
Shares
|
Amount
|
Capital
|
Income
|
Operations
|
Stage
|
Deficiency
|
||||||||||||||||||||||
|
Balance - August 31, 2013 - Forwarded
|
9,912,761 | $ | 9,913 | $ | 13,495,337 | $ | -- | $ | (121,862 | ) | $ | (13,989,165 | ) | $ | (605,777 | ) | ||||||||||||
|
Common stock issued for rounding of shares in reverse stock
|
||||||||||||||||||||||||||||
|
split
|
13 | -- | -- | -- | -- | -- | -- | |||||||||||||||||||||
|
Common stock issued for consulting compensation at $0.20
|
||||||||||||||||||||||||||||
|
per share
|
700,000 | 700 | 139,300 | -- | -- | -- | 140,000 | |||||||||||||||||||||
|
Common stock issued for debt settlement at $0.20 per share
|
200,000 | 200 | 39,800 | -- | -- | -- | 40,000 | |||||||||||||||||||||
|
Common stock issued for debt settlement at $0.25 per share
|
140,000 | 140 | 34,860 | -- | -- | -- | 35,000 | |||||||||||||||||||||
|
Common stock issued for consulting compensation for $200,
valued at $0.51 per share
|
300,000 | 300 | 152,700 | -- | -- | -- | 153,000 | |||||||||||||||||||||
|
Common stock issued for debt settlement at $0.45 per share
|
100,000 | 100 | 44,900 | -- | -- | -- | 45,000 | |||||||||||||||||||||
|
Stock based compensation for options issued to employees
|
||||||||||||||||||||||||||||
|
and directors
|
-- | -- | 159,940 | -- | -- | -- | 159,940 | |||||||||||||||||||||
|
Stock option issued for debt settlement
|
-- | -- | 3,462 | -- | -- | -- | 3,462 | |||||||||||||||||||||
|
Net loss for the year ended August 31, 2014
|
-- | -- | -- | -- | -- | (822,790 | ) | (822,790 | ) | |||||||||||||||||||
|
Balance – August 31, 2014 - Forward
|
11,352,774 | $ | 11,353 | $ | 14,070,299 | $ | -- | $ | (121,862 | ) | $ | (14,811,955 | ) | $ | (852,165 | ) | ||||||||||||
See accompanying notes to consolidated financial statements.
F-6
AXIOM OIL AND GAS CORP.
(An Exploration Stage Company)
Consolidated Statement of Changes in Stockholders’ Deficiency
Period from Inception of Exploration Stage (September 1, 2010) through May 31, 2015
(Unaudited)
|
Deficit
|
||||||||||||||||||||||||||||
|
Accumulated
|
Deficit
|
Accumulated
|
||||||||||||||||||||||||||
|
Additional
|
Other
|
Accumulated
|
During the
|
Total
|
||||||||||||||||||||||||
|
Common Stock
|
Paid-in
|
Comprehensive
|
From Prior
|
Exploration
|
Stockholders'
|
|||||||||||||||||||||||
|
Shares
|
Amount
|
Capital
|
Income
|
Operations
|
Stage
|
Deficiency
|
||||||||||||||||||||||
|
Balance – August 31, 2014 - Forwarded
|
11,352,774 | $ | 11,353 | $ | 14,070,299 | $ | -- | $ | (121,862 | ) | $ | (14,811,955 | ) | $ | (852,165 | ) | ||||||||||||
|
Common stock issued to CFO for services at $0.45 per share
|
60,000 | 60 | 26,940 | -- | -- | -- | 27,000 | |||||||||||||||||||||
|
Common stock issued for legal fees at $0.23 per share
|
250,000 | 250 | 57,250 | -- | -- | -- | 57,500 | |||||||||||||||||||||
|
Common stock issued for acquisition of Toole County Montana leases at $0.23 per share
|
6,997,876 | 6,998 | 1,602,513 | -- | -- | -- | 1,609,511 | |||||||||||||||||||||
|
Common stock issued for consulting compensation for $200,valued at $0.18 per share
|
300,000 | 300 | 53,700 | -- | -- | -- | 54,000 | |||||||||||||||||||||
|
Common stock issued to CFO for services at $0.18 per share
|
70,000 | 70 | 12,530 | -- | -- | -- | 12,600 | |||||||||||||||||||||
|
Stock based compensation for options issued to employees
|
||||||||||||||||||||||||||||
|
and directors
|
-- | -- | 186,288 | -- | -- | -- | 186,288 | |||||||||||||||||||||
|
Stock based compensation for warrant issued for consulting
|
||||||||||||||||||||||||||||
|
services
|
-- | -- | 1,987 | -- | -- | -- | 1,987 | |||||||||||||||||||||
|
Debt discount on convertible debenture
|
-- | -- | 48,958 | -- | -- | -- | 48,958 | |||||||||||||||||||||
|
Foreign currency translation
|
-- | -- | -- | 138,373 | -- | -- | 138,373 | |||||||||||||||||||||
|
Net loss for the nine months ended May 31, 2015
|
-- | -- | -- | -- | -- | (3,686,099 | ) | (3,686,099 | ) | |||||||||||||||||||
|
Balance – May 31, 2015
|
19,030,650 | $ | 19,031 | $ | 16,060,465 | $ | 138,373 | $ | (121,862 | ) | $ | (18,498,054 | ) | $ | (2,402,047 | ) | ||||||||||||
See accompanying notes to consolidated financial statements.
F-7
AXIOM OIL AND GAS CORP.
(An Exploration Stage Company)
Consolidated Statements of Cash Flows
(Unaudited)
|
Period from
|
||||||||||||
|
Inception of
|
||||||||||||
|
Exploration Stage
|
||||||||||||
|
(September 1,
|
||||||||||||
|
For the Nine Months Ended
|
2010) through
|
|||||||||||
|
May 31,
|
May 31,
|
|||||||||||
|
2015
|
2014
|
2015
|
||||||||||
|
Cash flows from operating activities
|
||||||||||||
|
Net loss
|
$ | (3,686,099 | ) | $ | (627,175 | ) | $ | (18,498,054 | ) | |||
|
Adjustments to reconcile net loss to
|
||||||||||||
|
net cash used in operating activities:
|
||||||||||||
|
Stock-based compensation
|
339,175 | 430,748 | 5,867,457 | |||||||||
|
Impairment of goodwill
|
2,825,276 | -- | 3,350,753 | |||||||||
|
Amortization of debt discount
|
19,724 | -- | 19,724 | |||||||||
|
Forgiveness of debt-income
|
-- | (77,480 | ) | (32,480 | ) | |||||||
|
Stock-based finance costs
|
-- | -- | 6,154,322 | |||||||||
|
Depreciation expense
|
-- | -- | 3,937 | |||||||||
|
Foreign currency loss
|
-- | -- | 80,958 | |||||||||
|
Loss on expiration of leases
|
10,300 | -- | 10,300 | |||||||||
|
Gain on sale of subsidiary
|
-- | -- | (160,681 | ) | ||||||||
|
Related party rent expense
|
-- | -- | 3,000 | |||||||||
|
Changes in assets and liabilities:
|
||||||||||||
|
Net VAT receivable
|
-- | -- | (87,751 | ) | ||||||||
|
Prepaid and other current assets
|
-- | -- | 981 | |||||||||
|
Other
|
-- | -- | (1,254 | ) | ||||||||
|
Accounts payable
|
187,558 | 133,074 | 1,293,914 | |||||||||
|
Accrued expenses
|
35,279 | 40,855 | 248,059 | |||||||||
|
Accrued interest
|
64,366 | 19,604 | 100,306 | |||||||||
|
Net cash used in operating activities
|
(204,421 | ) | (80,374 | ) | (1,646,509 | ) | ||||||
|
Cash flows from investing activities
|
||||||||||||
|
Acquisition of equipment
|
-- | -- | (7,454 | ) | ||||||||
|
Cash received in acquisition
|
-- | -- | 3,435 | |||||||||
|
Net cash used in investing activities
|
-- | -- | (4,019 | ) | ||||||||
|
Cash flows from financing activities
|
||||||||||||
|
Proceeds from issuance of convertible
|
||||||||||||
|
debentures
|
200,000 | 75,000 | 305,000 | |||||||||
|
Proceeds from issuance of common stock
|
200 | 200 | 1,411,054 | |||||||||
|
Offering costs
|
-- | -- | (101,225 | ) | ||||||||
|
Proceeds from notes payable
|
18,000 | -- | 60,000 | |||||||||
|
Payments of notes payable
|
(18,000 | ) | -- | (18,000 | ) | |||||||
|
Proceeds from notes payable related parties
|
-- | 5,000 | 5,000 | |||||||||
|
Proceeds (Payments) from loan payable
|
||||||||||||
|
Related parties -net
|
4,268 | -- | (14,412 | ) | ||||||||
|
Net cash provided by financing activities
|
204,468 | 80,200 | 1,647,417 | |||||||||
|
Adjustment for change in exchange rate
|
-- | -- | 3,081 | |||||||||
|
Net increase (decrease) in cash
|
47 | (174 | ) | (30 | ) | |||||||
|
Cash balance, beginning of periods
|
76 | 362 | 153 | |||||||||
|
Cash balance, end of periods
|
$ | 123 | $ | 188 | $ | 123 | ||||||
See accompanying notes to consolidated financial statements.
F-8
AXIOM OIL AND GAS CORP.
(An Exploration Stage Company)
Consolidated Statements of Cash Flows
(Unaudited)
|
Period from
|
||||||||||||
|
Inception of
|
||||||||||||
|
Exploration Stage
|
||||||||||||
|
(September 1,
|
||||||||||||
|
For the Nine Months Ended
|
2010) through
|
|||||||||||
|
May 31,
|
May 31,
|
|||||||||||
|
2015
|
2014
|
2015
|
||||||||||
|
Supplementary information:
|
||||||||||||
|
Cash paid for:
|
||||||||||||
|
Interest
|
$ | 2,000 | $ | -- | $ | 2,000 | ||||||
|
Income taxes
|
$ | -- | $ | -- | $ | -- | ||||||
|
Supplemental disclosures of cash flow information:
|
||||||||||||
|
Non-cash investing activities:
|
||||||||||||
|
Issuance of common shares and promissory
|
||||||||||||
|
note payable to acquire Toole County, Montana leases
|
||||||||||||
|
Leases, Toole County, Montana
|
$ | 240,495 | $ | -- | $ | 240,495 | ||||||
|
Investment in working interest in wells
|
301,000 | -- | 301,000 | |||||||||
|
Secured debenture
|
(1,264,972 | ) | -- | (1,264,972 | ) | |||||||
|
Accrued interest
|
(107,643 | ) | -- | (107,643 | ) | |||||||
|
Loan payable related party
|
(340,000 | ) | -- | (340,000 | ) | |||||||
|
Net liabilities acquired
|
$ | (1,171,120 | ) | $ | -- | $ | (1,171,120 | ) | ||||
|
Issuance of common shares to acquire Axiom Mexico
|
||||||||||||
|
Cash
|
$ | -- | $ | -- | $ | 3,435 | ||||||
|
Net VAT receivable
|
-- | -- | 9,667 | |||||||||
|
Prepaid expenses and other current assets
|
-- | -- | 1,169 | |||||||||
|
Security deposit
|
-- | -- | 990 | |||||||||
|
Furniture and equipment
|
-- | -- | 7,476 | |||||||||
|
Accounts payable and accrued expenses
|
-- | -- | (625 | ) | ||||||||
|
Related party payables
|
-- | -- | (47,589 | ) | ||||||||
|
Net liabilities acquired
|
$ | -- | $ | -- | $ | (25,477 | ) | |||||
|
Sale of investment in Axiom Mexico
|
||||||||||||
|
Other current assets
|
$ | -- | $ | -- | $ | 188 | ||||||
|
Net VAT receivable
|
-- | -- | 97,488 | |||||||||
|
Property and equipment
|
-- | -- | 9,548 | |||||||||
|
Other
|
-- | -- | 844 | |||||||||
|
Accounts payable and accrued expenses
|
-- | -- | (157,246 | ) | ||||||||
|
Related party payables
|
-- | -- | (28,909 | ) | ||||||||
|
Accumulated other comprehensive income
|
-- | -- | (82,594 | ) | ||||||||
|
Gain on sale of subsidiary
|
$ | -- | $ | -- | $ | (160,681 | ) | |||||
|
Non-cash financing activities:
|
||||||||||||
|
Common stock issued for debt settlement
|
$ | -- | $ | 75,000 | $ | 120,000 | ||||||
|
Notes payable issued for debt settlement
|
$ | -- | $ | 70,000 | $ | 70,000 | ||||||
|
Stock option issued for debt settlement
|
$ | -- | $ | 3,462 | $ | 3,462 | ||||||
|
Forgiveness related party payables
|
$ | -- | $ | -- | $ | 2,250 | ||||||
|
Common stock and note payable issued for
|
||||||||||||
|
accrued compensation and expenses
|
$ | -- | $ | -- | $ | 369,718 | ||||||
|
Note payable to related party issued upon
|
||||||||||||
|
acquisition of Toole County, MT leases
|
$ | 40,010 | $ | -- | $ | 40,010 | ||||||
|
Discount originated upon issuance of convertible
|
||||||||||||
|
debenture with common stock warrants
|
$ | 41,258 | $ | -- | $ | 41,258 | ||||||
See accompanying notes to consolidated financial statements.
F-9
AXIOM OIL AND GAS CORP.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
May 31, 2015
(Unaudited)
|
Note 1
|
Nature of Business and Basis of Financial Statement Presentation
|
Axiom Oil and Gas Corp. (“Axiom” or the “Company”) is in the business of acquiring and exploring oil and gas properties primarily in the United States. The Company was incorporated in Nevada on February 13, 2007 under the name TC Power Management Corp. and originally formed for the purpose of providing consulting services to private and public entities seeking assessment, development and implementation of energy generating solutions. Effective September 1, 2010, the Company changed its business strategy to the business of acquiring and exploring mineral properties. Accordingly, as of September 1, 2010, the Company is considered to be an exploration stage company. On May 10, 2011, the Company filed a Certificate of Amendment to its Articles of Incorporation changing its name to Axiom Gold and Silver Corporation. In addition, the Amendment increased the number of authorized shares of common stock from 100,000,000 to 300,000,000 and authorized the issuance of 10,000,000 preferred shares, the terms of which may be determined by the Board of Directors without the vote of shareholders. Effective November 1, 2010, the Company enacted a four-for-one (4:1) forward stock split. On August 27, 2013, the Company filed a Certificate of Amendment to its Articles of Incorporation and effective October 10, 2013 (i) changed its name to Axiom Oil and Gas Corp. to reflect its new business strategy of acquiring and exploring oil and gas properties; and (ii) enacted a one-for-twenty-five (1:25) reverse stock split. The Company remains an exploration stage company. All share and per share data in these financial statements have been adjusted retroactively to reflect the stock splits. On September 29, 2014, we formed Toole Oil and Gas Corp. a wholly-owned subsidiary incorporated in the State of Montana, for the purpose of holding our interests in the oil and gas leases acquired from Alberta Oil and Gas, LP effective October 14, 2014 (See Note 4).
The accompanying unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial statement presentation and in accordance with the instructions to Form 10-Q. Accordingly, they do not include all the information and notes necessary for complete financial statement presentation. In the opinion of management, the consolidated financial statements contain all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of the consolidated financial position as of May 31, 2015 and the consolidated results of operations and cash flows for the three months and nine months ended May 31, 2015 and 2014 and the period from inception of exploration stage (September 1, 2010) through May 31, 2015. Interim results are not necessarily indicative of the results to be expected for a full year. Reference is made to the financial statements of the Company contained in its Annual Report on Form 10-K for the year ended August 31, 2014.
F-10
AXIOM OIL AND GAS CORP.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
May 31, 2015
(Unaudited)
|
Note 2
|
Going Concern
|
The accompanying consolidated financial statements have been prepared on a basis which assumes that the Company will continue as a going concern and which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company has no significant established source of revenue, and has accumulated significant losses and an accumulated deficit during its exploration stage. These circumstances raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Management's plans with respect to alleviating the adverse financial conditions that caused substantial doubt about the Company’s ability to continue as a going concern are as follows:
The Company’s current assets are not deemed to be sufficient to fund ongoing expenses related to the startup of planned principal operations. In order to implement its business plan, the Company needs to raise additional capital through equity or debt financings or through loans from shareholders or others. The ability of the Company to continue as a going concern is dependent upon its ability to successfully raise additional capital and eventually attain profitable operations. There can be no assurance that the Company will be able to raise additional capital or execute its business strategy.
