ITEM 1. BUSINESS
We were formed under the laws of the State of Florida on April 19, 1988 under the name Excalibur Contracting, Inc. and from that date until September 1998, we conducted no business and existed as a shell corporation. After the restatement of our Articles of Incorporation on September 16, 1998, our main focus was the procurement of mineral leasehold interests, primarily for oil and gas exploitation rights. We reincorporated as a Delaware corporation on February 2, 2000 and changed our name to Nation Energy, Inc. on February 15, 2000. Following the change in our focus, we commenced corporate strategic development and explored potential oil and gas projects. On June 13, 2003 we merged from the State of Delaware with Nation Energy Inc., a corporation organized and existing under the laws of the State of Wyoming, which we incorporated for the purposes of the merger, pursuant to which we have changed our domicile to the State of Wyoming.
Due to our oil and gas operations located in Alberta, Canada, we registered as an extra-provincial company in the province of Alberta on June 3, 2003.
Since the sale of all of our oil and gas operations effective June 1, 2008, we have existed as a shell corporation and have conducted no business. We are currently reviewing new business opportunities in the resource sector.
Corporate History and General Overview
Since 2002 our business involved the development and exploration of our oil and gas properties located in the Smoky area near Grande Prairie, Alberta, Canada. We actively participated in drilling and testing programs in well bores 09-09-59-02-W6M and 08-09-50-02-W6M. The 08-09-50-02-W6M well was tested as uneconomic in August 2003 and the 09-09-59-02-W6M well was turned to sales in June 2004.
On January 10, 2005, we entered into a farm-in agreement with Netco Energy Inc. as to certain interests in two sections at Boltan. Under the terms of the agreement, Netco Energy Inc. earned 60% of our 15% working interest by paying for 100% of costs related to our interests in the drilling and development of exploratory well 14-10-59-2W6, a location offsetting the 09-09-59-02-W6M well bore. At the time of the January 10, 2005 farm-in agreement with Netco Energy Inc., Accrete Energy was the operator. Our remaining interests in the two sections of land and 14-10-59-2W6 well bore after payout were 6% at the time.
The 14-10-59-2W6 well was successfully drilled and completed in March 2005 and began producing in June 2005 and was renamed and designated the 13-10-59-2W6 well to correctly reflect the wells surveyed bottom hole location. Compression facilities were installed November 2005 to enable the 13-10-59-2W6 and the 09-09-59-02-W6M well bores to flow on an unrestricted and uninterrupted basis into regional sales pipelines.
Effective January 1, 2006 Churchill Energy Inc. (“Churchill Energy”) assumed Accrete Energy’s interests and became operator of the Boltan property.
In November 2006 Churchill Energy issued an operations notice to recomplete and commingle an undeveloped zone within the 13-10-59-2W6 well bore and in November 2006 the well was shut-in, recompleted and subsequently placed back on production on March 2007.
On November 29, 2006 we entered into a letter of intent with Netco Energy Inc. pursuant to which we granted Netco the right to earn 60% of our interest in a new exploratory well proposed at Boltan, well bore 1-16-59-2W6 (the “Test Well”) and the land, Section 16, Twp 59, Rge 2 W6M, on which the well is located. A farm-in agreement was made effective January 1, 2007 (the “1-16 Farm-in Agreement)
The 1-16 Farm-in Agreement provided that Netco Energy Inc. would acquire 60% of Nation’s 15% interest in the Test Well and the section of land where the Test Well is located by funding Nation’s share of related drilling and development costs. Netco Energy Inc. would earn a 15% before payout (and 9% after payout) interest in the Test Well. The 1-16-59-2W6M well reached a total depth of 3,585 meters in January 2007 and was cased as a potential gas well. Completion operations commenced in early February 2007 and were suspended later that month due to early spring break up and road access bans. Completion operations and tie-in of the Test Well resumed in July 2007 and the Test Well was placed in production to sales in November 2007. Effective May 1, 2008, EnCana Oil and Gas Partnership (“EnCana”) purchased Churchill Energy’s interests in the Bolton properties and assumed operator ship.
Our Current Business
Sale of Bolton Property
On September 18, 2008, Nation Energy, Netco Energy Inc., and EnCana entered into a Petroleum, Natural Gas and Related Rights Conveyance pursuant to which Nation and Netco sold all of their interests in the leases and lands comprising the Bolton Property to EnCana. As a condition of the agreement, EnCana agreed to terminate the payable owing by Nation to EnCana as successor in interest to Churchill Energy (as successor to Accrete Energy, Olympia Energy’s successor) pursuant to a participation agreement between the parties dated November 21, 2001. In connection with the sale of the Bolton properties on September 26, 2008 we entered into a termination agreement with EnCana pursuant to which we agreed to terminate the Joint Operating Agreement between Nation, High Point Resources Inc. and Churchill Energy (as Olympia Energy’s successor) effective June 1, 2008 and assigned all of our rights under all operating contracts relating to the Bolton Property to EnCana. The sale of the oil and gas assets closed on September 30th , 2008 with a second closing in April 2009 for total net proceeds to Nation of CDN $1,095,000 (US $941,935).
The proceeds of the sale of the Bolton Property were used to partially repay amounts owed to Caravel Management Corp. under a demand promissory note dated March 31, 2006 in the amount of CDN$980,905 (US $840,464). Caravel Management Corp., is a private management services company wholly-owned by our sole director and officer. As of June 30, 2010, the remaining principal and accrued interest due to Caravel totalled CDN $534,658 (US $534,275).
We currently have no business and operate as a shell company. We are in the process of evaluating the merits of joint venture opportunities in the resource sector.
Competition
The oil and gas industry is intensely competitive. Conducting our business in an environment that is highly competitive and unpredictable we may become involved in an acquisition with more risk or obtain financing on less favourable terms. In seeking out prospective properties, we have encountered intense competition in all aspects of our proposed business as we compete directly with other development companies as well as established international companies. Many of our competitors are national or international companies with far greater resources, capital and access to information than us. Accordingly, these competitors may be able to spend greater amounts on the acquisition of prospective properties and on the exploration and development of such properties. In addition, they may be able to afford greater geological expertise in the exploration and exploitation of mineral and oil and gas properties. This competition could result in our competitors having resource properties of greater quality and attracting prospective investors to finance the development of such properties on more favourable terms.
Compliance with Governmental Regulations
Oil and gas operations are subject to various governmental regulations. Matters subject to regulations include discharge permits for drilling operations, drilling and abandonment bonds, reports concerning operations, the spacing of wells and pooling of properties and taxation. From time to time, regulatory agencies have imposed price controls and limitations on production by restricting the rate of flow of oil and gas wells below actual production capacity in order to conserve supplies of oil and gas. The production, handling, storage, transportation and disposal of oil and gas, by-products thereof, and other substances and materials produced or used in connection with oil and gas operations are also subject to regulation under federal and local laws and regulations relating primarily to the protection of human health and the environment. Expenditures related to complying with these laws, and for remediation of existing environmental contamination have not been significant in relation to the results of operations of our company. The requirements imposed by such laws and regulations are frequently changed and subject to various interpretations. We are unable to predict the ultimate cost of compliance or its effect on any future operations.
Employees
We have no employees other than John Hislop, our president, chief executive officer, chief financial officer and sole director. Mr. Hislop also acts as our secretary and treasurer. We anticipate that we will be conducting most of our business through agreements with consultants and third parties. On January 1, 2009 we entered into a written contract with Caravel Management Corp., to provide office rent, reception, compliance and accounting services for $7,865 per month. The agreement commenced on January 1, 2009 and continues on a month to month basis unless terminated by the parties. The agreement may be terminated by either party upon 30 days notice. One year following the effective date of the agreement, the monthly fee increases by 3% subject to any required regulatory or stock exchange approval. We presently have no other employment or consulting agreements.
Environment
Our prior oil and gas business was subject to laws and regulations that controlled the discharge of materials into the environment and the proper handling and disposal of waste materials. In operating and owning petroleum interests, we may be liable for damages and the costs of removing hydrocarbon spills for which we are held responsible. Laws relating to the protection of the environment have in many jurisdictions become more stringent in recent years and may, in certain circumstances, impose strict liability, rendering our company liable for environmental damage without regard to actual negligence or fault. Such laws and regulations may expose us to liability for the conduct of, or conditions caused by, others or for acts of our company. We believe that we have complied in all material respects with applicable environmental laws and regulations.
ITEM 1A.
ITEM 1A. RISK FACTORS
Much of the information included in this annual report includes or is based upon estimates, projections or other "forward looking statements". Such forward looking statements include any projections or estimates made by us and our management in connection with our past or future business operations. While these forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgement regarding the direction of our business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested herein.
Such estimates, projections or other "forward looking statements" involve various risks and uncertainties as outlined below. We caution the reader that important factors in some cases have affected and, in the future, could materially affect actual results and cause actual results to differ materially from the results expressed in any such estimates, projections or other "forward looking statements".
Our shares of common stock are considered speculative while we continue our search for a new business opportunity. Prospective investors should consider carefully the risk factors set out below.
We have had negative cash flows from operations and if we are not able to obtain further financing, our business operations may fail.
We had a working capital deficit of $1,465,785 as of March 31, 2008. Accordingly, we will require additional funds, either from equity or debt financing, to maintain our daily operations and to continue to evaluate joint venture opportunities. Obtaining additional financing is subject to a number of factors, including market prices, investor acceptance of any venture we may acquire in the future and investor sentiment. If we are unable to raise additional funds when required, we may be forced to delay our plan of operation and our entire business may fail.
Because of the early stage of development and the nature of our business, our securities are considered highly speculative.
Our securities must be considered highly speculative, generally because of the nature of our business and the early stage of our development. We were engaged in the business of exploring and, if warranted, developing commercial reserves of oil and gas. Our properties were in the exploration, development and production stage and had proven reserves of oil and gas as at March 31, 2008. Accordingly, we realized limited revenues and profit from our operations. Any profitability in the future will be dependent upon acquiring a new business opportunity. In September 2008, we closed the sale of all of our oil and gas assets in the Smoky Hill area of Alberta. The sale was effective June 1, 2008. We are now actively looking for a new business opportunity, primarily in the resource sector.
A decline in the price of our common stock could affect our ability to raise further working capital and adversely impact our operations.
A prolonged decline in the price of our common stock could result in a reduction in the liquidity of our common stock and a reduction in our ability to raise capital. Any reduction in our ability to raise equity capital in the future could have a significant negative effect on our business plans and our ability to develop new products. If our stock price declines, we may not be able to raise additional capital sufficient to acquire new business.
Our accounts are subject to currency fluctuations which may materially affect our financial position and results of operations.
As a result of maintaining some of our accounts in Canadian currency; we are subject to foreign exchange fluctuations. Such fluctuations may materially affect our financial position and results of operations. We do not engage in currency hedging activities.
We may not be able to manage the significant strains that future growth may place on our administration infrastructure, systems and controls.
In the event we are able to acquire a new joint venture and experience any rapid expansion over current levels, we could experience rapid growth in revenues, personnel, complexity of administration and in other areas. There can be no assurance that we will be able to manage the significant strains that future growth may place on our administrative infrastructure, systems, and controls. If we are unable to manage future growth effectively, our business, operating results and financial condition may be materially adversely affected.
The loss of John Hislop would have an adverse impact on future development and could impair our ability to succeed.
We are dependent on our ability to hire and retain highly skilled and qualified personnel. We face competition for qualified personnel from numerous industry sources, and there can be no assurance that we will be able to attract and retain qualified personnel on acceptable terms. We do not have key man insurance on our employees. The loss of the services of Mr. Hislop could have a material adverse effect on our operations or financial condition.
Our management currently engages in other oil and gas businesses and, as a result, conflicts could arise.
In addition to their interest in our company, our management currently engages, and intends to engage in the future, in the oil and gas business independently of our company. As a result, conflicts of interest between us and the management of our company might arise.
Trading of our stock may be restricted by the SEC’s “Penny Stock” regulations which may limit a stockholder’s ability to buy and sell our stock.
The U.S. Securities and Exchange Commission has adopted regulations which generally define “penny stock” to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. Our securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to person other than established customers and “accredited investors.” The term “accredited investor” refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the SEC which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer’s account. The bid and offer quotations, and the broker-dealer and sales person compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer’s confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules; the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities. We believe that the penny stock rules discourage investor interest in and limit the marketability of our common stock.
The Financial Industry Regulatory Authority, or FINRA, has adopted sales practice requirements which may also limit a stockholder’s ability to buy and sell our stock.
In addition to the “penny stock” rules described above, FINRA has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares.
Since our shares are thinly traded, and trading on the OTC Bulletin Board may be limited and sporadic because it is not an exchange, stockholders may have difficulty reselling their shares or liquidating their investments.
Our shares of common stock are currently listed for public trading on the Pink OTC Markets Inc. The trading price of our shares of common stock has been subject to wide fluctuations. Trading prices of our shares of common stock may fluctuate in response to a number of factors, many of which will be beyond our control. The stock market has generally experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of companies with no current business operation. There can be no assurance that trading prices and price earnings ratios previously experienced by shares of our common stock will be matched or maintained. These broad market and industry factors may adversely affect the market price of the shares of our common stock, regardless of our operating performance.
In the past, following periods of volatility in the market price of a company's securities, securities class-action litigation has often been instituted. Such litigation, if instituted, could result in substantial costs for us and a diversion of management's attention and resources.
Our By-laws contain provisions indemnifying our officers and directors against all costs, charges and expenses incurred by them.
Our By-laws contain provisions with respect to the indemnification of our officers and directors against all costs, charges and expenses, including an amount paid to settle an action or satisfy a judgment on transactions, actually and reasonably incurred by him, including an amount paid to settle an action or satisfy a judgement in a civil, criminal or administrative action or proceeding to which he is made a party by reason of his being or having been one of our directors or officers.
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of our company under Wyoming law or otherwise, we have been advised that the opinion of the Securities and Exchange Commission is that such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable.
Investors’ interests in our company will be diluted and investors may suffer dilution in their net book value per share if we issue additional shares or raise funds through the sale of equity securities.
Our constating documents authorize the issuance of 50,000,000 shares of common stock, each with a par value of $0.001. In the event that we are required to issue any additional shares or enter into private placements to raise financing through the sale of equity securities, investors' interests in our company will be diluted and investors may suffer dilution in their net book value per share depending on the price at which such securities are sold. If we issue any such additional shares, such issuances also will cause a reduction in the proportionate ownership and voting power of all other shareholders. Further, any such issuance may result in a change in our control.
Our by-laws do not contain anti-takeover provisions which could result in a change of our management and directors if there is a take-over of our company.
We do not currently have a shareholder rights plan or any anti-takeover provisions in our By-laws. Without any anti-takeover provisions, there is no deterrent for a take-over of our company, which may result in a change in our management and directors.
Since our director and officer is not a resident of the United States, investors may find it difficult to enforce, within the United States, any judgments obtained against our company or our director and officer.
We do not currently maintain a permanent place of business within the United States. In addition, our director and officer is not a resident of the United States. As a result, it may be difficult for investors to enforce within the United States any judgments obtained against our company or our officers or directors, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state thereof.
Risks Relating to the Industry
As our properties were primarily in the exploration and, development stage there can be no assurance that we will establish further commercial discoveries.
Exploration for economic reserves of oil and gas is subject to a number of risk factors. While the rewards to an investor can be substantial if an economically viable discovery is made, few of the properties that are explored are ultimately developed into producing oil and/or gas wells. There can be no assurance that we will establish further commercial discoveries.
A decline in oil and natural gas prices would have an adverse impact on our operations.