F-11
AXIOM OIL AND GAS CORP.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
May 31, 2015
(Unaudited)
|
Note 3
|
Summary of Significant Accounting Policies
|
The Company’s other accounting policies are set forth in Note 3 of the audited financial statements for the year ended August 31, 2014 included in Form 10-K.
Principles of Consolidation – The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Toole Oil and Gas Corp. effective as of September 29, 2014. All intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“US GAAP”) requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.
Foreign Currency Translation – The secured debenture, a promissory note and related accrued interest are payable in Canadian dollars (“CAD”). These amounts were translated into US dollars ("USD") at the period end exchange rates. Related interest expense was translated into USD using the average rates during the periods.
Exploration Stage Company – As of September 1, 2010, the Company became an “exploration stage company” as defined in the Securities and Exchange Commission Industry Guide 7, and is subject to compliance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 915 “Development Stage Entities”. For the period from February 13, 2007 (Inception) to August 31, 2010, the Company was a “development stage company” in accordance with ASC Topic 915. Deficits accumulated prior to becoming an “exploration stage company” have been separately presented in the accompanying consolidated balance sheets and statement of changes in stockholders’ deficiency.
Property and Oil and Gas Operations – We account for our crude oil and natural gas exploration and production activities under the successful efforts method of accounting.
Oil and gas lease acquisition costs are capitalized when incurred. Unproven properties with acquisition costs that are not individually significant are aggregated, and the portion of such costs estimated to be nonproductive is amortized over the remaining lease term. If the unproven properties are determined to be productive, the appropriate related costs are transferred to proven oil and gas properties. Lease rentals are expensed as incurred.
Oil and gas exploration costs, other than the costs of drilling exploratory wells, are charged to expense as incurred. The costs of drilling exploratory wells are capitalized pending determination of whether we have discovered proven commercial reserves. If proven commercial reserves are not discovered, such drilling costs are expensed. In some circumstances, it may be uncertain whether proven commercial reserves have been discovered when drilling has been completed. Such exploratory well drilling costs may continue to be capitalized if the reserve quantity is sufficient to justify its completion as a producing well and sufficient progress in assessing the reserves and the economic and operating viability of the project is being made. Costs to develop proven reserves, including the costs of all development wells and related equipment used in the production of crude oil and natural gas, are capitalized.
F-12
AXIOM OIL AND GAS CORP.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
May 31, 2015
(Unaudited)
|
Note 3
|
Summary of Significant Accounting Policies (Continued)
|
|
|
Depreciation, depletion and amortization of the cost of proven oil and gas properties is calculated using the unit-of-production method. The reserve base used to calculate depreciation, depletion and amortization for leasehold acquisition costs and the cost to acquire proven properties is the sum of proven developed reserves and proven undeveloped reserves. With respect to lease and well equipment costs, which include development costs and successful exploration drilling costs, the reserve base includes only proven developed reserves. Estimated future dismantlement, restoration and abandonment costs, net of salvage values, are taken into account.
Oil and gas properties are grouped in accordance with the Extractive Industries – Oil and Gas Topic of the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC). The basis for grouping is a reasonable aggregation of properties with a common geological structural feature or stratigraphic condition, such as a reservoir or field.
When circumstances indicate that proven oil and gas properties may be impaired, we compare expected undiscounted future cash flows to the unamortized capitalized cost of the asset. If the undiscounted future cash flows, based on our estimate of future crude oil and natural gas prices, operating costs, anticipated production from proven reserves and other relevant data, are lower than the unamortized capitalized cost, the capitalized cost is reduced to fair value.
Revenue Recognition – We recognize revenues from crude oil and natural gas sales upon delivery to the buyer.
Equity-Based Compensation - The Company accounts for equity based compensation transactions with employees under the provisions of ASC Topic No. 718, “Compensation: Stock Compensation” (“Topic No. 718”). Topic No. 718 requires the recognition of the fair value of equity-based compensation in net income. The fair value of common stock issued for compensation is measured at the market price on the date of grant. The fair value of the Company’s equity instruments, other than common stock, is estimated using a Black-Scholes option valuation model. This model requires the input of highly subjective assumptions and elections including expected stock price volatility and the estimated life of each award. In addition, the calculation of equity-based compensation costs requires that the Company estimate the number of awards that will be forfeited during the vesting period. The fair value of equity-based awards granted to employees is amortized over the vesting period of the award and the Company elected to use the straight-line method for awards granted after the adoption of Topic No. 718.
F-13
AXIOM OIL AND GAS CORP.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
May 31, 2015
(Unaudited)
|
Note 3
|
Summary of Significant Accounting Policies (Continued)
|
The Company accounts for equity based transactions with non-employees under the provisions of ASC Topic No. 505-50, “Equity-Based Payments to Non-Employees” (“Topic No. 505-50”). Topic No. 505-50 establishes that equity-based payment transactions with non-employees shall be measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. The fair value of common stock issued for payments to non-employees is measured at the market price on the date of grant. The fair value of equity instruments, other than common stock, is estimated using the Black-Scholes option valuation model. In general, the Company recognizes an asset or expense in the same manner as if it was to pay cash for the goods or services instead of paying with or using the equity instrument.
Income Taxes – The Company accounts for income taxes under the provisions of ASC Topic No. 740 “Income Taxes” which requires the use of the liability method of accounting for income taxes. The liability method measures deferred income taxes by applying enacted statutory rates in effect at the balance sheet date to the differences between the tax basis of assets and liabilities and their reported amounts on the financial statements. The resulting deferred tax assets or liabilities are adjusted to reflect changes in tax laws as they occur. A valuation allowance is provided when it is more likely than not that a deferred tax asset will not be realized. At May 31, 2015, the entire deferred tax asset, which arises primarily from our operating losses, has been fully reserved because management has determined that it is not more likely than not that the net operating loss carry forwards will be realized in the future.
At May 31, 2015, the Company did not have any unrecognized tax benefits. The Company's practice is to recognize interest and/or penalties related to income tax matters in income tax expense. As of May 31, 2015, the Company had $10,000 in accrued interest and penalties which is included in general and administrative expenses since it was not related to an income tax matter. The Company currently has no federal or state tax examinations in progress nor has it had any federal or state tax examinations since its inception. All of the Company's tax years are subject to federal and state tax examination.
Earnings (Loss) Per Share – Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted earnings per share reflects the amount of earnings for the period available to each share of common stock outstanding during the reporting period, while giving effect to all dilutive potential common shares that were outstanding during the period, such as common shares that could result from the potential exercise or conversion of securities into common stock.
Reclassification - Certain fiscal 2014 amounts have been reclassified to conform to fiscal 2015 presentation.
Subsequent Events – In accordance with ASC 855 “Subsequent Events” the Company evaluated subsequent events after the balance sheet date.
F-14
AXIOM OIL AND GAS CORP.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
May 31, 2015
(Unaudited)
|
Note 3
|
Summary of Significant Accounting Policies (Continued)
|
Recently Issued Accounting Pronouncements – In June 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-10, “Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation” (ASU 2014-10). ASU 2014-10 removes all incremental financial reporting requirements regarding development-stage entities, including the removal of Topic 915 from the FASB Accounting Standards Codification. In addition, ASU 2014-10 adds an example disclosure in Risks and Uncertainties (Topic 275) to illustrate one way that an entity that has not begun planned operations could provide information about risks and uncertainties related to the company’s current activities. ASU 2014-10 also removes an exception provided to development-stage entities in Consolidations (Topic 810) for determining whether an entity is a variable interest entity. Effective with the first quarter of our fiscal year ended August 31, 2016, the presentation and disclosure requirements of Topic 915 will no longer be required. The revisions to Consolidation (Topic 810) are effective the first quarter of our fiscal year ended August 31, 2017. Early adoption is permitted. We have not determined the potential effects on our financial statements.
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers” (Topic 606) (ASU 2014-09), which supersedes the revenue recognition requirements in ASC Topic 605, “Revenue Recognition”, and most industry-specific guidance. ASU 2014-09 is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. The amendments in ASU 2014-09 will be applied using one of two retrospective methods. The effective date will be the first quarter of our fiscal year ended August 31, 2018. We have not determined the potential effects on our financial statements.
There are several other new accounting pronouncements issued or proposed by the FASB. Each of these pronouncements, as applicable, has been or will be adopted by the Company. Management does not believe any of these accounting pronouncements has had or will have a material impact on the Company’s financial position or operating results.
F-15
AXIOM OIL AND GAS CORP.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
May 31, 2015
(Unaudited)
|
Note 4
|
Acquisitions
|
Effective October 14, 2014, we finalized the Lease Purchase Agreement with Alberta Oil and Gas, LP to purchase interests in certain oil and gas leases and the leasehold estates created thereby located in Toole County, Montana (“Toole Leases”) totaling approximately 14,900 gross mineral acres (approximately 6,200 net mineral acres), which includes a 23.1% working interest in two oil and gas wells drilled on the leases and a 50% interest in two producing gas wells on the leases. The purchase price for the leases, as amended, is $2,919,128 USD ($3,269,076 CAD), of which, $44,645 USD ($50,000 CAD) is to be paid in cash, $1,264,972 USD ($1,416,717 CAD) is to be in the form of the assumption of a note secured against the leases and the remainder to be paid in the form of 6,997,876 shares of our common stock valued at $0.23 per share, $1,609,511. This is a related party transaction as our Chairman, CEO and former CFO are considered affiliates of Alberta Oil and Gas, LP. Our wholly-owned subsidiary, Toole Oil and Gas Corp. is the registered owner of our interest in the leases.
The operating results of Toole Leases from October 14, 2014 through May 31, 2015 are included in the accompanying Consolidated Statements of Operations. The Consolidated Balance Sheet as of May 31, 2015 reflects the acquisition of Toole Leases, effective October 14, 2014, the date of the acquisition. The acquisition date fair value of the total consideration transferred was $2,919,128, which consisted of 6,997,876 shares of Company common stock valued at $0.23 per share, $44,645 USD ($50,000 CAD) to be paid in cash and the assumption of $1,264,972 USD ($1,416,717 CAD) secured debentures.
The following table summarizes the estimated fair values of assets acquired and liabilities assumed at the acquisition date:
|
Leases, Toole County MT
|
$ | 240,495 | ||
|
Investment in working interest in wells
|
301,000 | |||
|
Total identifiable assets
|
541,495 | |||
|
Related party loans payable
|
(340,000 | ) | ||
|
Other current liabilities
|
(107,643 | ) | ||
|
Total liabilities assumed
|
(447,643 | ) | ||
|
Net identifiable liabilities acquired
|
93,852 | |||
|
Goodwill
|
2,825,276 | |||
|
Net assets acquired
|
$ | 2,919,128 |
The Company tested for impairment at the time of the acquisition and determined that the goodwill was impaired and recorded a charge of $2,825,276. None of the goodwill is expected to be deductible for income tax purposes.
F-16
AXIOM OIL AND GAS CORP.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
May 31, 2015
(Unaudited)
|
Note 4
|
Acquisitions (Continued)
|
The amount of net loss of Toole Leases included in the Company’s Consolidated Statements of Operations (including goodwill impairment of $2,825,276) from the acquisition date, October 14, 2014, to the period ending May 31, 2015 are as follows:
|
Period from
|
||||||||
|
Inception of
|
||||||||
|
Exploration
|
||||||||
| For the |
Stage
|
|||||||
|
Nine Months
|
(September 1,
|
|||||||
|
Ended
|
2010) through
|
|||||||
|
May 31,
|
May 31,
|
|||||||
| 2015 | 2015 | |||||||
|
Net loss
|
$ | (2,869,482 | ) | $ | (2,869,482 | ) | ||
|
Basic and diluted loss per share
|
$ | (0.16 | ) | |||||
The following supplemental pro forma information presents the consolidated financial results as if the acquisition of Toole Leases had occurred September 1, 2010.
|
Period from
|
||||||||||||
|
Inception of
|
||||||||||||
|
Exploration
|
||||||||||||
|
Stage
|
||||||||||||
|
(September 1,
|
||||||||||||
|
For the Nine Months Ended
|
2010) through
|
|||||||||||
|
May 31,
|
May 31,
|
|||||||||||
|
2015
|
2014
|
2015
|
||||||||||
|
Net loss
|
$ | (3,684,285 | ) | $ | (631,329 | ) | $ | (18,491,727 | ) | |||
|
Basic and diluted loss per share
|
$ | (0.21 | ) | $ | (0.06 | ) | ||||||
F-17
AXIOM OIL AND GAS CORP.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
May 31, 2015
(Unaudited)
|
Note 5
|
Property – Successful Efforts Method
|
Leases - Toole County, Montana
Effective October 14, 2014, we finalized the Lease Purchase Agreement with Alberta Oil and Gas, LP (“Alberta”) to purchase interests in certain oil and gas leases and the leasehold estates created thereby located in Toole County, Montana (“Toole Leases”) totaling approximately 14,900 gross mineral acres (approximately 6,200 net mineral acres), which includes a 23.1% working interest in two oil and gas wells drilled on the leases and a 50% interest in two producing gas wells on the leases. (See Note 13)
For the two producing gas wells the average sales price of the production per thousand btus for the 3 month period ending April 30, 2015 is $2.16 and the average lifting price per thousand btus for the 3 month period ending April 30, 2015 is $1.18.
The fair value of the leases is $230,195 after a loss of $10,300 for the expiration of six of the leases was recognized in the nine months ended May 31, 2015. The approximate gross mineral acres is 13,140 (5,320 net mineral acres) after the expiration of the leases.
Operating Agreement
Activities on the properties are governed by an Operating Agreement entered into with Young Sanders E&P LLC. The Operating Agreement is the standard American Association of Land Professionals 1989 Standard Operating Agreement (the “AAPL Agreement”) with an additional section 16 governing forfeitures and participation. The AAPL Agreement describes the rights and obligation of the participants and the operator in conducting all activities on the properties, including drilling, production and abandonment of wells. We share certain expenses with American Midwest Oil and Gas Corp. (“AMOG”), a 50% partner of the oil and gas leases that contain the two producing gas wells. Additionally, we pay AMOG a monthly management fee of $100 per well for services related to the two operating gas wells jointly owned (See Note 6). In January 2015 AMOG reduced the management fee from $250 to $100 to increase well profitability.
Investment in Working Interests in Wells
In March 2014, Alberta borrowed $80,000 from Abexco, Inc. (“Abexco”) to purchase a 3.69% net revenue interest in each of two oil wells in the leased area of Toole County Montana. The Company has a 12.5% carried interest and a 6.15% working interest in each well (the combined interests equate to a 13.69% Net Revenue Interest).
In April 2014, Alberta borrowed $260,000 (which includes $39,000 in finance costs) from Abexco to purchase an additional 17% working interest (10.20% Net Revenue Interest) in each of two oil wells in the leased area of Toole County Montana. We assumed these obligations effective October 14, 2014 with the acquisition of Toole Leases. The loans, totaling $340,000, are unsecured and payable on demand (See Note 6).
F-18
AXIOM OIL AND GAS CORP.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
May 31, 2015
(Unaudited)
|
Note 6
|
Related Party Transactions
|
Accounting and tax services were provided by two accounting firms. One in which our former Chief Financial Officer provided consulting services. As of February 11, 2015, accounting and tax services are provided by the second accounting firm in which our current Chief Financial Officer (“CFO”) is the sole shareholder (See Note 13). Accounting and tax fees amounted to $33,500 and $85,600, inclusive of $39,600 in stock based compensation for common shares issued to our former CFO for services (See Note 11), for the three and nine months ended May 31, 2015, and $15,000 and $30,000 for three and the nine months ended May 31, 2014, respectively. An amount of $69,000 and $45,000 is owed as of May 31, 2015 and August 31, 2014, respectively. These figures reflect a consolidation of the former and the current CFO’s balances. In February 2014, a payable of $70,000 from prior services rendered was settled through the issuance of a $35,000 8% note payable and 140,000 shares of Company common stock valued at $35,000 to the former CFO.
The Company is obligated to its Chief Executive Officer (“CEO”) for accrued and unpaid compensation in the amount of $70,826 and $35,000 as of May 31, 2015 and August 31, 2014, respectively. Compensation amounted to $15,000 and $45,000 for the three and nine months ended May 31, 2015 and $15,000 and $20,000 in the three and nine months ended May 31, 2014, respectively.
The Company is obligated to its Chairman, who is also the majority stockholder of the Company, for accrued and unpaid compensation and reimbursable expenses as of May 31, 2015 and August 31, 2014 in the amounts of approximately $329,000 and $243,000, respectively. Compensation and expenses amounted to approximately $43,200 and $133,700 for the three and nine months ended May 31, 2015 and $34,000 and $114,000 in the three and nine months ended May 31, 2014, respectively.