Our revenues, cash flows and profitability were substantially dependent upon prevailing prices for oil and natural gas. In recent years, oil and natural gas prices and, therefore, the level of drilling, exploration, development and production, have been extremely volatile. Any significant or extended decline in oil or natural gas prices would have a material adverse effect on our business, financial condition and results of operations and could impair access to future sources of capital. Volatility in the oil and natural gas industry results from numerous factors, over which we have no control, including:
·
the level of oil and natural gas prices, expectations about future oil and natural gas prices and the ability of international cartels to set and maintain production levels and prices;
·
the cost of exploring for, producing and transporting oil and natural gas;
·
the domestic and foreign supply of oil and natural gas;
·
domestic and foreign governmental regulation;
·
the level and price of foreign oil and natural gas transportation;
·
available pipeline and other oil and natural gas transportation capacity;
·
weather conditions;
·
international political, military, regulatory and economic conditions;
·
the level of consumer demand;
·
the price and the availability of alternative fuels;
·
the effect of worldwide energy conservation measures; and
·
the ability of oil and natural gas companies to raise capital.
Significant declines in oil and natural gas prices for an extended period may:
·
impair our financial condition, liquidity, ability to finance future plans;
·
reduce the amount of oil and natural gas that we could produce economically;
·
cause us to delay or postpone some of our capital projects;
·
reduce our revenues, operating income and cash flow; and
·
reduce the carrying value of oil and natural gas properties.
No assurance can be given that current levels of oil and natural gas prices will continue. We expect oil and natural gas prices, as well as the oil and natural gas industry generally, to continue to be volatile.
Continued financial success depends on our ability to replace our reserves in the future.
Our future success depends upon our ability to find, develop and acquire oil and natural gas reserves that are profitable. Oil and natural gas are depleting assets, and production from oil and natural gas from properties declines as reserves are depleted with the rate of decline depending on reservoir characteristics. If we are unable to conduct successful exploration or development activities or acquire properties containing proved reserves our cash flows will be adversely affected. Acquiring reserves through exploration or development activities or acquisitions will require significant capital which may not be available to us.
Reserve estimates depend on many assumptions that may turn out to be inaccurate.
The process of estimating natural gas and oil reserves is complex. It requires interpretations of available technical data and various assumptions, including assumptions relating to economic factors. Any significant inaccuracies in these interpretations or assumptions could materially affect the estimated quantities and present value of reserves shown in this annual report. In order to prepare these estimates, we must project production rates and timing of development expenditures. We must also analyze available geological, geophysical, production and engineering data, and the extent, quality and reliability of this data can vary. The process also requires economic assumptions relating to matters such as oil and natural gas prices, drilling and operating expenses, capital expenditures, taxes and availability of funds.
Actual future production, oil and natural gas prices, revenues, taxes, development expenditures, operating expenses and quantities of recoverable oil and natural gas reserves most likely will vary from our estimates. Any significant variance could materially affect the estimated quantities and pre-tax net present value of reserves shown in this annual report. In addition, we may adjust estimates of proved reserves to reflect production history, results of exploration and development, prevailing oil and natural gas prices and other factors, many of which are beyond our control.
The potential profitability of oil and gas ventures depends upon factors beyond the control of our company.
The potential profitability of oil and gas properties is dependent upon many factors beyond our control. For instance, world prices and markets for oil and gas are unpredictable, highly volatile, potentially subject to governmental fixing, pegging, controls, or any combination of these and other factors, and respond to changes in domestic, international, political, social, and economic environments. Additionally, due to worldwide economic uncertainty, the availability and cost of funds for production and other expenses have become increasingly difficult, if not impossible, to project. These changes and events may materially affect our financial performance.
Adverse weather conditions can also hinder drilling operations. A productive well may become uneconomic in the event water or other deleterious substances are encountered which impair or prevent the production of oil and/or gas from the well. In addition, production from any well may be unmarketable if it is impregnated with water or other deleterious substances. The marketability of oil and gas which may be acquired or discovered will be affected by numerous factors beyond our control. These factors include the proximity and capacity of oil and gas pipelines and processing equipment, market fluctuations of prices, taxes, royalties, land tenure, allowable production and environmental protection. The extent of these factors cannot be accurately predicted but the combination of these factors may result in our company not receiving an adequate return on invested capital.
Competition in the oil and gas industry is highly competitive and there is no assurance that we will be successful in acquiring desirable oil and gas leases.
The oil and gas industry is intensely competitive. We compete with numerous individuals and companies, including many major oil and gas companies, which have substantially greater technical, financial and operational resources and staffs. Accordingly, there is a high degree of competition for desirable oil and gas leases, suitable properties for drilling operations and necessary drilling equipment, as well as for access to funds. We cannot predict if the necessary funds can be raised or that any project work will be completed. Acreage may not become available or if it is available for leasing we may not be successful in acquiring the leases.
The marketability of natural resources will be affected by numerous factors beyond our control which may result in us not receiving an adequate return on invested capital to be profitable or viable.
The marketability of natural resources which may be acquired or discovered by us will be affected by numerous factors beyond our control. These factors include market fluctuations in oil and gas pricing and demand, the proximity and capacity of natural resource markets and processing equipment, governmental regulations, land tenure, land use, regulation concerning the importing and exporting of oil and gas and environmental protection regulations. The exact effect of these factors cannot be accurately predicted, but the combination of these factors may result in us not receiving an adequate return on invested capital to be profitable or viable.
Oil and gas operations are subject to comprehensive regulation which may cause substantial delays or require capital outlays in excess of those anticipated causing an adverse effect on our company.
Oil and gas operations are subject to federal and local laws relating to the protection of the environment, including laws regulating removal of natural resources from the ground and the discharge of materials into the environment. Oil and gas operations are also subject to federal and local laws and regulations which seek to maintain health and safety standards by regulating the design and use of drilling methods and equipment. Various permits from government bodies are required for drilling operations to be conducted; no assurance can be given that such permits will be received. Environmental standards imposed by federal, provincial, or local authorities may be changed and any such changes may have material adverse effects on our activities. Moreover, compliance with such laws may cause substantial delays or require capital outlays in excess of those anticipated, thus causing an adverse effect on us.
Exploration and production activities are subject to certain environmental regulations which may prevent or delay the commencement of our operations.
In general, our exploration and production activities are subject to certain federal and local laws and regulations relating to environmental quality and pollution control. Such laws and regulations increase the costs of these activities and may prevent or delay the commencement or continuance of a given operation. Compliance with these laws and regulations did not have a material effect on our operations or financial condition to date. Legislation has been enacted which requires well and facility sites to be abandoned and reclaimed to the satisfaction of state authorities. However, such laws and regulations are frequently changed and we are unable to predict the ultimate cost of compliance. Generally, environmental requirements have not appeared to affect us any differently or to any greater or lesser extent than other companies in the industry. We believe that our operations complied, in all material respects, with all applicable environmental regulations. Our operating partners maintained insurance coverage customary to the industry; however, we are not fully insured against all environmental risks.
Exploratory drilling involves many risks and we may become liable for pollution or other liabilities which may have an adverse effect on our financial position.
Drilling operations generally involve a high degree of risk. Hazards such as unusual or unexpected geological formations, power outages, labour disruptions, blow-outs, sour gas leakage, fire, inability to obtain suitable or adequate machinery, equipment or labour, and other risks are involved. We may become subject to liability for pollution or hazards against which we cannot adequately insure or which we may elect not to insure. Incurring any such liability may have a material adverse effect on our financial position and operations.
Any change to government regulation/administrative practices may have a negative impact on our ability to operate and our profitability.
The laws, regulations, policies or current administrative practices of any governmental body, organization or regulatory agency in the United States or any other jurisdiction, may be changed, applied or interpreted in a manner which will fundamentally alter the ability of our company to carry on its business. The actions, policies or regulations, or changes thereto, of any government body or regulatory agency, or other special interest groups, may have a detrimental effect on our company. Any or all of these situations may have a negative impact on our ability to operate and/or become profitable.
ITEM 1B.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
None
ITEM 2.
ITEM 2. PROPERTIES
Our principal executive office is located at Suite 900, 609 West Hastings Street, Vancouver, British Columbia, Canada V6B 4W4. We occupy the Vancouver premises on a proportional cost basis for office rent and administration services and expenses, on a month to month basis. We currently have a management services agreement in effect that among other administration and office services and supplies provides for office space. At March 31, 2008 the monthly fee was $4,250 per month. Effective January 1, 2009 the fee increased to $7,865 per month. The fee decreased effective November 1, 2010 to $3,500 per month. At the present time, we do not have any real estate holdings and there are no plans to acquire any real property interests.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
We know of no material, active or pending legal proceeding against our company, nor are we involved as a plaintiff in any material proceedings or pending litigation where such claim or action involves damages for more than 10% of our current assets. There are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial shareholders are an adverse party or have a material interest adverse to us.
ITEM 4.
ITEM 4. (REMOVED AND RESERVED)
None
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market for Securities
Our common stock is quoted for trading on the on the OTCBB under the symbol "NEGY". Prior to March 13, 2000, our common stock traded on the OTCBB under the symbol "XCNT", which was a result of a change in our name from Excalibur Contracting, Inc. to our current name. On August 17, 2006 our stock symbol was deleted from the OTC Bulletin Board and resumed trading on the Pink OTC Markets Inc. The following quotations (obtained from Stockwatch) reflect the high and low bids for our common stock based on inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions. The high and low prices of our common stock for the periods indicated below are as follows:
Quarter Ended
High
Low
September 30, 2010
$0.020
$0.010
June 30, 2010
$0.010
$0.010
March 31, 2010
$0.090
$0.010
December 31, 2009
$0.090
$0.012
September 30, 2009
$0.020
$0.012
June 30, 2009
$0.080
$0.020
March 31, 2009
$0.080
$0.020
December 31, 2008
$0.090
$0.020
September 30, 2008
$0.040
$0.030
June 30, 2008
$0.080
$0.030
Our shares of common stock are issued in registered form. Interwest Transfer Co., Inc., of 1981 Murray Holladay Road, Suite 100, P.O. Box 17136, Salt Lake City, UT 84117 (Telephone: 801.272.9294, facsimile: 801.277.3147) is the registrar and transfer agent for our shares of common stock.
Holders of our Common Stock
As November 22, 2010, we had 16,020,000 shares of common stock outstanding and approximately 23 stockholders of record. This number of stockholders does not include stockholders who hold our securities in street name.
Recent Sales of Unregistered Securities
None.
Dividend Policy
We have not paid any cash dividends on our common stock and have no present intention of paying any dividends on the shares of our common stock. Our future dividend policy will be determined from time to time by our board of directors.
Securities Authorized for Issuance under Equity Compensation Plans
We adopted our current stock option plan, entitled the 1999 Stock Option and Incentive Plan, on May 6, 1999 which was subsequently approved by over 50% of the shares of common stock held by stockholders of our company. The plan authorized up to 2,500,000 shares of our common stock to be granted as incentive options. On February 26, 2003, options to purchase 225,000 common shares were granted to the Company’s Chief Executive Officer and Chief Financial Officer and vested immediately upon grant. The options were granted at an exercise price of $0.10 expiring February 26, 2008. The remaining options under this grant expired unexercised during the year ended March 31, 2008. The following table provides a summary of the number of options granted under our stock option plan, the weighted average exercise price and the number of options remaining available for issuance as at March 31, 2008.
Number of Common Shares to be issued upon exercise of outstanding options
Weighted-Average exercise price of outstanding options
Number of options remaining available for further issuance
-
-
2,500,000
Recent Sales of Unregistered Securities
We did not issue any shares during the fiscal years ended March 31, 2008 and 2007.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
Not applicable
ITEM 7.
ITEM 7. MANAGEMENT’ S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
The following discussion should be read in conjunction with our financial statements and the related notes that appear elsewhere in this annual report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below and elsewhere in this annual report, particularly in the section entitled "Risk Factors" found under "Item 1. Description of Business".
Our audited financial statements are stated in United States Dollars and are prepared in accordance with United States Generally Accepted Accounting Principles.
Plan of Operation
For the next twelve months we plan to continue to evaluate joint venture opportunities and oil and gas development and production opportunities.
Cash Requirements
Over the next twelve months we intend to use funds to evaluate new business acquisitions, as follows:
Estimated Funding Required During the Next Twelve Months
We have suffered recurring losses from operations prior to fiscal 2005. The continuation of our company as a going concern is dependent upon our company attaining and maintaining profitable operations and raising additional capital as needed. Management's plan in this regard is to raise additional capital through a debt or an equity offering. The financial statements do not include any adjustment relating to the recovery and classification of recorded asset amounts or the amount and classification of liabilities that might be necessary should our company discontinue operations.
Due to the uncertainty of our ability to meet our current operating expenses noted above, in their report on the annual financial statements for the year ended March 31, 2008, our independent auditors included an explanatory paragraph regarding concerns about our ability to continue as a going concern. Our financial statements contain additional note disclosures describing the circumstances that lead to this disclosure by our independent auditors.
The continuation of our business is dependent upon obtaining further financing, a successful program of exploration, and, finally achieving a profitable level of operations. The issuance of additional equity securities by us could result in a significant dilution in the equity interests of our current stockholders. Obtaining commercial loans, assuming those loans would be available, will increase our liabilities and future cash commitments.
There are no assurances that we will be able to obtain further funds required for our continued operations. We are pursuing various financing alternatives to meet our immediate and long-term financial requirements. There can be no assurance that additional financing will be available to us when needed or, if available, that it can be obtained on commercially reasonable terms. If we are not able to obtain the additional financing on a timely basis, we will be unable to conduct our operations as planned, and we will not be able to meet our other obligations as they become due. In such event, we will be forced to scale down or perhaps even cease our operations.
Disclosure of Outstanding Share Data
As at the date of this annual report, we had 16,020,000 shares of common stock issued and outstanding. We do not have any warrants, options or shares of any other class issued and outstanding as at the date of this annual report.
RESULTS OF OPERATIONS - Years Ended March 31, 2008 and 2007
The following summary of our results of operations should be read in conjunction with our financial statements for the year ended March 31, 2008, which are included herein.
Our operating results for the year ended March 31, 2008, for the year ended March 31, 2007 and the changes between those periods for the respective items are summarized as follows:
Year Ended March 31, 2008
Year Ended March 31, 2007
Difference Increase/(Decrease) %
Revenue
$266,037
$263,651
0.9%
Miscellaneous income
$9,394
$Nil
100%
Depletion, depreciation and amortization
$119,578
$125,763
(4.9)%
General and administrative
$91,422
$120,738
(24.3)%
Interest expense
$166,729
$123,873
34.6%
Oil and gas operating expenses
$91,180
$106,738
(14.6)%
Royalty expense
$12,615
$7,063
78.6%
Foreign currency translation (loss)
$(123,486)
$(9,472)
1,203.7%
Interest income
$936
$2,329
(59.8)%
Net loss
$205,157
$217,672
(5.7)%
We generated a net loss of $205,157 for the year ended March 31, 2008 compared to a net loss of $217,672 for the year ended March 31, 2007. Net loss per common share for the year ended March 31, 2008 was $(0.01) compared to $(0.01) per common share for the year ended March 31, 2007. We determined there was no impairment for the years ended March 31, 2007 and 2008. Based on an independent evaluation of our reserves depletion, depreciation and amortization expense amount decreased slightly to $119,578 in 2008 from $125,763 in 2007. Revenues increased by $2,386 in 2008 over 2007 as a result of higher natural gas prices offset by lower volumes in the current year. The increase in revenue along with royalty credits being received in 2007 resulted in increased royalties. The operating expenses decreased to $91,180 in 2008 from $106,738 due to lower general operating costs. General and administrative expenses decreased to $91,180 from $120,738.
Revenues increased slightly to $266,037 for the year ended March 31, 2008 from $263,651 for the year ended March 31, 2007. The increase in revenues reflected higher average prices which rose to $7.71 per Mcf in fiscal 2008 from $6.34 per Mcf in fiscal 2007. We produced 34.5 MMcf of natural gas in fiscal 2008 compared to 41.6 MMcf in fiscal 2007.