In January 2015, 70,000 shares of Company common stock valued at $12,600 were issued to the former CFO for services rendered.
On April 11, 2014, we borrowed $5,000 from our Chairman for working capital purposes (see Note 7).
AMOG is considered a related party since our Chairman is also shareholder of AMOG. In the nine months May 31, 2015, we have $750 in management fees (after an adjustment for a reduction in the fee) to AMOG and at May 31, 2015 there is a balance due AMOG of $4,268.
Abexco is considered a related party since our Chairman, CEO and former CFO are also shareholders of Abexco. At May 31, 2015 there is a balance due Abexco of $340,000 (See Note 5).
Alberta, which is wholly-owned by Abexco, is considered a related party since our Chairman, CEO and former CFO are also shareholders of Abexco. The terms of our acquisition of Toole Leases provided for a cash payment of $50,000 CAD. In lieu of cash, Alberta accepted a promissory note payable on demand with interest at 4% per annum. At May 31, 2015, we have a promissory note payable to Alberta in the amount of $40,145 USD ($50,000 CAD).
F-19
AXIOM OIL AND GAS CORP.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
May 31, 2015
(Unaudited)
|
Note 7
|
Notes Payable, related parties
|
On October 14, 2014 we entered into a note payable with Alberta Oil and Gas, LP in the amount of $45,145 USD ($50,000 CAD) upon the closing of the Toole County oil and gas lease acquisition. The note is unsecured and payable on demand with 4% interest per annum. Interest expense is $420 and $1,069 in the three and nine months ended May 31, 2015, respectively.
On April 11, 2014, we borrowed $5,000 from our Chairman for working capital purposes. The note is unsecured and is payable on demand with interest at 12% per annum. Interest expense is $151 and $447 for the three and nine months ended May 31, 2015, respectively.
|
Note 8
|
Notes Payable
|
On November 9, 2010, we borrowed $10,000 from an unrelated party for working capital purposes. The note is unsecured and was due November 9, 2011 with 8% interest per annum.
In April 2011, we borrowed $20,000 from an unrelated party for working capital purposes. The note is unsecured and payable on demand with 8% interest per annum.
On December 7, 2012, we borrowed $10,000 from an unrelated party for working capital purposes. The note is unsecured, non-interest bearing and payable on demand.
On December 13, 2012, we incurred a $25,000 note payable to our former Chief Executive Officer (“CEO”) as part of a mutual release and settlement agreement for accrued and unpaid compensation and reimbursable expenses owed him. The note is unsecured and payable on demand with 7% interest per annum.
On January 7, 2013, we borrowed $2,000 from an unrelated party for working capital purposes. The note is unsecured and payable on demand with 15% interest per annum.
On October 30, 2013, we incurred a $35,000 note payable in conjunction with a settlement of an outstanding payable. The note is unsecured and was due on January 31, 2014 with interest at 8% per annum.
On February 4, 2014, we incurred a $35,000 note payable in conjunction with a settlement of an outstanding payable. The note is unsecured and was due on April 30, 2014 with interest at 8% per annum.
On January 30, 2015, we borrowed $18,000 from an unrelated party for working capital purposes. The note was unsecured and payable on February 9, 2015 together with interest and fees of $2,000. The note was settled in full for $20,000 on February 17, 2015. $2,000 was charged to interest in the nine months ended May 31, 2015 and a share purchase warrant was issued to acquire 25,000 shares of common stock at a price of $0.25 per share for a period of 2 years.
Interest expense for the three and nine months ended May 31, 2015 is $2,534 and $10,777 (of which $1,221 is related to the warrant issued for the debt and $2,000 for the interest and fees) and for the three and nine months ended May 31, 2014 is $2,619 and $5,936, respectively.
F-20
AXIOM OIL AND GAS CORP.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
May 31, 2015
(Unaudited)
|
Note 9
|
Convertible Debentures
|
On July 5, 2013, the Board of Directors authorized the issuance of 20% Convertible Redeemable Debentures ("Convertible Debentures") in an aggregate principal amount not exceeding US $250,000. The debentures mature between June 30, 2014 and July 30, 2014 and accrue interest at 20% per annum from the day of initial issuance. As defined in the debenture agreement, the Convertible Debentures, at the option of the holder at any time commencing on December 31, 2013 until maturity, are convertible into shares of common stock of the Company, at a price of $0.25 per share.
On July 9, 2013, we issued a Convertible Debenture to a non-US resident accredited investor pursuant to Regulation S in the amount of $25,000.
On August 15, 2013, we issued a Convertible Debenture to a non-US resident accredited investor pursuant to Regulation S in the amount of $5,000.
In September 2013, we issued Convertible Debentures to two non-US resident accredited investors pursuant to Regulation S in the aggregate amount of $35,000.
In October 2013, we issued Convertible Debentures to two non-US resident accredited investors pursuant to Regulation S in the aggregate amount of $15,000.
On December 10, 2013, we issued a Convertible Debenture to a non-US resident accredited investor pursuant to Regulation S in the amount of $20,000.
On January 13, 2014, we issued a Convertible Debenture to a non-US resident accredited investor pursuant to Regulation S in the amount of $5,000.
On November 17, 2014, we issued a debenture in the amount of $100,000 to a non-affiliated investor pursuant to a 12% Convertible Redeemable Debenture pursuant to Regulation D in an aggregate principal amount not exceeding $500,000. The debenture is due November 5, 2015, accrues interest at 12% per annum and is convertible, at the option of the holder, into shares of our common stock at a price of $0.25 per share. In addition, the holder received a two year warrant to purchase 400,000 shares of our common stock at a price of $0.35 per share and is entitled to certain net revenue interests in oil and gas wells owned by our subsidiary, Toole Oil and Gas Corp., as defined in the debenture agreement. We recorded a debt discount in the amount of $22,294 related to the warrant and net revenue interests attached to the debenture (See Note 11). In the three and nine months ended May 31, 2015, we expensed $5,683 and $11,618 of amortized debt discount, respectively. At May 31, 2015, the balance of the debenture is $89,324, net of $10,676 debt discount. On February 11, 2015, the new CFO is considered a related party to this investor and effective on such date, this investor is deemed to be an affiliated investor.
F-21
AXIOM OIL AND GAS CORP.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
May 31, 2015
(Unaudited)
|
Note 9
|
Convertible Debentures (Continued)
|
On February 11, 2015, we issued a debenture in the amount of $50,000 to a non-affiliated investor pursuant to a 12% Convertible Redeemable Debenture pursuant to Regulation D in an aggregate principal amount not exceeding $500,000. The debenture is due February 1, 2016, accrues interest at 12% per annum and is convertible, at the option of the holder, into shares of our common stock at a price of $0.25 per share. In addition, the holder received a two year warrant to purchase 200,000 shares of our common stock at a price of $0.35 per share and is entitled to certain net revenue interests in oil and gas wells owned by our subsidiary, Toole Oil and Gas Corp., as defined in the debenture agreement. We recorded a debt discount in the amount of $13,332 related to the warrant and net revenue interests attached to the debenture (See Note 11). In the three and nine months ended May 31, 2015, we expensed $3,170 and $4,053, respectively, of amortized debt discount. At May 31, 2015, the balance of the debenture is $40,721, net of $9,279 debt discount.
On February 13, 2015, we issued a debenture in the amount of $50,000 to a non-affiliated investor pursuant to a 12% Convertible Redeemable Debenture pursuant to Regulation D in an aggregate principal amount not exceeding $500,000. The debenture is due February 1, 2016, accrues interest at 12% per annum and is convertible, at the option of the holder, into shares of our common stock at a price of $0.25 per share. In addition, the holder received a two year warrant to purchase 200,000 shares of our common stock at a price of $0.35 per share and is entitled to certain net revenue interests in oil and gas wells owned by our subsidiary, Toole Oil and Gas Corp., as defined in the debenture agreement. We recorded a debt discount in the amount of $13,332 related to the warrant and net revenue interests attached to the debenture (See Note 11). In the three and nine months ended May 31, 2015, we expensed $3,170 and $4,053, respectively, of amortized debt discount. At May 31, 2015, the balance of the debenture is $40,721, net of $9,279 debt discount.
Interest expense amounted to $11,344 and $25,655 in the three and nine months ended May 31, 2015 and $5,293 and $13,668 for the three and nine months ended May 31, 2014, respectively.
|
Note 10
|
Secured Debenture
|
The Secured Debenture is secured by our interest in Toole Leases. The Secured Debenture accrues interest at 4% per annum, and the principal and the accrued and unpaid interest becomes due and payable on September 1, 2016, as amended. The Secured Debenture contains certain retraction rights, whereby the holder shall be entitled, at its option, to retract certain principal and accrued interest, at specified dates and amounts and subject to our cash flow as defined in the agreement. Interest expense amounted to $11,535 USD ($14,284 CAD) and $29,638 USD ($35,554 CAD) in the three and nine months ended May 31, 2015, respectively.
F-22
AXIOM OIL AND GAS CORP.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
May 31, 2015
(Unaudited)
|
Note 11
|
Stockholders’ Deficiency
|
The Company is authorized to issue 300,000,000 shares of common stock with a par value of $0.001 and 10,000,000 shares of preferred stock with a par value of $0.001. Our Board of Directors has the authority to set the terms of any class of preferred shares through an issuance of a certificate of designation without receiving further shareholder approval. We have reserved 3,000,000 and 280,000 common shares for issuance under our 2013 and 2010 Stock Option Plans. In the period ended August 31, 2007, the Company sold 800,000 shares of common stock for cash of $500. In the year ended August 31, 2008, the Company sold 179,336 shares of its common stock for cash of $112,085. There were no equity transactions in the years ended August 31, 2010 and 2009. Effective November 1, 2010, the Company enacted a four-for-one (4:1) forward stock split. Effective October 10, 2013, the Company enacted a one-for-twenty-five (1:25) reverse stock split. All share and per share data in these financial statements have been adjusted retroactively to reflect the stock splits.
Pursuant to a compensation agreement with a former Director, effective October 4, 2011 and 2010, the Company granted a stock award in the amount of 6,000 shares of Company common stock, an aggregate of 12,000 shares valued at $189,000.
Pursuant to an acquisition agreement with a former subsidiary on January 13, 2011, the Company issued eighty thousand (80,000) of its common shares to the shareholders of the former subsidiary. The shares were valued at $500,000 ($6.25 per share) which represents the fair value on that date.
Pursuant to a compensation agreement with our Director – Business Development (Current Chairman), effective January 20, 2011, the Company granted a stock option award for the purchase of 12,000 shares of Company common stock at an exercise price of $6.25 per share. The fair value of our common stock at date of grant was $17.50. The fair value of the option, $186,197, was calculated using the Black-Scholes pricing model. The option vested as follows: 6,000 shares immediately and 6,000 shares on January 20, 2012; and is exercisable for five years from the date of issuance. The fair value of the option was charged to operations as share-based expense over the vesting period.
Pursuant to a compensation agreement with a former CEO, effective January 24, 2011, the Company issued 4,000 shares of common stock valued at $75,000 ($18.75 per share).
In January and February 2011, the Company sold 13,200 shares of common stock at $6.25 per share for gross proceeds of $82,500 to five non-US accredited investors pursuant to Regulation S. The Company incurred offering costs of $2,500 pursuant to an escrow agreement.
In April and May 2011, the Company sold 64,000 shares of common stock at $6.25 per share for gross proceeds of $400,000 to three non-US accredited investors pursuant to Regulations S and one US accredited investor pursuant to Regulation D.
In June and July 2011, we sold 95,760 shares of common stock at $6.25 per share for gross proceeds of $598,500 to six non-US accredited investors pursuant to Regulations S and three US accredited investors pursuant to Regulation D. In addition, we incurred offering costs of $94,350 (10% of gross proceeds) on all sales of the shares issued pursuant to Regulation S.
F-23
AXIOM OIL AND GAS CORP.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
May 31, 2015
(Unaudited)
|
Note 11
|
Stockholders’ Deficiency (Continued)
|
In July 2011, we issued 10,000 shares of common stock for investor relations services. The shares were valued at $487,500, the fair value at date of grant, and such amount was charged to operations as share-based expense at that date.
In December 2011, we received gross proceeds of $285,904 from the sale of 45,745 shares of common stock at $6.25 per share to one non-U.S. investor pursuant to Regulation S.
Effective August 16, 2012, our former CEO converted $212,218 of accrued and unpaid compensation and reimbursable expenses owed him into 8,488,720 shares of common stock at $0.025 per share. The fair value of the stock on that date was $0.75 per share and we incurred a charge for share based finance costs of $6,154,322 in the year ended August 31, 2012.
In August 2012, we initiated an offering of up to a total of 480,000 shares of common stock and 48,000 warrants to purchase shares of common stock (collectively the “Units”). The Units are being offered at US $0.625 per Unit for an aggregate purchase price of US $300,000. The warrants are exercisable for a two year period at US $0.875 per share. Offering costs are 10% of the gross proceeds received plus warrants equal to 10% of the warrant equity for sales to non-US investors pursuant to Regulation S. There are no offering costs for sales to US investors pursuant to Regulation D.
In August 2012, we received gross proceeds of $10,000 from the sale of 16,000 Units at $0.625 per Unit which included 16,000 shares of common stock and warrants to purchase 1,600 shares of common stock at $0.875 per share to a non-US accredited investor pursuant to Regulation S. We incurred offering costs of $1,000 (10% of gross proceeds) plus warrants to purchase 1,143 shares of common stock at $0.875 per share.
In September 2012, we received gross proceeds of $33,750 from the sale of 54,000 Units at $0.625 per Unit which included 54,000 shares of common stock and warrants to purchase 5,400 shares of common stock at $0.875 per share to three non-US accredited investors pursuant to Regulation S. We incurred offering costs of $3,375 plus warrants to purchase 3,857 shares of common stock at $0.875 per share
In December 2012, our former CEO converted $157,500 of accrued and unpaid compensation and reimbursable expenses owed him into 50,000 shares of Company common stock valued at $132,500 and a $25,000 promissory note.
Effective October 16, 2013, we issued a consultant a total of 700,000 shares of Company common stock valued at $140,000, $0.20 per share being the fair value on the effective date, as compensation under the related agreement.
Effective October 30, 2013, we settled an outstanding payable in the amount of approximately $124,000 through the issuance of an 8% promissory note in the amount of $35,000 due January 31, 2014 and 200,000 shares of our common stock with an agreed upon value of $0.01 per share. The fair value of the common stock on the effective date is $0.20 per share and the $40,000 value of the shares offset the payable balance. In August 2014, we issued an additional 100,000 shares of common stock valued at $0.45 per share, $45,000. In the nine months ended May 31, 2014 we recorded $48,844 as forgiveness of debt income.
F-24
AXIOM OIL AND GAS CORP.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
May 31, 2015
(Unaudited)
|
Note 11
|
Stockholders’ Deficiency (Continued)
|
Effective October 31, 2013, we granted our Chairman (see Note 13) a stock option award for the purchase of 500,000 shares of Company common stock at an exercise price of $0.25 per share. The fair value of our common stock at date of grant was $0.20. The fair value of the option, $52,392, was calculated using the Black-Scholes pricing model. The option vests over an 18 month period as follows: 200,000 shares immediately and 100,000 shares each on May 1, 2014, November 1, 2014 and May 1, 2015; and is exercisable for five years from the date of issuance. The fair value of the option is charged to operations as share-based expense over the vesting period. The expense recorded in the three and nine months ended May 31, 2015 is $1,166 and $6,403, respectively. For the three and nine months ended May 31, 2014 is $7,859 and $41,623, respectively.
Effective October 31, 2013, we granted a stock option award for the purchase of 33,000 shares of Company common stock at an exercise price of $0.25 per share to a former director in settlement of $8,348 owed for past services. The fair value of our common stock at date of grant was $0.20. The fair value of the option, $3,462, was calculated using the Black-Scholes pricing model. The option is fully vested and is exercisable for five years from the date of issuance. The fair value of the option offset the payable balance and the remainder of $4,886 is recorded as forgiveness of debt income in the nine months ended May 31, 2014.