Royalty expense of $12,615 in fiscal 2008 rose from $7,063 fiscal 2007, reflecting the increase in revenues along with higher royalty expense credits in fiscal 2007. Operating expenses decreased to $91,180 in fiscal 2008 from $106,738 in fiscal 2007 as a result of consistent operating activity and decreases to the costs to operate.
Depletion, depreciation and amortization expense totalled $119,578 for the year ended March 31, 2008 compared to $125,763 for the year ended March 31, 2007.
Interest expense for fiscal 2008 totalled $166,729 compared to $123,873 for fiscal 2007. The increase reflected the larger average outstanding balance of shareholder loans in fiscal 2008 versus fiscal 2007.
We reported a foreign currency translation loss of $123,486 in fiscal 2008 compared to a loss of $9,472 in fiscal 2007. Our revenues and expenses are incurred in Canadian dollars while the reporting currency is the US dollar. The sharp rise in the value of the Canadian dollar relative to the US dollar in fiscal 2008 resulted in a foreign currency translation loss primarily as a result of our loans payable being due in Canadian dollars. The Canadian dollar remained fairly consistent in fiscal 2007 resulting in a significantly lower loss on translation.
The major components of our general and administrative expenses for the year are outlined in the table below:
Year Ended March 31, 2008
Year Ended March 31, 2007
Difference Increase/(Decrease) %
Administration fees
$50,760
$51,000
(0.5)%
Consulting & MIS
$5,139
$19,523
(73.7)%
Legal fees
$2,746
$7,383
(62.8)%
Office
$1,828
$1,188
53.9%
Transfer Agent & Filing Fees
$6,862
$6,190
10.9%
Accounting
$24,086
$34,931
(31)%
Total Expenses
$91,422
$120,215
(24)%
General and administrative expenses decreased to $91,422 in fiscal 2008 from $120,215 in fiscal 2007. General expenses included a slight decrease in administration fees from $51,000 in fiscal 2007 to $50,760 in fiscal 2008. Consulting and Management Information System fees fell to $5,139 in fiscal 2008 from $19,523 in the previous year due primarily to costs associated with the purchase in early fiscal 2007 of an oil and gas accounting software program. In June 2006 the program was purchased and it has subsequently been abandoned with the sale of the oil and gas property. Legal fees decreased to $2,746 in fiscal 2008 from $7,383 in the prior fiscal year. Filing fees and transfer agent fees rose to $6,862 in fiscal 2008 compared to $6,190 in the prior fiscal period. Accounting fees decreased to $24,086 for the year ended March 31, 2008 from $34,931 in the prior year ended March 31, 2007. The decrease was due to fewer filings and accounting reviews booked in the current year.
Liquidity and Financial Condition
Working Capital
Year Ended March 31, 2008
Year Ended March 31, 2007
Current Assets
$797,671
$529,846
Current Liabilities
$2,263,455
$1,733,622
Working Capital Deficiency
$1,465,784
$1,203,774
Cash Flows
Year Ended March 31, 2008
Year Ended March 31, 2007
Cash flows provided by (used in) Operating Activities
$(56,693)
$247,321
Cash flows (used in) Investing Activities
$(52,944)
$(234,398)
Cash flows provided by (used in) Financing Activities
$151,458
$(46,976)
Effect of exchange rate changes on cash
$(123,486)
$(9,472)
Net increase (decrease) in Cash
$31,721
$(43,525)
Operating Activities
Net cash provided by operating activities was $56,693 in the year ended March 31, 2008 compared with net cash provided by operating activities of $247,321 in the same period in 2007. The decrease in cash provided by operating activities of $190,628 is mainly attributed to an increase in accounts receivable of $423,192 partially offset by an increase in accounts payable related party of $235,963, a decrease in prepaid expenses of $187,088 and an increase in accounts payable of $43, 185. Operating losses decreased slightly to $205,157 in the year ended March 31, 2008 from $217,672 for the prior year ended March 31, 2007.
Investing Activities
Net cash used in investing in our Company’s oil and gas properties decreased from $234,398 for the year ended March 31, 2007 to $52,945 in the year ended March 31, 2008.
Financing Activities
Net cash provided by financing activities was $151,458 in the year ended March 31, 2008 compared to $46,976 used in financing activities in the year ended March 31, 2007. The difference resulted from loan proceeds of $151,458 for the year ended March 31, 2008 compared to payments on outstanding loans of $46,976 during the year ended March 31, 2007.
Oil and gas sales volume comparisons for the year ended March 31, 2008 compared to the year ended March 31, 2007
Revenues increased slightly to $266,037 for the year ended March 31, 2008 from $263,651 for the year ended March 31, 2007. The increase in revenues reflected higher average prices which rose to $7.71 per Mcf in fiscal 2008 from $6.34 per Mcf in fiscal 2007. The increase was offset by lower volumes; we produced 34.5 MMcf of natural gas in fiscal 2008 compared to 41.6 MMcf in fiscal 2007. Our production for fiscal 2008 also included the sale of oil, natural gas liquids, pentane, ethane, butane and propane, amounting to aggregate 0.4 Mbbl, as compared to 0.9 Mbbl for fiscal 2007.
Capital Investment
Our exploration program in fiscal 2004 and 2005 produced gas from the shallower rock formations of the Boltan prospect. With the installation of compression facilities in November 2005, production was achieved on an unrestricted and uninterrupted basis on Boltan wellbores 09-09-59-02W6M and 14-10-59-02W6.
We recovered a significant amount of the costs incurred to develop the prospect during fiscal year ended March 31, 2007. Under the terms of the farm-in with Netco, Netco paid for 100% of the costs associated with the development and completion of the 13-10-59-2W6 well and the 1-16-59-2W6M well.
Loans Payable
On March 31, 2006, we entered into a revised loan agreement with a related party. The loan bears interest at 15% per annum, calculated and compounded monthly and payable quarterly. Any principal amount outstanding under the loan is payable upon demand. The loan payable is in Canadian dollars and is secured by a Promissory Note. As of March 31, 2007, the balance of the loan and accrued interest payable, converted to US dollars was $851967. During the year ended March 31, 2008, we borrowed an additional CDN $160,000 (US $151,458) and together with interest the balance of the loan and accrued interest was CDN $1,314,101 (US $1,278,433). During the year ended March 31, 2009 we paid a total of CDN $985,655 and together with interest the balance at March 31, 2009 of principle and accrued interest totalled CDN $477,175 (US $378,650). During the year ended March 31, 2010 we paid an additional CDN $20,000 with accrued interest brought the total loan balance to CDN $534,658 (US $526,445) at March 31, 2010. The loan balance with accrued interest totalled CDN $630,376 (US $612,610) at September 30, 2010.
Going Concern
The audited financial statements accompanying this report have been prepared on a going concern basis, which implies that our company will continue to realize its assets and discharge its liabilities and commitments in the normal course of business. Our Company has incurred losses since inception in excess of $7 million and has only generated modest profitable operations when we commenced gas production in fiscal 2006. We have relied solely on shareholder advances to participate and continue operations.
Our company’s ability to continue as a going concern is contingent upon being able to secure financing and attain profitable operations. Our company is currently evaluating business opportunities and will require financing for acquisition of any new business venture.
Net cash provided by operating activities in fiscal 2008 totalled $56,693 versus net cash provided by operating activities of $247,321 in fiscal 2007. Cash balances were $46,852 and $15,131, as of March 31, 2008 and March 31, 2007, respectively.
We entered into bridge loan agreements with a related party, in 2003 and 2004 to fund operations. The terms of these bridge loan agreements provided that any principal amount outstanding is payable upon demand and bears interest at 15% per annum, payable quarterly. On March 31, 2006, we consolidated and restructured our loans with the related party. As part of the restructuring, we borrowed an additional CDN $250,000 (US $203,932). The new loan bears interest at 15% per annum, calculated and compounded monthly and is payable quarterly. Any principal amount outstanding under the loan is payable upon demand. The loan is payable in Canadian dollars and is secured by a Promissory Note.