Effective November 1, 2013, we granted a stock option award for the purchase of 300,000 shares of Company common stock at an exercise price of $0.25 per share to our former CFO. The fair value of our common stock at date of grant was $0.20. The fair value of the option, $31,468, was calculated using the Black-Scholes pricing model. The option vests over an 18 month period as follows: 150,000 shares immediately and 50,000 shares each on May 1, 2014, November 1, 2014 and May 1, 2015; and is exercisable for five years from the date of issuance. The fair value of the option is charged to operations as share-based expense over the vesting period. Upon the resignation of our former CFO, the Stock Option Plan governing these stock options called for the options to expire within 90 days of resignation. The Board of Directors authorized that all stock options vested to our former CFO would not expire in 90 days, but in 2018 as per his Stock Option Agreement. The non-vested options totaled 50,000 shares and expired upon his resignation on February 11, 2015. The expense recorded in the three and nine months ended May 31, 2015 is $0 and $2,795 and in the three and nine months ended May 31, 2014 is $4,721 and $25,001, respectively.
Effective November 1, 2013, we granted a stock option award for the purchase of 150,000 shares of Company common stock at an exercise price of $0.25 per share to a Director. The fair value of our common stock at date of grant was $0.20. The fair value of the option, $15,734, was calculated using the Black-Scholes pricing model. The option vests over an 18 month period as follows: 75,000 shares immediately and 25,000 shares each on May 1, 2014, November 1, 2014 and May 1, 2015; and is exercisable for five years from the date of issuance. The fair value of the option is charged to operations as share-based expense over the vesting period. The expense recorded in the three and nine months ended May 31, 2015 is $347 and $1,921 and in the three and nine months ended May 31, 2014 is $2,360 and $12,501, respectively.
F-25
AXIOM OIL AND GAS CORP.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
May 31, 2015
(Unaudited)
|
Note 11
|
Stockholders’ Deficiency (Continued)
|
Effective January 29, 2014, we granted a stock option award for the purchase of 300,000 shares of Company common stock at an exercise price of $0.45 per share to our current CEO (see Note 13). The fair value of our common stock at date of grant was $0.51. The fair value of the option, $91,275, was calculated using the Black-Scholes pricing model. The option vests over an 18 month period as follows: 150,000 shares immediately and 50,000 shares each on August 1, 2014, February 1, 2015 and August 1, 2015; and is exercisable for five years from the date of issuance. The fair value of the option is charged to operations as share-based expense over the vesting period. The expense recorded in the three and nine months ended May 31, 2015 is $3,043 and $16,735 and in the three and nine months ended May 31, 2014 is $16,735 and $58,823, respectively.
Effective February 4, 2014, we settled an outstanding payable in the amount of approximately $70,000 through the issuance of an 8% promissory note in the amount of $35,000 due April 30, 2014 and 140,000 shares of our common stock with an agreed upon value of $0.01 per share. The common stock was valued at $0.25 per share, $35,000, representing the fair value of the remaining payable balance, which was more reliably measurable.
On February 17, 2014, we entered into a consulting agreement for business advisory and other related services. The agreement is for a term of six months with compensation of $2,000 per month. Pursuant to the agreement we also issued the consultant a total of 300,000 shares of Company common stock for $200. The stock is valued at $153,000, $0.51 per share being the fair value on the effective date of the agreement, and we recorded stock-based compensation of $152,800 at the inception of the agreement.
On September 18, 2014, we approved the issuance of 60,000 shares of our common stock valued at $0.45 per share, $27,000, to our former CFO for services to be rendered.
Effective October 14, 2014, we granted each of our CEO and director, former CFO and Director and Chairman stock options for the purchase of 300,000 shares of Company common stock at an exercise price of $0.25 per share, 900,000 common shares in the aggregate. The options have a term of 10 years and vest as follows: 150,000 shares each immediately and 50,000 each vesting April 14, 2015, 50,000 each vesting October 14, 2015 and 50,000 shares each vesting April 14, 2016. The fair value of the options, $155,466, was calculated using the Black-Scholes pricing model. The expense recorded in the three and nine months ended May 31, 2015 is $11,516 and $122,241, respectively. The Board of Directors authorized that all stock options vested to our former CFO/director would not expire in 90 days, but in 2024 as per his Stock Option Agreement. The non-vested options totaled 150,000 shares and expired upon his resignation on February 11, 2015.
On October 14, 2014, the Company approved the issuance of 250,000 shares of common stock for legal services. The shares are valued at $0.23 per share and $57,500 of share based expense is recorded in the nine months ended May 31, 2015.
On December 1, 2014, we entered into a consulting agreement for business advisory and other related services. The agreement is for a term of six months with compensation of $2,000 per month. Pursuant to the agreement we also issued the consultant a total of 300,000 shares of Company common stock for $200. The stock is valued at $54,000, $0.18 per share being the fair value on the effective date of the agreement, and we recorded stock-based compensation of $53,800 at the inception of the agreement.
F-26
AXIOM OIL AND GAS CORP.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
May 31, 2015
(Unaudited)
|
Note 11
|
Stockholders’ Deficiency (Continued)
|
On January 28, 2015, we approved the issuance of 70,000 shares of our common stock valued at $0.18 per share, $12,600, to our former CFO for services rendered.
Effective February 11, 2015, we granted a stock option award for the purchase of 300,000 shares of Company common stock at an exercise price of $0.25 per share to our current CFO. The fair value of our common stock at date of grant was $0.20. The fair value of the option, $44,698, was calculated using the Black-Scholes pricing model. The options have a term of 10 years and vest as follows: 150,000 shares immediately and 50,000 shares each on August 11, 2015, February 11, 2016 and August 11, 2016. The expense recorded in the three and nine months ended May 31, 2015 is $6,830 and $30,470, respectively.
Effective April 23, 2015, we granted a stock option award for the purchase of 60,000 shares of Company common stock at an exercise price of $0.25 per share to an employee of our CFO’s accounting firm. The fair value of our common stock at date of grant was $0.22. The fair value of the option, $10,137, was calculated using the Black-Scholes pricing model. The options have a term of 10 years and vest as follows: 30,000 shares immediately and 10,000 shares each on October 23, 2015, April 23, 2016 and October 23, 2016. The expense recorded in the three and nine months ended May 31, 2015 is $5,723.
The warrants to purchase 440,000 shares of Company common stock granted in November 2014 (See Notes 9 and 13) were valued at $8,423 using the Black-Scholes pricing model with the following assumptions: Dividend yield - -0-%; Risk-free interest rate – 0.54%; Expected life – 2 years; Expected volatility – 53.24%.
The warrants to purchase 425,000 shares of Company common stock granted February 2015 (See Notes 8 and 9) were valued at $14,398 using the Black-Scholes pricing model with the following assumptions: Dividend yield - -0-%; Risk-free interest rate – 0.49%; Expected life – 2 years; Expected volatility – 67.73%.
F-27
AXIOM OIL AND GAS CORP.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
May 31, 2015
(Unaudited)
|
Note 11
|
Stockholders’ Deficiency (Continued)
|
Warrant activity for the nine months ended May 31, 2015 and the year ended August 31, 2014 is as follows:
|
May 31, 2015
(Unaudited)
|
||||||||||||||||
|
Shares
|
Weighted- Average Exercise Price
|
Weighted-
Average Remaining Contractual Term
|
Aggregate
Intrinsic
Value
|
|||||||||||||
|
Outstanding at beginning
|
||||||||||||||||
|
of period
|
9,257 | $ | 0.875 | |||||||||||||
|
Granted/Sold
|
865,000 | $ | 0.35 | |||||||||||||
|
Expired/Cancelled
|
(9,257 | ) | $ | 0.875 | ||||||||||||
|
Forfeited
|
-- | -- | ||||||||||||||
|
Exercised
|
-- | -- | ||||||||||||||
|
Outstanding and exercisable at
|
||||||||||||||||
|
May 31, 2015
|
865,000 | $ | 0.35 |
1.57 Years
|
$ | -- | ||||||||||
|
August 31, 2014
|
||||||||||||||||
|
Shares
|
Weighted- Average Exercise Price
|
Weighted-
Average Remaining Contractual Term
|
Aggregate
Intrinsic
Value
|
|||||||||||||
|
Outstanding at beginning
|
||||||||||||||||
|
of period
|
12,000 | $ | 0.875 | |||||||||||||
|
Granted/Sold
|
-- | -- | ||||||||||||||
|
Expired/Cancelled
|
(2,743 | ) | $ | 0.875 | ||||||||||||
|
Forfeited
|
-- | -- | ||||||||||||||
|
Exercised
|
-- | -- | ||||||||||||||
|
Outstanding and exercisable at
|
||||||||||||||||
|
August 31, 2014
|
9,257 | $ | 0.875 |
0.06 Years
|
$ | -- | ||||||||||
F-28
AXIOM OIL AND GAS CORP.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
May 31, 2015
(Unaudited)
|
Note 11
|
Stockholders’ Deficiency (Continued)
|
The fair values of the warrants, an aggregate of $22,822 for the nine months ended May 31, 2015 are estimated on the date of grant using the Black-Scholes pricing model.
The following weighted-average assumptions were made in estimating fair value of the warrants and options:
|
Year Ended
|
Nine Months Ended
|
|||||||||||
|
August 31,
|
May 31,
|
|||||||||||
|
2014
|
2015
|
2014
|
||||||||||
|
Dividend Yield
|
-- | % | -- | % | -- | % | ||||||
|
Risk-Free Interest Rate
|
1.38 | % | 1.49 | % | 1.38 | % | ||||||
|
Expected Life
|
5.0 Years
|
6.74 Years
|
5.0 Years
|
|||||||||
|
Expected Volatility
|
68.68 | % | 66.63 | % | 68.68 | % | ||||||
2013 Stock Option Plan
On October 24, 2013, the Board of Directors authorized the implementation of the 2013 Employee and Consultant Stock Option Plan (the "2013 Option Plan"). The 2013 Option Plan is intended to provide an incentive to our executive personnel, directors, key employees or consultants who are responsible for or contribute to our management, growth and/or profitability. The purpose of granting options to such persons under the Plan is to attract them to consider employment with, or service to, us, to encourage their continued employment or service, and to give them incentive to provide their best efforts to us for purposes of enhancing shareholder value. A total of up to 3,000,000 shares of our common stock have been reserved for the 2013 Option Plan. The options can be issued at a strike price set at up to a 10% discount to market. As of May 31, 2015, 657,000 shares of common stock are available for issuance under the 2013 Option Plan.
2010 Stock Option Plan
The 2010 Stock Option Plan ("2010 Plan"), adopted by the Board of Directors on January 31, 2011, is intended to provide an incentive to our executive officers, directors, employees, independent contractors or agents who are responsible for or contribute to our management, growth and/or profitability. The purpose of granting options to such persons under the 2010 Plan is to attract them to consider employment with, or service to, us, to encourage their continued employment or service, and to give them incentive to provide their best efforts to us for purposes of enhancing shareholder value.
A total of up to 280,000 shares of our common stock have been reserved for the implementation of the 2010 Plan, either through the issuance of options to eligible persons in the form of incentive stock options or non-statutory options which are subject to restricted property treatment under Section 83 of the Internal Revenue Code. Whenever practical, the 2010 Plan is to be administered by a committee of not less than two members of the Board of Directors appointed by the full Board, and the 2010 Plan has a term of ten years, unless sooner terminated by the Board. As of May 31, 2015, 268,000 shares of common stock are available for issuance under the 2010 Plan.
F-29
AXIOM OIL AND GAS CORP.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
May 31, 2015
(Unaudited)
|
Note 11
|
Stockholders’ Deficiency (Continued)
|
The following table summarizes options transactions under the 2013 and 2010 Stock Option Plans for the periods.
|
For the Nine Months Ended
|
||||||||||||||||
|
May 31, 2015
(Unaudited)
|
||||||||||||||||
|
Shares
|
Weighted- Average Exercise Price
|
Weighted-
Average Remaining Contractual Term
|
Aggregate
Intrinsic
Value
|
|||||||||||||
|
Outstanding at beginning
|
||||||||||||||||
|
of period
|
1,295,000 | $ | 0.35 | |||||||||||||
|
Granted/Sold
|
1,260,000 | $ | 0.25 | |||||||||||||
|
Expired/Cancelled
|
-- | -- | ||||||||||||||
|
Forfeited
|
(200,000 | ) | $ | 0.25 | ||||||||||||
|
Exercised
|
-- | -- | ||||||||||||||
|
Outstanding at May 31, 2015
|
2,355,000 | $ | 0.31 |
6.30 Years
|
$ | -- | ||||||||||
|
Exercisable at May 31, 2015
|
1,925,000 | $ | 0.31 |
5.73 Years
|
$ | -- | ||||||||||
|
For the Year Ended
|
||||||||||||||||
|
August 31, 2014
|
||||||||||||||||
|
Shares
|
Weighted- Average Exercise Price
|
Weighted-
Average Remaining Contractual Term
|
Aggregate
Intrinsic
Value
|
|||||||||||||
|
Outstanding at beginning
|
||||||||||||||||
|
of period
|
12,000 | $ | 6.25 | |||||||||||||
|
Granted/Sold
|
1,283,000 | $ | 0.30 | |||||||||||||
|
Expired/Cancelled
|
-- | -- | ||||||||||||||
|
Forfeited
|
-- | -- | ||||||||||||||
|
Exercised
|
-- | -- | ||||||||||||||
|
Outstanding at August 31, 2014
|
1,295,000 | $ | 0.35 |
4.20 Years
|
$ | 196,600 | ||||||||||
|
Exercisable at August 31, 2014
|
845,000 | $ | 0.38 |
4.19 Years
|
$ | 126,600 | ||||||||||
F-30
AXIOM OIL AND GAS CORP.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
May 31, 2015
(Unaudited)
|
Note 11
|
Stockholders’ Deficiency (Continued)
|
The weighted-average grant-date fair value of options granted during the nine months ended May 31, 2015 was $0.18. No options were exercised during the period.
Summary of non-vested options as of and for the year ended August 31, 2014 and the nine months ended May 31, 2015 is as follows:
|
Weighted-
|
||||||||
|
Average
|
||||||||
|
Grant-Date
|
||||||||
|
Non-Vested Options
|
Shares
|
Fair Value
|
||||||
|
Non-vested at beginning of period
|
-- | $ | -- | |||||
|
Granted
|
1,283,000 | $ | 0.15 | |||||
|
Vested
|
(833,000 | ) | $ | 0.15 | ||||
|
Forfeited
|
-- | $ | -- | |||||
|
Non-vested at August 31, 2014
|
450,000 | $ | 0.15 | |||||
|
Granted
|
1,260,000 | $ | 0.17 | |||||
|
Vested
|
(1,080,000 | ) | $ | 0.16 | ||||
|
Forfeited
|
(200,000 | ) | $ | 0.16 | ||||
|
Non-vested at May 31, 2015
|
430,000 | $ | 0.18 | |||||
F-31
AXIOM OIL AND GAS CORP.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
May 31, 2015
(Unaudited)
|
Note 12
|
Income Taxes
|
Net deferred tax assets and liabilities consist of the following components:
|
May 31,
|
August 31,
|
|||||||
|
2015
|
2014
|
|||||||
|
(Unaudited)
|
||||||||
|
Deferred tax assets
|
||||||||
|
Pre-operating costs
|
$ | 158,060 | $ | 168,837 | ||||
|
Equity-based payments
|
376,085 | 246,630 | ||||||
|
Net operating loss carryforward
|
770,511 | 569,064 | ||||||
|
Valuation allowance
|
(1,304,656 | ) | (984,531 | ) | ||||
|
Net deferred tax assets
|
$ | -- | $ | -- | ||||
The income tax provision differs from the amount of income tax determined by applying the U.S. federal and state income tax rates of 39% to pretax income from continuing operations for the nine months ended May 31, 2015 and 2014 due to changes in the valuation allowance.
Based upon historical net losses and the Company being in the exploration stage, management believes that it is not more likely than not that the deferred tax assets will be realized and has provided a valuation allowance of 100% of the deferred tax asset. The valuation allowance increased by approximately $320,000 and $331,000 in the nine months ended May 31, 2015 and the year ended August 31, 2014, respectively.
F-32
AXIOM OIL AND GAS CORP.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
May 31, 2015
(Unaudited)
|
Note 13
|
Commitments and Contingencies
|
Compensation Agreements
On January 14, 2011 we entered into an agreement with Robert Knight pursuant to which in return for serving as Director – Business Development (a non-executive position), Mr. Knight received $7,500 per month and options to purchase 12,000 shares of our common stock exercisable at $6.25 per share. The options vested over a one year period and expire 5 years from the date of the grant. The initial term of the agreement was for a one year period. On May 18, 2012, upon the resignations of certain officers and directors, the Company appointed Mr. Knight, CEO, CFO, Secretary and a Director. Compensation remains at $7,500 per month on a month to month basis.