We received net proceeds of $151,458 under this facility in fiscal 2008, compared to paying down $46,976 in fiscal 2007. Accordingly, the balances outstanding under the loan agreement totalled $1,032,109 at March 31, 2008 versus an aggregate of $781,425 at March 31, 2007. At March 31, 2010 the balance of principal and accrued interest was CDN $534,658 (US $526,445).
We have limited operating history. We can only estimate the future needs for capital based on the current status of our operations, our current plans and current economic condition. Due to the uncertainties regarding our future activities, we are unable to predict precisely what amount will be used for any particular purpose.
Future Financings
As of October 31, 2010, we had cash of US $5,040. We currently do not have sufficient funds to acquire and develop any future joint ventures. We anticipate continuing to rely on shareholder loans or equity sales of our common stock in order to fund our business operations. Issuances of additional shares will result in dilution to our existing stockholders. There is no assurance that we will achieve any additional sales of our equity or arrange for more debt or other financing to fund any future activities.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to stockholders.
New Accounting Pronouncements
In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities - an amendment to FASB Statement No. 133”, SFAS No. 161 is intended to improve financial standards for derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance, and cash flows. Entities are required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments; (b) how derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations; and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. It is effective for financial statements issued for fiscal years beginning after November 15, 2008, with early adoption encouraged. The adoption of this statement did not have a material effect on our company’s financial statements.
In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles”. SFAS 162 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles in the United States. It is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles”. The adoption of this statement did not have a material effect on our company’s financial statements.
In May 2008, the FASB issued SFAS No. 163, “Accounting for Financial Guarantee Insurance Contracts - An interpretation of FASB Statement No. 60”. SFAS 163 requires that an insurance enterprise recognize a claim liability prior to an event of default when there is evidence that credit deterioration has occurred in an insured financial obligation. It also clarifies how Statement 60 applies to financial guarantee insurance contracts, including the recognition and measurement to be used to account for premium revenue and claim liabilities, and requires expanded disclosure about financial guarantee insurance contracts. It is effective for financial statements issued for fiscal years beginning after December 15, 2008, except for some disclosures about the insurance enterprise’s risk-management activities. SFAS 163 requires that disclosures about the risk-management activities of the insurance enterprise be effective for the first period beginning after issuance. Except for those disclosures, earlier application is not permitted. The adoption of this statement did not have a material effect on our company’s financial statements.
In October 2008, the FASB issued FSP FAX 157-3, “Determining the Fair Value of a Financial Asset When the Market for That Asset is Not Active” (FSP FAX 157-3”), to help constituents measure fair value in markets that are not active. FSP FAX 157-3 is consistent with the joint press release the FASB issued with the Securities and Exchange Commission (“SEC”) on September 30, 2008, which provides general clarification guidance on determining fair value under SFAS No. 157 when markets are inactive. FSP FAS 157-3 was effective upon issuance, including prior periods for which financial statements had not been issued. The adoption of FSP 157-3 did not have a material impact on the Company’s financial statements.
In December 2008, the SEC adopted major revisions to its rules governing oil and gas company reporting requirements. These include the provisions that permit the use of new technologies to determine proved reserves and allow companies to disclose their probable and possible reserves to investors. These disclosure requiremtnes also require companies to report the independence and qualifications of the person primarily responsible for the preparation or audit of reserve estimates, and to file reports when a third party is relied upon to prepare or audit reserves estimates. The new rules also require that oil and gas reserves be reported and the full-cost ceiling value calculated using an average price based upon the prior 12-month period. The new oil and gas reporting requirements are effective for annual reports on Form 10K for fiscal years ending on or after December 31, 2009, with early adoption not permitted. Adoption did not have a material impact on our financial position, results of operations and financial disclosures.
In April 2009, the FASB issued two FASB Staff Positions (“FSP”) intended to provide additional application guidance and enhanced disclosures regarding fair value measurements and impairments of securities. FSP No. FAS 157-4, “Determining Fair Value When the Volume or Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly, as codified in FASB ASC topic Fair Value Measurement and Disclosure”, provides additional guidelines for estimating fair value in accordance with FASB SFAS No. 157, Fair Value Measurements (“SFAS 157”). Adoption did not have a material impact on our financial position, results of operations and financial disclosures.
In May 2009, FASB issued ASC 855, Subsequent Events, which establishes general standards for the evaluation, recognition and disclosure of events and transactions that occur after the balance sheet date. Although there is new terminology, the standard is based on the same principles as those that currently exist in the auditing standards. The standard is effective for interim or annual periods ending after June 15, 2009. The adoption of ASC 855 did not have a material effect on our company’s financial statements.
In June 2009, the FASB issued Accounting Standards Codified (“ASC”) 855 (previously SFAS 165. “Subsequent Events”) which establishes general standards for and disclosures of events that occur after the balance sheet date but before the financial statements are issued or available to be issued. It is effective for interim and annual periods ending after June 15, 2009. Adoption did not have a material impact on our financial statements.
In June 2009, the FASB issued ASC 810 (previously SFAS No. 167) for determining whether to consolidate a variable interest entity. These amended standards eliminate a mandatory quantitative approach to determine whether a variable interest gives the entity a controlling financial interest in a variable interest entity in favor of a qualitatively focused analysis, and require an ongoing reassessment of whether an entity is the primary beneficiary. This Statement is effective for reporting periods beginning after November 15, 2009. Adoption of this ASC did not have a material impact on our financial statements.
In June 2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles”, as codified in FASB ASC topic “Generally Accepted Accounting Principles”, a replacement of FASB Statement No. 162. This standard establishes only two levels of GAAP, authoritative and non-authoritative. This ASC was not intended to change or alter existing GAAP, and the Company’s adoption effective September 1, 2009, did not have a material impact on our financial statements other than to modify certain existing disclosures.
In June 2009, the FASB issued guidance now codified as ASC subtopic 105-10, “Generally Accepted Accounting Principles” as the single source of authoritative accounting principles to be applied by non-government entities in the preparation of financial statements in conformity with U.S. GAAP, aside from those issued by the SEC. This ASU reflected the issuance of FASB Statement No. 168. The Codification does not change current U.S. GAAP, but is intended to simplify user access to all authoritative U.S. GAAP by providing all the authoritative literature related to a particular topic in one place. The Codification is effective for interim and annual periods ending after September 15, 2009, and as of the effective date, all existing accounting standard documents are superseded.
In June 2009, the FASB issued Accounting Standards Update (“ASU”) 2009-02, “Omnibus Update-Amendments to Various Topics for Technical Corrections”. The omnibus ASU detailed amendments to various topics for technical corrections. The adoption of ASU 2009-02did not have a material impact on our financial statements.
In August 2009, the FASB issued ASU 2009-03, “SEC Update-Amendments to Various Topics Containing SEC Staff Accounting Bulletins”. This ASU updated cross-referenced to Codification text. The adoption of ASU 2009-03 did not have a material impact on our financial statements.
In August 2009, the FASB issued ASU 2009-05, which amends ASC Topic 820, Measuring Liabilities at Fair Value, which provides additional guidance on the measurement of liabilities at fair value. These amended standards clarify that in circumstances in which a quoted price in an active market for the identical liabilities is not available, we are required to use the quoted price of the identical liability when traded as an asset, quoted prices for similar liabilities, or quoted prices for similar liabilities when traded as assets. If those quoted prices are not available, we are required to use another valuation technique, such as income approach or a market approach. These amended standards are effective from October 1, 2009, and did not have a significant impact on our financial statements.
In September 2009, the FASB issued ASU 2009-06, “Income Taxes” (Topic 740), “Implementation Guidance on Accounting for Uncertainty in Income Taxes and Disclosure Amendments for Non-public Entities”, which provides implementation guidance on accounting for uncertainty in income taxes, as well as eliminates certain disclosure requirements for non-public entities. This update is effective for interim and annual periods ending after September 15, 2009. The adoption of this standard did not have an impact on the Company’s financial position and results of operations since it provides only implementation and disclosure amendments.