On January 29, 2014, Mr. Knight resigned as President and CEO of the Company and we appointed Michael Altman as President, CEO and a Director. Mr. Knight remains as Chairman of the Board of the Company. Mr. Altman receives compensation of $5,000 per month and received a stock option to acquire 300,000 shares of our common stock exercisable at a price of $0.45 per share. The option vests over an 18 month period and expires 5 years from the date of grant.
On February 1, 2015, we entered into an agreement with Brian C. Jensen of Legacy Global Tax & Accounting, PA to which in return for serving as the CFO, Mr. Jensen receives $10,000 per month, of which $5,000 is allocated for bookkeeping and financial reporting and $5,000 per month is allocated to management consulting services. The term of the agreement is for a one year period and supersedes the agreement entered into with Legacy Global Financial Group, Inc. on November 1, 2014. Mr. Jensen received on February 11, 2015 a stock option to acquire 300,000 shares of our common stock exercisable at a price of $0.25 per share. The option vests over an 18 month period and expires 10 years from the date of grant.
On May 22, 2015 we entered into a three year employment agreement with Emmanuel Kouyoumdjian to which in return for serving as the Vice President of Business Development, Mr. Kouyoumdjian will receive compensation of $5,000 per month. Mr. Kouyoumdjian was also granted the right to acquire up to 500,000 shares of common stock at $0.001 per share and shall be granted a stock option to acquire up to 300,000 shares at $0.25 per share. (see note 15)
Pursuant to compensation agreements, subject to the exceptions and limitations provided therein, the Company has agreed to hold harmless and indemnify the officers and directors to the fullest extent permitted by law against any and all liabilities and expenses in connection with any proceeding to which such director or officer was, is or becomes a party, arising out of his services as an officer, director, employee, agent or fiduciary of the Company or its subsidiaries.
Lease Agreements
In February 2011, we entered into a one year lease for administrative office space in Oro Valley, Arizona. The lease was effective through February 29, 2012 at a cost of $900 per month. As of February 28, 2015 we have terminated this month to month lease.
In February 2015, we entered into a one year lease for administrative office space in New York, NY commencing on March 1, 2015 with monthly payments of $299. The lease is effective through February 29, 2016.
Rent expense for the three and nine months ended May 31, 2015 amounted to approximately $975 and $1,550 and for the three and nine months ended May 31, 2014 amounted to $300 and $1,100, respectively.
F-33
AXIOM OIL AND GAS CORP.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
May 31, 2015
(Unaudited)
|
Note 13
|
Commitments and Contingencies (Continued)
|
Other
Effective October 16, 2013, we entered into a consulting agreement for assistance in certain business and corporate matters such as strategic and business plans, expansion of the Company’s shareholder base and financing alternatives. The term of the agreement was for a period of 90 days from the effective date. We issued the consultant a total of 700,000 shares of Company common stock valued at $140,000, the fair value of the effective date, as compensation under the agreement.
Effective October 17, 2013, we entered into a definitive agreement with American Midwest Oil and Gas Corp. ("AMOG") to participate, through a joint venture, in the exploration and development of certain oil and gas wells located in Montana that are currently held by AMOG. This is a related party transaction as our majority shareholder and sole director and officer, at that date, and our current Chairman is also a shareholder of AMOG.
On October 25, 2013, we entered into a Farmout Agreement with AMOG to replace the agreement of October 17, 2013. This is a related party transaction as our majority shareholder and sole director and officer, at that date, and our current Chairman is also a shareholder of AMOG. The Farmout Agreement gives us the right to drill a well, and potentially additional wells, on the land underlying leases held by AMOG as defined in the agreement.
On April 2, 2014, we entered into agreements with each of the 5 shareholders of AMOG and a separate agreement with AMOG, whereby we are purchasing all of the issued and outstanding shares of AMOG. This agreement replaces our Farmout Agreement entered into on October 25, 2013. AMOG is the owner and operator (with its 50/50 partner Alberta Oil and Gas LP) of certain oil and gas leases and the leasehold estates created thereby located in Toole County, Montana totaling approximately 14,600 mineral acres (approximately 11,300 net mineral acres) as well as an interest in 2 recently drilled oil wells and 2 producing gas wells. The purchase price for the shares of AMOG is $3,480,000 and will be paid by the issuance of 7,400,000 shares of our common stock and payment of $150,000 for a licensing fee for the 3D seismic, to be paid from production and/or through the raising of drilling funds. This is a related party transaction as our Chairman has an equity interest in AMOG. The closing of the purchase was to take place May 29, 2014. Effective September 9, 2014, this agreement with the 5 shareholders of AMOG and separately with AMOG to acquire all of the issued and outstanding shares of AMOG was terminated. While there is no formal written agreement for such termination, the parties have executed mutual releases in connection with the prior contractual dealings.
On August 21, 2014, we entered into an agreement with Librarium Associates Ltd. (“Librarium”) for financial consulting services. Librarium will assist us in obtaining financing using its best efforts to introduce the Company to financial professionals and institutions and private investors. The initial term of the agreement is for one year from the effective date. Pursuant to the agreement, we will pay Librarium a finder’s fee based on 10% of the value of a successful financing consummated with any person or entity directly or indirectly introduced to us by Librarium during the term of the agreement, any extension thereof, or for a period of two years following the termination of the agreement. The fee shall be paid one half (50%) in cash and one half (50%) in common stock of the Company. The common stock issued, among other terms, is entitled to certain “piggyback” registration rights, as defined in the agreement.
F-34
AXIOM OIL AND GAS CORP.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
May 31, 2015
(Unaudited)
|
Note 13
|
Commitments and Contingencies (Continued)
|
On November 1, 2014, we entered into an agreement with Legacy Global Financial Group Inc. (“Legacy”) for consulting services. Legacy will provide corporate consulting services, including assisting us in obtaining financing through, among other means, introductions to financial professionals. The initial term of the agreement is for six months from the effective date. Pursuant to the agreement, we will pay Legacy $5,000 per month during the six month term and issue them a two-year warrant to purchase 40,000 shares of our common stock at an exercise price of $0.35 per share. Effective February 1, 2015 this agreement is no longer a commitment as it was replaced by the agreement with Brian C. Jensen of Legacy Global Tax & Accounting, PA. (see Note 13 – Compensation Agreements) The two-year warrant to purchase 40,000 shares of our common stock at an exercise price of $0.35 per share is still in effect.
On December 1, 2014, we entered into a consulting agreement with Caro Capital LLC. for business advisory and other related services. The agreement is for a term of six months with compensation of $2,000 per month. Pursuant to the agreement we also issued the consultant a total of 300,000 shares of Company common stock for $200.
Tanglewood Energy LLC had a part ownership position in some of the leases we own. We believe that it has forfeited its positions, and the gross acreage and net acreages reported above includes acreage that we believe that Tanglewood Energy LLC forfeited and that American Midwest Oil and Gas (a former operator) registered as defaulted in the court registry in Shelby, Montana. Some of our leases are shared 50% with Tanglewood Energy LLC who is insolvent and as such has defaulted on its obligations to maintain its interests in the shared leases below. If the forfeitures were to be challenged and proved not to have occurred, our net mineral acreage would be reduced by approximately 1,754 acres.
On May 14, 2015, Mr. Tao Yin filed suit in the Supreme Court of British Columbia against the Company, Michael Altman and Robert Knight among others seeking damages of $462,000 and liquidated damages in the amount of $420,000 in connection with purported breaches of a Letter of Intent and the Loan Agreement and Guarantees contained therein. Management is of the view that the claims filed against the Company and its officers are without merit and the possibility of loss is remote. The Company has filed a defense against the claims and will incur legal expenses for its defense.
|
Note 14
|
Forgiveness of Debt Income
|
In the nine months ended May 31, 2014, we settled approximately $156,000 in payables through the issuance of notes payable of $35,000, common stock of $40,000 and a stock option valued at $3,462, resulting in $77,480 in forgiveness of debt income (See Note 8).
F-35
AXIOM OIL AND GAS CORP.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
May 31, 2015
(Unaudited)
|
Note 15
|
Subsequent Events
|
On June 9, 2015, we engaged a firm to assist in completing a private placement of Securities. The engagement is for a term of 12 months. The firm will be paid a success fee of ten percent (10%) of gross proceeds from all sales of securities placed by the firm. As additional compensation upon consummation of the Offering we will issue to the firm a warrant to purchase a number of shares of common stock equal to multiplying 10% times the number of shares purchased in the financing placed by the firm at an exercise price equal to the offering price. The warrants will have a term of 2 years from the date of issuance. We also agreed to pay an investment banking retainer fee of $5,000 to cover various expenses and services. We will also reimburse the firm for out of pocket expenses related to the performance of the engagement.
On June 9, 2015 our Vice President of Business Development, Mr. Kouyoumdjian, received a stock option to acquire 300,000 shares of our common stock exercisable at a price of $0.25 per share. The option vests over an 18 month period and expires 10 years from the date of the grant.
On June 9, 2015, Mr. Kouyoumdjian converted $500 of accrued compensation into 500,000 shares of common stock at $0.001 per share . The fair value of the stock on that date was $0.22 per share. Stock-based compensation will be recorded in the amount of $109,500 for the year ending August 31, 2015.
On June 17, 2015 we entered into a Mutual Release with Caro Capital, whereby Caro Capital agreed to transfer the 600,000 shares of restricted common stock to Emmanuel Kouyoumdjian that were received pursuant to the consulting agreements dated February 17, 2014 and December 1, 2014 and to waive any accrued monthly cash fees. Accrued fees for the nine months ended May 31, 2015 were $24,000.
On June17, 2015, we approved the issuance of 250,000 shares of our common stock to our attorneys to satisfy an invoice of $10,000 for legal services rendered. The fair value of the stock on that date was $0.22 per share. Stock based compensation will be recorded in the amount of $45,000 for the year ending August 31, 2015.
F-36
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Critical Accounting Policies and Estimates. Our Management's Discussion and Analysis of Financial Condition and Results of Operations section discusses our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments, including those related to revenue recognition, accrued expenses, financing operations, and contingencies and litigation. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The most significant accounting estimates inherent in the preparation of our consolidated financial statements include estimates as to the appropriate carrying value of certain assets and liabilities which are not readily apparent from other sources.
Equity-Based Compensation - We account for equity based compensation transactions with employees under the provisions of ASC Topic No. 718, “Compensation: Stock Compensation” (“Topic No. 718”). Topic No. 718 requires the recognition of the fair value of equity-based compensation in net income. The fair value of common stock issued for compensation is measured at the market price on the date of grant. The fair value of our equity instruments, other than common stock, is estimated using a Black-Scholes option valuation model. This model requires the input of highly subjective assumptions and elections including expected stock price volatility and the estimated life of each award. In addition, the calculation of equity-based compensation costs requires that we estimate the number of awards that will be forfeited during the vesting period. The fair value of equity-based awards granted to employees is amortized over the vesting period of the award, and we elected to use the straight-line method for awards granted after the adoption of Topic No. 718.
We account for equity based transactions with non-employees under the provisions of ASC Topic No. 505-50, “Equity-Based Payments to Non-Employees” (“Topic No. 505-50”). Topic No. 505-50 establishes that equity-based payment transactions with non-employees shall be measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. The fair value of common stock issued for payments to non-employees is measured at the market price on the date of grant. The fair value of equity instruments, other than common stock, is estimated using the Black-Scholes option valuation model. In general, we recognize an asset or expense in the same manner as if we were to pay cash for the goods or services instead of paying with or using the equity instrument.
Other accounting policies are described in the notes to the financial statements included in this Quarterly Report and our Annual Report for the year ended August 31, 2014. The following discussion of our financial condition and results of operations should be read in conjunction with our audited financial statements for the year ended August 31, 2014.
Overview. We were incorporated in the State of Nevada on February 13, 2007, under the name TC Power Management Corp. We are in the exploration stage of our business and have generated minimal revenues. We abandoned our previous business of providing consulting services to private and public entities seeking assessment, development, and implementation of energy generating solutions. We changed our planned business activities to the exploration and development of precious metals properties. Subsequently, we abandoned that strategy.
1
We now plan to focus our business strategy on the exploration and development of oil and gas leases, mainly in the United States of America. On October 10, 2013 we changed our name to Axiom Oil and Gas Corp.
On March 18, 2014, we entered into a Lease Purchase Agreement with Alberta Oil and Gas LP (“LP”) to purchase its interest in certain leases. On October 14, 2014, we finalized a Lease Purchase Agreement with Alberta Oil and Gas LP whereby we purchased certain oil and gas leases and the leasehold estates created thereby located in Toole County, Montana totaling 14,916.94 gross acres, 6,170.76 net acres which includes a 26.1% working interest in two oil and gas wells drilled on the leases and a 50% interest in two producing gas wells on the leases (the “Leases”). The purchase price for the Leases, as amended, was $2,919,128 ($3,269,076 CDN), of which $40,010 ($50,000 CDN) is to be paid in cash from future cash flow or from future financing, $1,133,657 in the form of the assumption of a note secured against the Leases and the remainder in the form of 6,997,876 shares of our common stock valued at $0.23 per share, $1,609,511.
Tanglewood Energy LLC had a part ownership position in some of the leases we own. We believe that it has forfeited its positions, and the gross acreage and net acreages reported above includes acreage that we believe that Tanglewood Energy LLC forfeited and that American Midwest Oil and Gas (a former operator) registered as defaulted in the court registry in Shelby, Montana. For a more complete description of Tanglewood Energy LLC and our position on the defaults and forfeitures, please see “Description of Business – Legal Proceedings” and “Risk Factors – Risk Associated with Our Business”. Some of our leases are shared 50% with Tanglewood Energy LLC who is insolvent and as such has defaulted on its obligations to maintain its interests in the shared leases below. If the forfeitures were to be challenged and proven not to have occurred, our net mineral acreage would be reduced by 1,474 acres.
This is a related party transaction as one of our directors and largest shareholders, our Chief Executive Officer and director and our former Chief Financial Officer are affiliates of Alberta Oil and Gas LP.
On September 29, 2014, we formed Toole Oil and Gas Corp. a wholly-owned subsidiary incorporated in the State of Montana, for the purpose of holding our interests in the oil and gas leases acquired from Alberta Oil and Gas, LP effective October 14, 2014.
Our plan of operation is forward looking, and we may not be successful in our operations.
Operating Agreement
Activities on the properties described below are governed by the Operating Agreement entered into with Young Sanders E&P LLC and is included by reference on our Form 8K filed October 14, 2014. The Operating Agreement is the standard American Association of Land Professionals 1989 Standard Operating Agreement (the “AAPL Agreement”) with an additional Section 16 governing forfeitures and participation. The AAPL describes the rights and obligations of the participants and the operator in conducting all activities on the properties including the drilling, production and the abandonment of wells. Exhibits to the Operating Agreement contain, among other things, the standard COPAS Accounting Procedures Joint Operations governing the expenditure of funds and accounting procedures. Our plan of operation is forward looking, and we may never begin operations.
2
Plan of Operations
Our current business plan is to acquire oil and gas leases located in the United States of America and explore those leases for the production of hydrocarbons.
Our proposed principal product is the production of hydrocarbons. In order to commence the exploration and development of oil and gas leases, we will need to accomplish the following milestones:
1. Begin Exploration of Oil and Gas Leases. We will need to raise additional funds or issue shares to pay for the cost of exploration of any oil and gas leases.
2. Hire Qualified Staff. We will need to hire qualified people to execute our business plan to explore for hydrocarbons. We will need to raise additional funds to attract qualified people to our Company. We currently have two full time and one part time employee, and we do not intend to hire additional employees at this time.
If the necessary funds are raised to drill a well in Toole County we will work closely with Young Sanders E&P LLC to identify the location of the wells to be drilled. Young Sanders E&P LLC is the operator, so they will contract all of the necessary contractors to drill and complete a well. Our function, initially, will be to provide capital for the project.
Glossary of Terms:
Abandon: (1) The proper plugging and abandoning of a well in compliance with all applicable regulations, and the cleaning up of the well site to the satisfaction of any governmental body having jurisdiction and to the reasonable satisfaction of the operator. (2) To cease efforts to find or produce from a well or field. (3) To plug a well completion and salvage material and equipment.
Acreage: An area, measured in acres, which is subject to ownership or control by those holding total or fractional shares of working interests. Acreage is considered developed when development has been completed. A distinction may be made between “gross” acreage and “net” acreage. “Gross Acreage” means all Acreage covered by any working interest, regardless of the percentage of ownership in the interest.
AECO: The AECO “C” spot price, which is the Alberta gas trading price, has become one of North America’s leading price-setting benchmarks for natural gas.
AFE: Authority or authorization for expenditure. A cost estimate of doing something. The AFE of drilling a well is estimated both as a dry hole and as a completed well.
Anhydrite: A salt mineral composed of anhydrous calcium sulfate (CaSO4).
Average BOPD per year for first year: The measure of oil output, represented by the number of barrels of oil produced per day, on average per Well, during the First Year Revenue Period.
Barrel: A unit of volume measurement used for petroleum and its products (~42 U.S. gallons).
Barrel of Oil Equivalent or BOE: A unit of energy based on the approximate energy released by burning one barrel (~42 U.S. gallons) of crude oil.
BOPD: Barrels of Oil Per Day
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Borehole: The hole as drilled by the drill bit.
Casing: Steel pipe cemented in the borehole to seal off formation fluids or keep the hole from caving in.
Commercial Well: A well that produces hydrocarbons in commercial quantities (i.e., enough to commence sales to an oil refinery and/or gas pipeline carrier in a profitable way or method).
Completion: The installation of permanent wellhead equipment for the production of oil and gas.
°API Gravity (degree API gravity): A measure of the density of a liquid or a gas. Freshwater is 10. Average weight oil is 25 to 35, heavy oil is below 25, light oil is 35 to 45 and condensate is above 45 °API gravity.
Dolostone: Or dolomite rock, is a sedimentary carbonate rock that contains a high percentage of the mineral dolomite. It forms from the natural chemical alteration of limestone and is often a reservoir rock.
Dry Hole or Non-commercial Well: A well that does not produce hydrocarbons in Commercial Well quantities.
EUR: Estimated Ultimate Recovery; that is, the number of barrels of oil that may be produced during the life span of a well.
Exploration Drilling: Drilling carried out to determine whether hydrocarbons are present in a particular area or structure.
Exploration phase: The phase of operations which covers the search for oil or gas by carrying out detailed geological and geophysical surveys followed up where appropriate by exploratory drilling.
Exploration well: A well drilled in an unproven area. Also known as a "wildcat well".
Farm In: When a company acquires an interest in a block by taking over all or part of the financial commitment for drilling an exploration well.
Field: A geographical area under which an oil or gas reservoir lies.
40 Acre Spacing: Area of land containing 1 oil well, generally regulated by State regulations.
Fracking or Hydraulic Fracturing: The fracturing of rock by a pressurized liquid. Some hydraulic fractures form naturally—certain veins or dikes are examples. Induced hydraulic fracturing or hydrofracturing, commonly known as fracking, is a technique in which typically water is mixed with sand and chemicals, and the mixture is injected at high pressure into a wellbore to create small fractures (typically less than 3/8th inches), along which fluids such as gas, petroleum, and brine water may migrate to the well. Hydraulic pressure is removed from the well. Then, small grains of proppant (sand or aluminum oxide) hold these fractures open once the rock achieves equilibrium.
Gas Field: A field containing natural gas but no oil.
Gas Injection: The process whereby separated associated gas is pumped back into a reservoir for conservation purposes or to maintain the reservoir pressure.
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Gross Acreage: All Acreage covered by any working interest, regardless of the percentage of ownership in the interest.
HBP: Held by production. Term referring to the ownership of leases that no longer need rental payments as the lease has producing oil and/or gas wells and therefore the mineral rights owner receives royalty payments from production. Typically, the leases are held by production until the well no longer produces commercial hydrocarbons and is abandoned.
Horizontal Drilling: A well that is drilled vertically into the oil bearing zone and then turned and drilled horizontally along the zone. The horizontal wellbores allow for far greater exposure to a formation than a conventional vertical wellbore. This is particularly useful in shale formations which do not have sufficient permeability to produce economically with a vertical well. Such wells when drilled onshore are now usually hydraulically fractured in a number of stages, especially in North America. The type of wellbore completion used will affect how many times the formation is fractured, and at what locations along the horizontal section of the wellbore.
Hydrocarbon: A compound containing only the elements hydrogen and carbon. Hydrocarbons may exist as a solid, a liquid or a gas. The term is mainly used in a catch-all sense for oil, gas and condensate.
Initial Production or IP: The rate at which a well commences initial producing hydrocarbons in Commercial Well quantities.
Lease: The right granted by a landowner to the Company to extract minerals, specifically oil and/or natural gas, from the mineral estate. A lease is a legal document or contract between a landowner (lessor) and a company or individual (lessee) granting exploration and development rights to subsurface oil and gas deposits.
Mud: A mixture of base substance and additives used to lubricate the drill bit and to counteract the natural pressure of the formation allowing the drill bit to drill down into the earth.
Natural Gas: Mainly Methane Gas but also other flammable gases, occurring naturally and often found in association with crude petroleum.
Net Acreage: Also known as Net Mineral Acres. Net Acreage is Gross Acreage adjusted to reflect the percentage of ownership in the working interest in the Acreage.
Oil: A mixture of liquid hydrocarbons of different molecular weights.
Oil Field: A geographic area under which an oil reservoir lies.
Operator: The company that has legal authority to drill wells and undertake the production of hydrocarbons that are found. The Operator is often part of a consortium and acts on behalf of this consortium.
Paleostructure: The geologic structure of a region or sequence of rocks in the geologic past.
Permeability: The property of a formation which quantifies the flow of a fluid through the pore spaces and into the wellbore.
Petroleum: A generic name for hydrocarbons, including crude oil, natural gas liquids, natural gas and their products.
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Plug and Abandon (P&A): The final state in any well. Permission to plug and abandon is granted by a government agency and done to specific requirements. A surface cement plug is placed at the surface and cement plugs are placed at specific depths in the well to prevent any pollution. A steel plate is welded to the top of the casing and covered with dirt.
Porosity: The percentage of void in a porous rock compared to the solid formation.
Possible Reserves: Those reserves which at present cannot be regarded as ‘probable’ but are estimated to have a significant but less than 50% chance of being technically and economically producible.
Primary Recovery: Recovery of oil or gas from a reservoir purely by using the natural pressure in the reservoir to force the oil or gas out.
Probable Reserves: Those reserves which are not yet proven but which are estimated to have a better than 50% chance of being technically and economically producible.
Proven Field: An oil and/or gas field whose physical extent and estimated reserves have been determined.
Proven Reserves: Those reserves which on the available evidence are virtually certain to be technically and economically producible (i.e. having a better than 90% chance of being produced).
Recoverable Reserves: That proportion of the oil and/gas in a reservoir that can be removed using currently available techniques.
Reserves: Barrels of Oil per Field. It is calculated by multiplying the Lifespan Average BOPD per well by the number of Wells per Field.
Reservoir: The underground formation where oil and gas has accumulated. It consists of a porous rock to hold the oil or gas, and a cap rock that prevents its escape.
Reservoir Rock: A rock that has porosity and permeability. It can hold and transmit fluids. The most common reservoir rocks are sandstones, limestones and dolomites.
Royalty Payment: The cash or kind paid to the owner of mineral rights from the production of hydrocarbons.
Sabkha Environments: Sabkha environments are supratidal, forming along arid coastlines and are characterized by evaporite-carbonate deposits with some siliciclastics. Sabkhas form subaerial, prograding and shallowing-upward sequences
Secondary Recovery: Recovery of oil or gas from a reservoir by artificially maintaining or enhancing the reservoir pressure by injecting gas, water or other substances into the reservoir rock.
Shut In Well: A well which is capable of producing but is not presently producing. Reasons for a well being shut in may be lack of equipment, market or other.
Surface Location: The location of a well or facility/measurement point.
38 Degree API “Light” Oil: An arbitrary scale expressing the gravity or density of liquid petroleum products. The measuring scale is calibrated in terms of degrees API. The higher the API gravity, the lighter the compound. Light crudes generally exceed 38 degrees API and heavy crudes are commonly labeled as all crudes with API gravity of 22 degrees or below. Intermediate crudes fall in the range of 22 degrees to 38 degrees API gravity.
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3D Seismic Analysis: Similar to 2D, but uses a dense array of geophones to provide a much more detailed set of seismic information. 3D seismic information allows geologists to see a significantly more reliable view of the underground topography of an area. Denser data and improved computer processing ensures that subsurface features are correctly located and may indicate the presence of hydrocarbons, rather than merely the structural elements, which could possibly contain hydrocarbons. Time-Lapse 3D seismic (also known as 4D) is also used when needed to provide more data in mature fields to identify where new oil has not yet been tapped.
Top Lease: Generally, a top lease grants rights if and when the current lease expires. In some cases, lease holders are paid a bonus before the current lease expires, in others, the company may prefer to pay the bonus after the current lease expires.
Total Production: The cumulative Barrels of Oil or Barrels of Oil Equivalent a field produces during its Lifespan.
Vertical Drilling: The traditional method of completing an oil and gas well which is done by drilling vertically into the earth at a selected location.
Well Interest: The interest in a well held by the Company under the terms of a Lease.
Well Log Data or Well Logging or Drill Logging: The practice of making a detailed record (a well log) of the geologic formations penetrated by a borehole. The log may be based either on visual inspection of samples brought to the surface (geological logs) or on physical measurements made by instruments lowered into the hole (geophysical logs). Well Logging can be done during any phase of a well’s history; drilling, completing, producing and abandoning. Well Logging is performed in boreholes drilled for the oil and gas, groundwater, mineral and geothermal exploration, as well as part of environmental and geotechnical studies.
Wildcat Well: A well drilled in an unproven area. Also known as an exploration well.
Nisku Carbonate Project – Toole County Montana:
The oil and gas leases owned by us through Toole Oil and Gas Corp., our wholly owned subsidiary, are located in Toole County, in north central Montana, approximately 16 miles south of the Province of Alberta, Canada and U.S. border. According to state production records, Montana, itself, is a prolific producer of oil and natural gas and we believe that Montana has state legislation that supports the oil and gas industry. First year state tax rates on revenues generated by the sale of hydrocarbons are 0.8% in Montana. The tax rate shifts to rates between 6.1% and 9.3% in subsequent years, depending on the hydrocarbon being produced, the year in which wells were drilled and type of well.
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Map showing location of the Kevin-Sunburst Dome where the leases are generally located.
The Kevin-Sunburst Dome is a geological structure in the area in Toole County and covers approximately 1,000 square miles and we believe has 850 feet of structural closure. We believe that intense structural compression by the Montana Thrust Belt produced forces and fractures that dispersed the Bakken oil into many rock formations through-out the area. State production records indicate that some formations are located up to a thousand feet above the Bakken zone (such as the Madison, Swift, Cutbank and Sunburst) and others are located only a few hundred feet below the Bakken (such as the Nisku and Duperow). We believe that the Bakken zone oil migrated through many different rock layers and accumulated to form oil fields wherever the oil encountered porosity (the oil reservoir) and a seal (the oil trap). Geological interpretation by our former consulting geologist from drilling in the area is that the Kevin-Sunburst Dome was the focal point for Bakken oil migration from the Southern Alberta Basin to the west. According to state production records, the domal area has produced more than 320 million barrels of oil (MMBO) and 650 billion cubic feet of gas (BCFG) from the Devonian Nisku, Mississippian Madison, Jurassic Swift, Cretaceous Cutbank/Sunburst, and four other formations. The primary formation we intend to target, assuming sufficient capital is raised for drilling, is the conventional Nisku carbonate formation. In Toole County, the Nisku formation is found at a depth of approximately 3,000 to 3,200 feet.
Our leases are located on the eastern slope of the Kevin-Sunburst Dome near the producing fields called the East Kevin Field and the 9 Mile Field. The East Kevin Field, according to state records, has been in production for approximately 29 years. Generally, state records show that the oil produced from the Nisku formation is 38 degree API “light” oil. The state records also show that the Nisku formation does not produce water. Initially, assuming adequate capital is raised, we plan to drill simple vertical wells into the Nisku zone. Drill logs from surrounding wells do not show any hazardous or complex drilling problems, though no assurance can be given that we would not encounter such problems.
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General location of the leases held and the area covered by the 3D Seismic.
In the Kevin-Sunburst Dome there is multi-zone production from seven shallower formations. If and when we drill on the leases, the drill hole has the potential to drill through these formations. If such formations are indicated on the drill logs, we will have the opportunity, if commercial, to produce from these upper zones. No assurance may be given that any of these zones contain commercial amounts of hydrocarbons.
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Conceptual Cross section of Kevin-Sunburst Dome illustrating the different formations that have been identified.
Nisku deposition
State records and drill logs show that the Nisku Formation is about 60 to 70 feet thick across the Kevin-Sunburst Dome. Scientific interpretation by our former consulting geologist indicates that the formation was deposited as a shallowing-upward carbonate-evaporate sequence on top of marine limestones and shales of the Devonian Duperow Formation. Fine-grained carbonates (wackestones) make up the bottom 20 to 30 feet of strata. That zone is overlain by a 20-ft thick “Middle Layer” containing wave-dominated grainstone deposits that account for the primary Nisku porosity. The Middle Layer grades into 10 to 15 feet of supratidal laminated dolostones and anhydrites, capped by a 12 foot anhydrite layer. We believe that a Sabkha environment prevailed during the next few million years while an additional 150 feet of dolostones and anhydrites accumulated to form the overlying Potlatch Formation.
Nisku porosity and reservoir variability
The Nisku grainstone deposits formed on paleotopographic features (ancestral island shoals and beaches) where wave action left behind the coarser carbonate sand and winnowed away the silt and mud. Primary Nisku porosity developed in the 20-ft thick wave-dominated Middle Layer where skeletal grainstones are preserved. We believe that soon after deposition, the entire Nisku formation was dolomitized. This is a chemical process that enhances the original grainstone porosity present in a limestone reservoir. Records of drill core from surrounding drill holes indicate that the porosity in the Nisku can range from a 0 percent to more than 20 percent.
3D Seismic
3D seismic data was shot across the area during 2007, about 24 years after the East Kevin Field was discovered. The 3D data and the interpretation of the data by our former consulting geologist indicate to us, though no assurance can be given, that the Nisku porosity and oil potential are present not only where wells have already been drilled in the East Kevin Field, but also to the north of the field. We have acquired an interest in leases on what we believe are similar geological locations on the north edge of East Kevin Field and on trend to the 9 Mile Field to the north of the East Kevin Field.
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The 3D seismic data has been interpreted by our former consulting geologist to establish, what we feel are, the areas of better Nisku porosity. The seismic data interpretation by our former consulting geologist has delineate, what we believe are, paleostructures where grainstone porosity development have most likely occurred. We believe that this structure could have impacted the topography of the overlying Nisku Formation, resulting in better porosity development on the structurally higher areas, though, no assurance can be given to this development. Furthermore, we believe that distinct seismic amplitude variations are associated with the Nisku porosity zone and these have been tied to the porosity in previously drilled wells in the area.
Competition
We compete with other oil and gas companies in connection with the acquisition of oil and gas leases and in connection with the recruitment and retention of qualified employees. Many of these companies are much larger than us, have greater financial resources and have been in the oil and gas business much longer than we have. As such, these competitors may be in a better position through size, finances and experience to acquire suitable exploration properties. We may not be able to compete against these companies in acquiring new leases and/or qualified people to work on any of our leases.
There is significant competition for the limited number of oil and gas lease opportunities available and, as a result, we may be unable to continue to acquire attractive oil and gas leases on terms we consider acceptable.
Given the size of the world market for oil and gas relative to individual producers and consumers of oil and gas, we believe that no single company has sufficient market influence to significantly affect the price or supply of oil and gas in the world market.
RESERVES REPORTED TO OTHER AGENCIES
We have no reserve reports at this time. Save and except the two gas wells, our acreage is undeveloped.
PRODUCTION
A. As part of the acquisition of the lease interests, we have acquired a 50% working interest in two producing gas wells.
i) The average sales price of the production per thousand btus for the 3 month period ending April 30, 2015 is $2.16.
ii) The average lifting price per thousand btus for the 3 month period ending April 30, 2015 is 1.18.
PRODUCTIVE WELLS AND ACREAGE
As of October 14, 2014, we own 2 gas wells (gross) and 1 gas well net. The total productive area of the two gross wells is 80 acres and the net productive area is 40 acres.
UNDEVELOPED ACREAGE
As of May 31, 2015, we own 13,140 gross acres and 5,320 net acres (which includes 1,474 acres forfeited by Tanglewood Energy, LLC).
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DRILLING ACTIVITY
In December 2013, drilling of two oil wells we acquired commenced. The two wells are awaiting fracking in order to determine whether either or both of such wells should be placed in production or abandoned.
PRESENT ACTIVITIES
As of July 15, 2015 we have two oil wells being drilled.