In September 2009, the FASB issued ASU 2009-07, “Technical Corrections to SEC Paragraphs”. This corrected various SEC paragraphs to comment letters. The adoption of ASU 2009-07 did not have a material impact on our financial statements.
In September 2009, the FASB issued ASU 2009-12, “Fair Value Measurements and Disclosures (Topic 820) - Investments in Certain Entities That Calculate Net Asset Value per Share (or its Equivalent)”. This ASU amends Subtopic 820-10, “Fair Value Measurements and Disclosures - Overall”, to permit a reporting entity to measure the fair value of certain investments on the basis of the net asset value per share of the investment (or its equivalent). This ASU also requires new disclosures, by major category of investments including the attributes of investments within the scope of this amendment to the Codification. The guidance in this update is effective for interim and annual periods ending after December 15, 2009. The adoption of this standard did not have an impact on the Company’s financial position and results of operations.
In October 2009, the FASB issued guidance on revenue recognition that will become effective for the company beginning April 1, 2010, with earlier adoption permitted. Under the new guidance on arrangements that include software elements, tangible products that have software components that are essential to the functionality of the tangible product will no longer be within the scope of the software revenue recognition guidance, and software-enabled products will now be subject to other relevant revenue recognition guidance. In addition, the FASB issued guidance on revenue arrangements with multiple deliverables that are outside the scope of the software revenue recognition guidance. Under the new guidance, when vendor specific objective evidence or third party evidence for deliverables in an arrangement cannot be determined, a best estimate of the selling price is required to separate deliverables and allocate arrangements consideration using the relative selling price method. The new guidance includes new disclosure requirements on how the application of the relative selling price method affects the timing and amount of revenue recognition. Adoption of this new guidance did not have a material impact on our financial statements.
In December 2009, the FASB issued ASU 2010-06 “Fair Market Value Measurements and Disclosures” (Topic 820) “Improving Disclosures about Fair Value Measurements”. This ASU requires some new disclosures and clarifies some existing disclosure requirements about fair value measurement as set for the in ASC Subtopic 820-10. The FASB’s objective is to improve these disclosures and, thus, increase the transparency in financial reporting. The adoption of this ASU did not have a material impact on our financial statements.
In January 2010, the FASB issued ASU 2010-03, “Oil and Gas Reserve Estimation and Disclosures” (“ASU 2010-03”), which provides amendments to ASC topic “Extractive Activities-Oil and Gas”. The objective of ASU 2010-03 is to align the oil and gas reserve estimation and disclosure requirements of the ASC with the requirements of the SEC’s “Modernization of Oil and Gas Reporting: Final Rule”. Similar to the SEC requirements, the FASB requirements were effective for periods ending on or after December 31, 2009. The SEC introduced a new definition of oil and gas producing activities which allows companies to include volumes in their reserve base from unconventional resources. The FASB also addresses the impact of changes in the SEC’s rules and definitions on accounting for oil and gas producing activities. Initial adoption did not have an impact on our Company’s financial statements because we had sold our oil and gas interests prior to adoption.
In January 2010, the FASB issued ASU 2010-04, “Accounting for Various Topics - Technical Corrections to SEC Paragraphs”. ASU 2010-04 makes technical corrections to existing SEC guidance, including the following topics: accounting for subsequent investments termination of an interest rate swap, issuance of financial statements - subsequent events, use of residential method to value acquired assets other than goodwill, adjustments in assets and liabilities for holdings for holding gains and losses, and selections of discount rate used for measuring defined benefit obligation. Adoption did not have a material impact on our financial statements.
In January 2010, the FASB issued ASU 2010-06, “Improving Disclosures about Fair Value Measurements” (ASU 2010-06”), which provides amendments to ASC topic “Fair Value Measurements and Disclosures”. This will provide more robust disclosures about (i) the different classes of assets and liabilities measured at fair value, (ii) the valuation techniques and inputs used, (iii) the activity in Level 3 fair value measurements, and (iv) the transfers between Levels 1, 2 and 3. ASU 2010-06 is effective for fiscal years and interim periods beginning after December 15, 2009. Adoption did not have a material impact on our financial statements.
In February 2010, the FASB issued ASU 2010-09, “Subsequent Events (Topic 855).” The amendments remove the requirements for an SEC filer to disclose a date, in both issued and revised financial statements, through which subsequent events have been reviewed. Revised financial statements include financial statements revised as a result of either correction or an error or retrospective application of U.S. GAAP. ASU 2010-09 is effective for interim or annual financial periods ending after June 15, 2010. The provisions of ASU 2010-09 did not have a material effect on the financial position, results of operations or cash flows of the Company.
In April 2010, the FASB issued ASU 2010-12, “Income Taxes “ (Topic 740). ASU 2010-12 amends FASB Accounting Standard Codification subtopic 740-10 “Income Taxes” to include paragraph 740-10-599-4. On March 30, 2010 The President signed the “Health Care & Education Affordable Care Act” reconciliation bill that amends its previous Act signed on March 23, 2010. FASB ASC topic 740, “Income Taxes”, requires the measurement of current and deferred tax liabilities and assets to be based on provisions of enacted tax law. The effects of future changes in tax laws are not anticipated”. Therefore, the different enactment dates of the Act and reconciliation measure may affect registrants with a period end that falls between March 23, 2010 (enactment date of the Act), and March 30, 2010 (enactment date of the reconciliation measure). However, the announcement states that the SEC would not object if such registrants were to account for the enactment of both the Act and the reconciliation measure in a period ending on or after March 23, 2010, but notes that the SEC staff “does not believe that it would be appropriate for registrants to analogize to this view in any other fact patterns.” The adoption of this standard did not have a material impact on our financial position and results of operations.
In April 2010, the FASB issued ASU 2010-14, “Accounting for Extractive Activities - Oil and Gas.” ASU 2010-14 amends paragraph 932-10-599-1 due to SEC Release No. 33-8995, “Modernization of Oil and Gas Reporting”. The amendments to the guidance on oil and gas accounting are effective August 31, 2010, and will not have a significant impact on the Company’s financial position, as effective June 1, 2008, the Company sold its oil and gas properties in the Smoky Hill Area of Alberta, Canada.
In May 2010, the FASB issued ASU 2010-19 (ASU 2010-19), “Foreign Currency (Topic 830): Foreign Currency Issues: Multiple Foreign Currency Exchange Rates”. The amendments in this update are effective as of the announcement date of March 18, 2010. The provisions of ASU 2010-19 did not have a material effect on the financial position, results of operations or cash flows of the Company.
On August 12, 2010, the FASB issued ASU 2010-21, “Accounting for Technical Amendments to Various SEC Rules and Schedules - Amendments to SEC Paragraphs Pursuant to Release No. 33-9026: Technical Amendments to Rules, Forms, Schedules and Consolidation of Financial Reporting Policies.” The ASU reflects changes made by the SEC in Final Rulemaking Release No. 33-9026, which was issued in April 2009 and amended SEC requirements in Regulation S-X (17 CFR 210.1-01 et seq.) and Regulation S-K (17 CFR 229.10 et seq.) and made changes to financial reporting requirements in response to the FASB’s issuance of SFAS No. 141®, “Business Combinations” (ASC 805), and SFAS No. 160 “Non-controlling Interests in Consolidated Financial Statements - an amendment of ARB No. 51” (FASB ASC 810). The Company does not anticipate ASU 2010-21 will have a material impact on its financial statements.
There were various other updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to have a material impact on the Company’s financial position, results of operations or cash flows.
Application of Critical Accounting Policies
The financial statements of our company have been prepared in accordance with generally accepted accounting principles in the United States. Because a precise determination of many assets and liabilities is dependent upon future events, the preparation of financial statements for a period necessarily involves the use of estimates which have been made using careful judgment. The financial statements have, in management’s opinion, been properly prepared within reasonable limits of materiality and within the framework of the critical accounting policies summarized below:
Estimates
Our financial statements and accompanying notes are prepared in accordance with generally accepted accounting principles used in the United States. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. These estimates and assumptions are affected by management’s application of accounting policies. We believe that understanding the basis and nature of the estimates and assumptions involved with the following aspects of our financial statements is critical to an understanding of our financials. Actual results could differ from those estimates.