DELIVERY COMMITMENTS
American Midwest Oil and Gas Ltd., (“AMOG”) the 50% owner of our two producing gas wells is the operator of these two wells. AMOG has a contract with Ranck Oil Company to sell to them all of the gas produced from these two wells. The gas is sold based on the AECO monthly price minus $1.00 for gathering and expired on June 30, 2015. An extension of the contract is presently being negotiated and the existing production is being delivered on the prior basis.
Insurance
We do not maintain any general insurance, but we plan to implement standard insurance policies for our company. We do not have directors’ and officers’ liability insurance. Our ability to acquire a general insurance policy relies upon us having the necessary funds to do so. We do not have the necessary funds to implement such insurance policies. Because we do not have any insurance, if we are made a party to a liability action, we may not have sufficient funds to defend the litigation. If that occurs, a judgment could be rendered against us that could cause us to cease operations.
The current operator of our leases, Young Sanders E&P LLC, does carry liability insurance that would cover us against any action pertaining to the leases we hold.
Governmental Regulations - Environmental and Occupational Health and Safety Matters
General
Our operations are subject to stringent and complex federal, regional, state and local laws and regulations governing occupational health and safety, the discharge of materials into the environment or otherwise relating to environmental protection. Compliance with these laws and regulations may require the acquisition of permits before drilling or other related activity commences, restrict the type, quantities and concentration of various substances that can be released into the environment in connection with drilling and production activities, limit or prohibit drilling and production activities on certain lands lying within wilderness, wetlands and other protected areas, impose specific health and safety criteria addressing worker protection, and impose substantial liabilities for pollution arising from drilling and production operations. Failure to comply with these laws and regulations may result in the assessment of administrative, civil and criminal penalties, the imposition of remedial obligations, and the issuance of injunctions that may limit or prohibit some or all of our operations.
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These laws and regulations may also restrict the rate of oil and natural gas production below the rate that would otherwise be possible. The regulatory burden on the oil and natural gas industry increases the cost of doing business in the industry and consequently affects profitability. Additionally, the trend in environmental regulation has been to place more restrictions and limitations on activities that may affect the environment, and, any changes in environmental laws and regulations that result in more stringent and costly well construction, drilling, waste management or completion activities or waste handling, storage, transport, disposal or remediation requirements could have a material adverse effect on our business. While we believe that we are in substantial compliance with current applicable federal and state environmental laws and regulations and that continued compliance with existing requirements will not have a material adverse impact on our operations or financial condition, there is no assurance that we will be able to remain in compliance in the future with such existing or any new laws and regulations or that such future compliance will not have a material adverse effect on our business and operating results.
The following is a summary of the more significant existing environmental laws to which our business operations are subject and with which compliance may have a material adverse effect on our capital expenditures, earnings or competitive position.
Hazardous Substances and Wastes
The Comprehensive Environmental Response, Compensation, and Liability Act, as amended (“CERCLA”), also known as the “Superfund” law and analogous state laws impose liability, without regard to fault or the legality of the original conduct, on certain classes of persons that are considered to have contributed to the release of a “hazardous substance” into the environment. These persons include the owner or operator of the disposal site or sites where the release occurred, and companies that disposed or arranged for the disposal of hazardous substances released at the site. Under CERCLA, these persons may be subject to joint and several, strict liabilities for remediation cost at the site, natural resource damages and for the costs of certain health studies. Additionally, it is not uncommon for neighboring landowners and other third parties to file tort claims for personal injury and property damage allegedly caused by hazardous substances released into the environment. We generate materials in the course of our operations that are regulated as hazardous substances.
We also may incur liability under the Resource Conservation and Recovery Act, as amended (“RCRA”), and comparable state statutes that impose stringent requirements related to the handling and disposal of non-hazardous and hazardous wastes. There exists an exclusion under RCRA from the definition of hazardous wastes for drilling fluids, produced waters and certain other wastes generated in the exploration, development or production of oil and natural gas, efforts have been made from time to time to remove this exclusion such that those wastes would be regulated under the more rigorous RCRA hazardous waste standards. A loss of this RCRA exclusion could result in increased costs to us and the oil and gas industry in general to manage and dispose of generated wastes.
We intend to own or lease properties that have been used for oil and natural gas exploration and production for many years. Although we believe that we will utilize operating and waste disposal practices that are standard in the industry at the time, hazardous substances, wastes and petroleum hydrocarbons may be released on or under the properties owned or leased by us, or on or under other locations where such substances have been taken for recycling or disposal. In addition, some properties may be operated by third parties whose treatment and disposal of hazardous substances, wastes and petroleum hydrocarbons are not under our control. These properties and the substances disposed or released on them may be subject to CERCLA, RCRA, and analogous state laws. Under such laws, we could be required to remove previously disposed substances and wastes, remediate contaminated property, or perform remedial plugging or pit closure operations to prevent future contamination.
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Water Discharges and Subsurface Injections
The Federal Water Pollution Control Act, as amended, (“Clean Water Act”), and analogous state laws, impose restrictions and strict controls with respect to the discharge of pollutants, including spills and leaks of oil and other substances, into state and federal waters. The discharge of pollutants into regulated waters is prohibited, except in accordance with the terms of a permit issued by the U.S. Environmental Protection Agency (“EPA”) or an analogous state agency. Spill prevention, control and countermeasure (“SPCC”) plan requirements imposed under the Clean Water Act require appropriate containment berms and similar structures to help prevent the contamination of navigable waters in the event of a petroleum hydrocarbon tank spill, rupture or leak. In addition, the Clean Water Act and analogous state laws require individual permits or coverage under general permits for discharges of storm water runoff from certain types of facilities. The Clean Water Act also prohibits the discharge of dredge and fill material in regulated waters, including wetlands, unless authorized by permit. Federal and state regulatory agencies can impose administrative, civil and criminal penalties for non-compliance with discharge permits or other requirements of the Clean Water Act and analogous state laws and regulations. In addition, the Oil Pollution Act of 1990, as amended (“OPA”), imposes a variety of requirements related to the prevention of oil spills into navigable waters as well as liabilities for oil cleanup costs, natural resource damages and a variety of public and private damages that may result from such oil spills.
The disposal of oil and natural gas wastes into underground injection wells are subject to the federal Safe Drinking Water Act, as amended (“SDWA”), and analogous state laws. Under Part C of the SDWA, the EPA established the Underground Injection Control Program, which establishes requirements for permitting, testing, monitoring, recordkeeping and reporting of injection well activities as well as a prohibition against the migration of fluid containing any contaminants into underground sources of drinking water. State programs may have analogous permitting and operational requirements. Any leakage from the subsurface portions of the injection wells may cause degradation of freshwater, potentially resulting in cancellation of operations of a well, issuance of fines and penalties from governmental agencies, incurrence of expenditures for remediation of the affected resource, and imposition of liability by third parties for property damages and personal injury.
Hydraulic Fracturing
The practice of hydraulic fracturing has recently become the subject of significant focus among some environmentalists, regulators and the general public. Concerns over potential hazards associated with the use of hydraulic fracturing and its impact on the environment have been raised at all levels, including federal, state and local. There have been reports associating hydraulic fracturing with groundwater contamination, improper waste disposal, poor air quality and earthquakes. Hydraulic fracturing requires the use and disposal of significant quantities of water, and public concern has been growing over its possible effects on drinking water supplies, as well as the adequacy of supply. Hydraulic fracturing techniques have been used by the industry for many years, and, currently, more than 90% of all oil and natural gas wells drilled in the U.S. employ hydraulic fracturing. We and our operating partners strive to adopt best practices and industry standards and comply with all regulatory requirements regarding well construction and operation. We have, and believe our operating partners have, established processes to help ensure that hydraulic fracturing does not pose a meaningful risk to water supplies.
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Potential Rulemaking
Although hydraulic fracturing is regulated primarily at the state level, governments and agencies at all levels from federal to municipal are conducting studies and considering regulations. For example, in 2011, the U.S. Secretary of Energy formed the Shale Gas Production Subcommittee, a subcommittee of the Secretary of Energy Advisory Board. The Subcommittee was charged with making recommendations to improve the safety and environmental performance of hydraulic fracturing. On August 18, 2011, the Subcommittee issued its Ninety Day Report (the “Report”), which focused exclusively on the production of natural gas (and some liquid hydrocarbons) from shale formations with hydraulic fracturing stimulation in either vertical or horizontal wells. The Subcommittee identified four primary areas of concern including possible water pollution, air pollution, disruption of the community during production, and potential for adverse impact on communities and ecosystems. The Subcommittee also set forth a list of recommendations addressing, among other areas, communications, air quality, protection of water supply and quality, disclosure of fracturing fluid composition, reduction of diesel fuel use, continuous development of best practices, and federal sponsorship of research and development with respect to unconventional gas. The Subcommittee issued its Final Report in November 2011, which recommended implementation of the Subcommittee’s recommendations by federal and state agencies. We will continue to monitor the impact the Subcommittee’s recommendations, and any resulting rule-making activities evolving at federal and state levels, could have on our exploration and development activities.
During 2012, the Bureau of Land Management (BLM) proposed regulations governing hydraulic fracturing on federal lands. The regulations would require: (1) public disclosure of chemicals used in hydraulic fracturing operations; (2) assurances on well-bore integrity to verify that fluids used in wells during fracturing operations are not escaping; and (3) confirmation of a water management plan in place for handling fracturing fluids that flow back to the surface. On January 21, 2013, the BLM announced that it was withdrawing its proposed regulations and the BLM issued a new set of proposed regulations regarding hydraulic fracturing in May 2013.
During 2012, the EPA proposed new guidelines under the Safe Drinking Water Act regarding the issuance of permits for the use of diesel fuel as a component in hydraulic fracturing activities. The draft guidance outlines for EPA permit writers, where the EPA is the permitting authority, requirements for diesel fuels used for hydraulic fracturing wells, technical recommendations for permitting those wells, and a description of diesel fuels for EPA underground injection control permitting. The EPA published the final version of this guidance on February 12, 2014.
The EPA is currently studying the potential impacts of hydraulic fracturing on drinking water resources. Results are expected to be released in a draft for public and peer review in 2014. In addition, the EPA’s recently issued proposed rules subjecting oil and natural gas operations to regulation under the New Source Performance Standards will be applicable to newly drilled and fractured wells as well as existing wells that are refractured.
We continue to monitor new and proposed legislation and regulations to assess the potential impact on our business. Any additional federal, state or local restrictions on hydraulic fracturing that may be imposed in areas in which we conduct business could result in substantial incremental operating, capital and compliance costs as well as delay our ability to develop oil and natural gas reserves.
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Air Emissions
The Federal Clean Air Act, as amended (“CAA”), and comparable state laws, regulate emissions of various air pollutants from many sources in the United States, including crude oil and natural gas production activities through air emissions standards, construction and operating programs and the imposition of other compliance requirements. These laws and any implementing regulations may require us to obtain pre-approval for the construction or modification of certain projects or facilities expected to produce or significantly increase air emissions, obtain and strictly comply with stringent air permit requirements, or utilize specific equipment or technologies to control emissions of certain pollutants. Federal and state regulatory agencies can impose administrative, civil and criminal penalties for non-compliance with air permits or other requirements of the Clean Air Act and associated state laws and regulations. Over the next several years, we may be required to incur certain capital expenditures for air pollution control equipment or other air emissions-related issues. For example, in 2012, the EPA published final rules under the CAA that subject oil and natural gas production, processing, transmission and storage operations to regulation under the New Source Performance Standards (“NSPS”) and National Emission Standards for Hazardous Air Pollutants (“NESHAP”) programs. With regards to production activities, these final rules require, among other things, the reduction of volatile organic compound emissions from three subcategories of fractured and refractured gas wells for which well completion operations are conducted: wildcat (exploratory) and delineation gas wells; low reservoir pressure non-wildcat and non-delineation gas wells; and all “other” fractured and refractured gas wells. All three subcategories of wells must route flow back emissions to a gathering line or be captured and combusted using a combustion device such as a flare. However, the “other” wells must use reduced emission completions, also known as “green completions,” with or without combustion devices, after January 1, 2015. These regulations also establish specific new requirements regarding emissions from production-related wet seal and reciprocating compressors and from pneumatic controllers and storage vessels. Compliance with these requirements could increase our costs of development and production, which costs could be significant.
Climate Change
Based on findings by the EPA in December 2009 that emissions of carbon dioxide, methane, and other greenhouse gases (“GHGs”) present an endangerment to public health and the environment because emissions of such gases are contributing to the warming of the earth’s atmosphere and other climatic changes, the EPA has adopted regulations under existing provisions of the CAA that, among things, establish pre-construction and operating permit reviews for certain large stationary sources that are potential major sources of GHG emissions. This rule could adversely affect our operations and restrict or delay our ability to obtain air permits for new or modified sources that exceed GHG emission threshold levels. The EPA also adopted rules requiring the monitoring and reporting of GHG emissions from specified sources in the United States on an annual basis, including, among others, certain onshore and offshore oil and natural gas production facilities, which include certain of our operations. We are monitoring GHG emissions from our operations in accordance with the GHG emissions reporting rule and believe that our monitoring activities are in substantial compliance with applicable reporting obligations.
Congress has from time to time considered legislation to reduce emissions of GHGs but it has not adopted such legislation in recent years. A number of state and regional efforts have emerged that seek to reduce GHG emissions by means of cap and trade programs that often require major sources of GHG emissions to acquire and surrender emission allowances in return for emitting those GHGs. Any such future laws and regulations that require reporting of GHGs or otherwise limit emissions of GHGs from our equipment and operations could require us to incur costs to monitor and report on GHG emissions or reduce emissions of GHGs associated with our operations or could adversely affect demand for the oil and natural gas that we produce. Finally, it should be noted that some scientists have concluded that increasing concentrations of GHGs in the Earth’s atmosphere may produce climate changes that have significant physical effects, such as increased frequency and severity of storms, floods and other climatic events; if any such effects were to occur, they could have an adverse effect on our exploration and production interests and operations.
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Endangered Species
The Federal Endangered Species Act, as amended (“ESA”), and analogous state laws restrict activities that could have an adverse effect on threatened or endangered species or their habitats. Similar protections are offered to migratory birds under the Migratory Bird Treaty Act. Some of our future operations may be located in or near areas that are designated as habitat for endangered or threatened species. In these areas, we may be obligated to develop and implement plans to avoid potential adverse impacts to protected species, and we may be prohibited from conducting operations in certain locations or during certain seasons, such as breeding and nesting seasons, when our operations could have an adverse effect on the species. It is also possible that a federal or state agency could order a complete halt to our activities in certain locations if it is determined that such activities may have a serious adverse effect on a protected species. Moreover, as a result of a settlement approved by the U.S. District Court for the District of Columbia in September 2011, the U.S. Fish and Wildlife Service is required to make a determination on listing of numerous species as endangered or threatened under the ESA before the completion of the agency’s 2017 fiscal year. The presence of protected species or the designation of previously unidentified endangered or threatened species could impair our ability to timely complete well drilling and development and could cause us to incur additional costs or become subject to operating restrictions or bans in the affected areas.
Employee Health and Safety
We are also subject to the requirements of the federal Occupational Safety and Health Act, as amended, (“OSHA”), and comparable state statutes that regulate the protection of the health and safety of workers. In addition, the OSHA hazard communication standard, the Emergency Planning and Community Right-to-Know Act, as amended, and implementing regulations and similar state statutes and regulations require that information be maintained about hazardous materials used or produced in operations and that this information be provided to employees, state and local governmental authorities and citizens. We believe that we are in substantial compliance with all applicable laws relating to worker health and safety.
Other Laws and Regulations
State statutes and regulations require permits for drilling operations, drilling bonds and reports concerning operations. In addition, there are state statutes, rules and regulations governing conservation matters, including the unitization or pooling of oil and natural gas properties, establishment of maximum rates of production from oil and natural gas wells and the spacing, plugging and abandonment of such wells. Such statutes and regulations may limit the rate at which oil and natural gas could otherwise be produced from our properties and may restrict the number of wells that may be drilled on a particular lease or in a particular field.
Presently, we are qualified to do business in Nevada. Our wholly owned subsidiary, Toole Oil and Gas Corp. is qualified to do business in Montana. Our failure to qualify in a jurisdiction where it is required to do so could subject us to taxes and penalties. It could also hamper our ability to enforce contracts in such jurisdictions. The application of laws or regulations from jurisdictions whose laws currently apply to our business could have a material adverse effect on our business, results of operations and financial condition.
Other than the foregoing, no governmental approval is needed for the sale of our services and products.
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Employees
We currently have two fulltime employees working for us, our CEO and one of our directors and a part time employee, our CFO.
All oil and gas exploration and operations will be contracted out to third parties. In the event that our exploration projects are successful and warrant putting any of our leases into production, such operations may also be contracted out to third parties. We rely on management to handle all matters related to business development and business operations.
For the three months and nine months ended May 31, 2015, as compared to the three months and nine months ended May 31, 2014.
Results of Operations
Revenues. Since inception, we have yet to generate any significant revenues from our business operations. Our ability to generate significant revenues has been significantly hindered by our lack of capital. For the nine months ended May 31, 2015, we generated $7,376 of revenues from gas sales and had a loss of $700. For the three months ended May 31, 2015, we generated $1,857 of revenues from gas sales and had a loss of $1,065. We had no revenues or gross profit in the nine months ended May 31, 2014. We hope to generate additional revenues as we implement our business plan.
Operating Expenses. For the nine months ended May 31, 2015, our total operating expenses were $3,581,255 as compared to total operating expenses of $685,051 for the nine months ended May 31, 2014, an increase of $2,896,204, which included a charge we incurred of $2,825,276 from goodwill impairment related to the acquisition of leases from Alberta Oil and Gas, LP. The remaining increase in operating expenses in the nine months ended May 31, 2015, primarily results from stock based compensation we incurred through the issuance of stock to service providers and consultants ($113,187) and the issuance of shares of common stock and stock options to our officers and directors ($225,888).
For the three month period ended May 31, 2015 our total operating expenses were $153,273, which includes $28,525 in stock based compensation. As compared to the three months ended May 31, 2014 where our total operating expenses were $115,505, which includes $31,675 in stock based compensation.
Our total operating expenses consist primarily of compensation, legal expenses, accounting expenses and stock based compensation related to being a public company. We expect that we will continue to incur significant legal and accounting expenses related to being a public company.
Other Income (Expenses). For the nine months ended May 31, 2015, we had other expenses of $104,144, which consisted of $74,120 of interest expense, $19,724 amortization of debt discount and $10,300 loss resulting from the expiration of leases. For the nine months ended May 31, 2014, we had other income of $57,876, which consisted of $77,480 of forgiveness of debt income net of $19,604 of interest expense
For the three months ended May 31, 2015, we had other expenses of $44,359, which consisted of $29,843 of interest expense, $12,024 amortization of debt discount and $2,492 loss resulting from the expiration of leases. For the three months ended May 31, 2014, we had other expenses of $7,912, which consisted of $7,912 of interest expense.
Net Loss. For the nine months ended May 31, 2015, our net loss was $3,686,099, as compared to the nine months ended May 31, 2014, in which our net loss was $627,175. For the three month period ended
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May 31, 2015 our net loss was $198,697 as compared to the three months ended May 31, 2014 in which our net loss was $123,417.We expect to continue to incur net losses for the foreseeable future and until we generate significant revenues.
Liquidity and Capital Resources
We had cash of $123 as of May 31, 2015. As of August 31, 2014 we had cash of $76. (In February 2015, we received a total of $100,000 in financing through the issuance of convertible debentures to two US resident accredited investors. We are seeking to raise additional funds to meet our working capital needs principally through the sales of our securities.) Additional funding has not been secured and no assurance may be given that we will be able to raise additional funds.
As of May 31, 2015, our total liabilities were $2,934,765 comprised of $995,104 in accounts payable, accrued interest and accrued expenses (including $329,000 owed to our Chairman of the Board for accrued compensation and expenses and $70,826 owed to our President/CEO for accrued compensation) $137,000 in notes payable, $275,766 in convertible debentures, $1,137,482 in secured debentures and $389,413 in loans and notes payable to other related parties. As of August 31, 2014, our total liabilities were $853,641 comprised of $606,641 in accounts payable, accrued interest and accrued expenses (including, $243,000 owed to our current Chairman for accrued compensation and expenses and $35,000 owed to our current CEO for accrued compensation), $142,000 in notes payable (which includes a related party note payable to our Chairman for $5,000), and $105,000 in convertible debentures.
At inception, we sold 800,000 shares of common stock to our officers and director for $500 in cash. In 2008, we sold an additional 179,336 shares of common stock through our public offering for proceeds of $112,085. We have used the proceeds from the cash raised in that offering to pay the legal and accounting costs of being a public company. For the year ended August 31, 2011, we sold 172,960 shares of common stock through our public offering for gross proceeds of $1,081,000. We recorded $96,850 of costs related to the offering. We used the proceeds from this offering for general working capital to pay the costs of operations.
In December 2011, we received gross proceeds of $285,904 from the sale of 45,745 shares of common stock at $6.25 per share to one non-U.S. investor pursuant to Regulation S.
Effective August 16, 2012, our current CEO converted $212,218 of accrued and unpaid compensation and reimbursable expenses owed him into 8,488,720 shares of common stock at $0.75 per share. We incurred a charge for share based finance costs of $6,154,322 in the year ended August 31, 2012.
In August 2012, we received gross proceeds of $10,000 from the sale of 16,000 Units at $0.625 per Unit which included 16,000 shares of common stock and warrants to purchase 1,600 shares of common stock at $0.875 per share to a non-US accredited investor pursuant to Regulation S. We incurred offering costs of $1,000 (10% of gross proceeds) plus warrants to purchase 1,143 shares of common stock at $0.875 per share.
In September 2012, we received gross proceeds of $33,750 from the sale of 54,000 Units at $0.625 per Unit which included 54,000 shares of common stock and warrants to purchase 5,400 shares of common stock at $0.875 per share to three non-US accredited investors pursuant to Regulation S. We incurred offering costs of $3,375 (10% of gross proceeds) plus warrants to purchase 3,857 shares of common stock at $0.875 per share.
In July and August 2013 we received $30,000 through the sale of convertible debentures to two non-US accredited investors pursuant to Regulation S. The debentures are due and payable between June 30, 2014 and July 30, 2013 and carry an interest rate of 20% per annum and are convertible at $.25 per share any time after December 31, 2013 on a post consolidated basis.
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In September 2013 we received $35,000 through the sale of convertible debentures to two non-US accredited investors pursuant to Regulation S. The debentures are due and payable June 30, 2014 and carry an interest rate of 20% per annum and are convertible at $.25 per share any time after December 31, 2013 on a post consolidated basis.
In October, 2013, we received $15,000 through the sale of convertible debentures to two non-US resident accredited investors pursuant to Regulation S. The debentures are due and payable June 30, 2014 and carry an interest rate of 20% per annum and are convertible at $.25 per share any time after December 31, 2013 on a post consolidated basis.
Effective October 16, 2013, we entered into a consulting agreement for assistance in certain business and corporate matters, such as strategic and business plans, expansion of the Company's shareholder base and financing alternatives. The term of the agreement is for a period of 90 days from the effective date. We issued the consultant a total of 700,000 shares of Company common stock valued at $140,000, the fair value on the effective date, as compensation under the agreement.
On October 30, 2013, we settled an outstanding payable in the amount of approximately $125,000 through the issuance of an 8% promissory note in the amount of $35,000 due January 31, 2014 and 200,000 shares of our common stock with an agreed upon value of $0.01 per share.
In December 2013, we received $20,000 through the sale of a convertible debenture to a non-US accredited investor pursuant to Regulation S. The debenture is due and payable June 30, 2014 and carries an interest rate of 20% per annum and is convertible at $.25 per share any time after December 31, 2013 on a post consolidated basis.
In January 2014, we received $5,000 through the sale of a convertible debenture to a non-US accredited investor pursuant to Regulation S. The debenture is due and payable June 30, 2014 and carries an interest rate of 20% per annum and is convertible at $.25 per share at any time after issuance on a post consolidated basis.
Effective February 4, 2014, we settled an outstanding payable in the amount of approximately $70,000 through the issuance of an 8% promissory note in the amount of $35,000 due April 30, 2014 and 140,000 shares of our common stock with an agreed upon value of $0.01 per share. The common stock was valued at $0.25 per share, $35,000, representing the fair value of the remaining payable balance, which was more reliably measurable.
On February 17, 2014, we entered into a consulting agreement for business advisory and other related services. The agreement is for a term of six months with compensation of $2,000 per month. Pursuant to the agreement we also issued the consultant a total of 300,000 shares of Company common stock for $200. The stock is valued at $153,000, $0.51 per share being the fair value on the effective date of the agreement.
Effective as of August 27, 2014, we issued 100,000 shares of common stock to Sanders Ortoli Vaughn-Flam Rosenstadt LLP for services rendered at a deemed value of $0.45 per share, valued at $45,000, the fair value at date of issuance. These shares were issued pursuant to Regulation D.
On September 18, 2014 we issued 60,000 shares of our common stock to our Chief financial Officer for services to be rendered at a deemed value of $0.45 per share valued at $27,000 the fair value at date of issuance. These shares were issued pursuant to Regulation D.
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On October 14, 2014, we issued 250,000 shares of common stock to Sanders Ortoli Vaughn-Flam Rosenstadt LLP for services rendered at a deemed value of $57,500, the Fair Value at date of issuance. These shares were issued pursuant to Regulation D.
On October 14, 2014 we issued 6,997,876 shares of our common stock to Alberta Oil and Gas LP as part of our acquisition agreement for the leases owned by Alberta Oil and Gas LP in Toole County Montana at a deemed value of $0.23 per share valued at $1,610,000 the fair value at date of issuance. These shares were issued pursuant to Regulation D.
On November 17, 2014, we issued a debenture in the amount of $100,000 to a non-affiliated investor pursuant to a 12% Convertible Redeemable Debenture in an aggregate principal amount not exceeding $500,000. The debenture is due November 5, 2015, accrues interest at 12% per annum and is convertible, at the option of the holder, into shares of common stock at a price of $0.25 per share. In addition, the holder received a two year warrant to purchase 400,000 shares of our common stock at a price of $0.35 per share and is entitled to 1% net revenue interests in oil and gas wells owned by our subsidiary, Toole Oil and Gas Corp., as defined in the debenture agreement.
On January 28, 2015, we issued 70,000 shares of common stock to our former Chief Financial Officer for services rendered at a deemed value of $12,600, the Fair Value at date of issuance. These shares were issued pursuant to Regulation D.
In February, 2015, we issued two debentures in the total amount of $100,000 to two non-affiliated investors pursuant to a 12% Convertible Redeemable Debenture in an aggregate principal amount not exceeding $500,000. The debenture is due February 17, 2016, accrues interest at 12% per annum and is convertible, at the option of the holder, into shares of common stock at a price of $0.25 per share. In addition, the holders each received a two year warrant to purchase 200,000 shares of our common stock at a price of $0.35 per share and is entitled to 1% net revenue interests in oil and gas wells owned by our subsidiary, Toole Oil and Gas Corp., as defined in the debenture agreement.
On June 9, 2015, Mr. Kouyoumdjian converted $500 of accrued compensation into 500,000 shares of common stock at $0.001 per share . The fair value of the stock on that date was $0.22 per share. Stock-based compensation will be recorded in the amount of $109,500 for the year ending August 31, 2015.
On June17, 2015, we approved the issuance of 250,000 shares of our common stock to our attorneys to satisfy an invoice of $10,000 for legal services rendered. The fair value of the stock on that date was $0.22 per share. Stock based compensation will be recorded in the amount of $45,000 for the year ending August 31, 2015.
During fiscal 2015, we expect that our business plan for exploration of oil and gas leases will be a significant cost to us and to complete that plan we will need to raise substantial funds. Furthermore, if we find additional properties for acquisitions that may also require significant capital, not only for the actual acquisition but also for any exploration work that may need to be completed. As well, the legal and accounting costs of being a public company will continue to impact our liquidity and we will need to obtain funds to pay those expenses. Other than the anticipated exploration costs, acquisition costs, increases in legal and accounting costs due to the reporting requirements of being a reporting company, we are not aware of any other known trends, events or uncertainties, which may affect our future liquidity.
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In the opinion of management, available funds will not satisfy our working capital requirements to operate at our current level of activity for the next twelve months. Our forecast for the period for which our financial resources will be adequate to support our operations involves risks and uncertainties and actual results could fail as a result of a number of factors. In order to implement our business plan in the manner we envision, we will need to raise additional capital. We cannot guaranty that we will be able to raise additional funds. Moreover, in the event that we can raise additional funds, we cannot guaranty that additional funding will be available on favorable terms. In the event that we experience a shortfall in our capital, we hope that our officers, directors and principal shareholders will contribute funds to pay for our expenses to achieve our objectives over the next twelve months. At this time, though, we do not have any arrangement with any of our officers, directors or shareholders to provide any funding for the Company.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Not applicable.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time period specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports filed under the Exchange Act is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. As of the end of the period covered by this report, in accordance with Exchange Act Rules 13a-15F and 15d-15F, we carried out an evaluation, under the supervision and with the participation of Michael Altman, our Chief Executive Officer and Brian Jensen our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon and as of the date of that evaluation, Mr. Altman and Mr. Jensen concluded that our disclosure controls and procedures are not effective to ensure that information required to be disclosed in our reports filed and submitted under the Exchange Act is recorded, processed, summarized and reported as and when required. The reason we believe our disclosure controls and procedures are not effective is because:
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1.
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There are no independent directors;
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2.
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No segregation of duties;
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3.
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No audit committee; and
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4.
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Ineffective controls over financial reporting.
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Changes in internal controls. There were no changes in our internal control over financial reporting that occurred during the fiscal quarter covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II: OTHER INFORMATION
Item 1. Legal Proceedings.
On May 14, 2015, Mr. Tao Yin filed suit in the Supreme Court of British Columbia against the Company, Michael Altman and Robert Knight among others seeking damages of $462,000 and liquidated damages in the amount of $420,000 in connection with purported breaches of a Letter of Intent and the Loan Agreement and Guarantees contained therein. The Company has retained counsel and filed a defense to the action. Management is of the view that the claims filed against the Company and its officers are without merit.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
On September 18, 2014 we issued 60,000 shares of our common stock to our former Chief financial Officer for services to be rendered at a deemed value of $0.45 per share valued at $27,000 the fair value at date of issuance. These shares were issued pursuant to Regulation D.
On December 1, 2014, we entered into a consulting agreement for business advisory and other related service. The agreement is for a term of six months with compensation of $2,000 per month. Pursuant to the agreement we also issued the consultant a total of 300,000 shares of Company common stock for $200. The stock is valued at $54,000, $0.18 per share being the fair value on the effective date of the agreement, and we recorded stock-based compensation of $53,800.
On January 28, 2015, we issued 70,000 shares of common stock to our former Chief Financial Officer for services rendered at a deemed value of $12,600, the Fair Value at date of issuance. These shares were issued pursuant to Regulation D.
On February 17, 2015, we issued two debentures in the total amount of $100,000 to two non-affiliated investors pursuant to a 12% Convertible Redeemable Debenture in an aggregate principal amount not exceeding $500,000. The debenture is due February 17, 2016, accrues interest at 12% per annum and is convertible, at the option of the holder, into shares of common stock at a price of $0.25 per share. In addition, the holders each received a two year warrant to purchase 200,000 shares of our common stock at a price of $0.35 per share and is entitled to 1% net revenue interests in oil and gas wells owned by our subsidiary, Toole Oil and Gas Corp., as defined in the debenture agreement.
On June 9, 2015, Mr. Kouyoumdjian converted $500 of accrued compensation into 500,000 shares of common stock at $0.001 per share . The fair value of the stock on that date was $0.22 per share. Stock-based compensation will be recorded in the amount of $109,500 for the year ending August 31, 2015.
On June17, 2015, we approved the issuance of 250,000 shares of our common stock to our attorneys to satisfy an invoice of $10,000 for legal services rendered. The fair value of the stock on that date was $0.22 per share. Stock based compensation will be recorded in the amount of $45,000 for the year ending August 31, 2015.
We used the proceeds from the convertible debenture sales for general working capital to pay the costs of operations.
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Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to Vote of Security Holders
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None
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Item 5. Other Information
None.
Item 6. Exhibits
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Certification of Principal Executive Officer pursuant to Rule 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934
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31.2
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Certification of Chief Financial Officer and Acting Principal Accounting Officer pursuant to Rule 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934
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32.1
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Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
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32.2
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Certification of Chief Financial Officer and Acting Principal Accounting Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
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SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Axiom Oil and Gas Corp.
By:
Michael H. Altman
Its: President, Chief Executive Officer, Director (Principal Executive Officer).
Date: __________, 2015
By:
Brian Jensen
Its: Chief Financial Officer, Director (Acting Principal Accounting Officer).
Date: ___________, 2015.
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