Fair Value of Financial Instruments
Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of March 31, 2008. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values. These financial instruments include cash, accounts payable, and accounts payable to a related party. Fair values were assumed to approximate carrying values for these financial instruments because they are short term in nature and their carrying amounts approximate fair values or they are payable on demand.
Long-Lived Assets
In accordance with ASU 360-10-45, “Accounting for the Impairment or Disposal of Long-Lived Assets”, the carrying value of intangible assets and other long-lived assets is reviewed on a regular basis for the existence of facts or circumstances that may suggest impairment. We recognize impairment when the sum of the expected undiscounted future cash flows is less than the carrying amount of the asset. Impairment losses, if any, are measured as the excess of the carrying amount of the asset over its estimated fair value.
Oil and Gas Properties
We follow the full cost method of accounting for oil and gas operations whereby all costs associated with the exploration for and development of oil and gas reserves, whether productive or unproductive, are capitalized. Such expenditures include land acquisition costs, drilling, exploratory dry holes, geological and geophysical costs not associated with a specific unevaluated property, completion and costs of well equipment. Internal costs are capitalized only if they can be directly identified with acquisition, exploration, or development activities. As of March 31, 2008, we have not capitalized any internal costs.
The capitalized costs included in the full cost pool are subject to a “ceiling test”, which limits such costs to the aggregate of the estimated present value, using a ten percent discount rate, of the future net revenues from proved reserves, based on current economic and operating conditions plus the lower of cost and estimated net realizable value of unproven properties. Expenditures that are considered unlikely to be recovered are written off.
On September 30, 2008, we closed on the sale of our oil and gas properties located in the Smoky Hill area of Alberta Canada. The sale was effective June 1, 2008.
On a quarterly basis our board of directors assess whether or not there is an asset impairment. The current oil and gas activities are considered to be in the exploration, development and production stage.
We periodically review the carrying amount of our unproved oil and gas properties to determine whether current events or circumstances warrant adjustments to such carrying amounts. In the year ended March 31, 2003, we recognized an impairment loss related to the abandonment of an initial test well. In the year ended March 31, 2007, our company obtained an independent evaluation of its reserves and, as a consequence, determined that there was an impairment and recognized an impairment loss.
Depletion and depreciation of the capitalized costs for producing oil and gas properties will be provided by the unit-of-production method based on proved oil and gas reserves. The Company obtained an independent evaluation as of March 31, 2008 which established proved reserves. As a consequence, our company initiated charging depletion and depreciation in the year ended March 31, 2006.
Revenue Recognition
Oil and natural gas revenues are recorded using the sales method whereby our company recognizes oil and natural gas revenue based on the amount of oil and gas sold to purchasers when title passes, the amount is determinable and collection is reasonably assured. Actual sales of gas are based on sales, net of the associated volume charges for processing fees and for costs associated with delivery, transportation, marketing, and royalties in accordance with industry standards. Operating costs and taxes are recognized in the same period of which revenue is earned.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not applicable
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Our financial statements are stated in United States Dollars (US$) and are prepared in accordance with United States Generally Accepted Accounting Principles (“US GAAP”).
The following audited financial statements are filed as part of this annual report:
Report of Independent Public Accounting Firm, dated November 29, 2010
Balance Sheets at March 31, 2008 and 2007
Statements of Operations for the years ended March 31, 2008 and 2007
Statements of Changes in Stockholders' Equity (Deficit) for the years ended March 31, 2008 and 2007
Statements of Cash Flows for the years ended March 31, 2008 and 2007
Notes to the Financial Statements
Stark Schenkein, LLP
BUSINESS ADVISORS & CPAs
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Shareholders and Board of Directors
Nation Energy, Inc.
We have audited the accompanying balance sheets of Nation Energy, Inc., as of March 31, 2008 and 2007, and the related statements of operations, stockholders' (deficit), and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations, has no current source of operating revenues, and needs to secure financing to remain a going concern. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Nation Energy, Inc., as of March 31, 2008 and 2007, and the results of its operations, stockholders' (deficit), and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
StartSchenkein, LLP
Denver, Colorado
November 29, 2010
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
Nation Energy Inc.
Notes to Financial Statements
March 31, 2008 and 2007
Note 1. NATURE OF OPERATIONS AND ABILITY TO CONTINUE AS A GOING CONCERN
Nation Energy Inc. (the “Company”), was incorporated on April 19, 1988, in the State of Florida as Excalibur Contracting, Inc. The Company was reincorporated as a Delaware corporation and changed its name to Nation Energy, Inc. in February 2000. On June 13, 2003, the Company reincorporated as a Wyoming corporation. The Company is an oil and gas exploration, development and production company with properties located in Alberta Canada.
The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplates continuation of the Company as a going concern. The Company has incurred losses since inception of $(7,259,277), has a working capital deficit of $(1,465,784) and is reliant on raising capital to implement its business plan.
The Company’s ability to continue as a going concern is contingent upon being able to secure financing and attain sustained profitable operations. The Company is pursuing financing for its operations.
The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern.
Note 2. SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
The Company considers all highly liquid instruments purchased with a maturity of three months or less to be cash equivalents.
Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The exact results experienced by the Company may differ materially and adversely from the Company’s estimates.
Foreign Currency Translation
The Company’s reporting currency is the United States dollar. The functional currency of the Company is the Canadian dollar. Monetary assets and liabilities denominated in foreign currencies are translated using the exchange rate prevailing at the balance sheet date. Non-monetary assets and liabilities denominated in foreign currencies are translated at rates of exchange in effect at the date of the transaction. Average monthly rates are used to translate revenues and expenses. Gains and losses arising on translation or settlement of foreign currency denominated transactions or balances are included in the determination of income.
Fair Value of Financial Instruments
Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of March 31, 2008. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values. These financial instruments include cash, accounts receivable, accounts payable and loans payable. Fair values were assumed to approximate carrying values for these financial instruments because they are short term in nature and their carrying amounts approximate fair values or they are receivable or payable on demand.
Net Income (Loss) Per Common Share
Basic earnings (loss) per common share calculations are determined by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the year. Diluted earnings (loss) per common share calculations are determined by dividing net income (loss) by the weighted average number of common shares and dilutive common share equivalents outstanding. During the periods when they are anti-dilutive, common stock equivalents, if any, are not considered in the computation.
Oil and Gas Properties
The Company follows the full cost method of accounting for oil and gas operations whereby all costs associated with the acquisition, exploration for and development of oil and gas reserves, whether productive or unproductive, are capitalized. Such expenditures include land acquisition costs, drilling, exploratory dry holes, geological and geophysical costs not associated with a specific unevaluated property, completion and costs of well equipment. Internal costs are capitalized only if they can be directly identified with acquisition, exploration, or development activities. As of March 31, 2008, the Company has not capitalized any internal costs.
Expenditures that are considered unlikely to be recovered are written off. On a quarterly basis the Board of Directors assesses whether or not there is an asset impairment. The current oil and gas exploration and development activities are considered to be in the production stage.
The costs of unproved leases, which become productive, are reclassified to proved properties when proved reserves are discovered in the property. Unproved oil and gas interests are carried at original acquisition costs including filing and title fees. Depreciation and depletion of the capitalized costs for producing oil and gas properties are provided by the units-of-production method based on proved oil and gas reserves. During the years ended March 31, 2008 and 2007, the Company recognized depletion, depreciation and amortization expense of $119,578 and $125,763, respectively.
Effective June 1, 2008, the Company sold its oil and gas properties in the Smoky Hill Area of Alberta, Canada, and from such date is considered a shell company (see Note 10).
Impairment of Long-Lived Assets
The Company periodically reviews the carrying amount of its oil and gas properties to determine whether current events or circumstances warrant adjustments to such carrying amounts. If an impairment adjustment is deemed necessary, such loss is measured by the amount that the carrying value of such assets exceeds their fair value. Considerable management judgment is necessary to estimate the fair value of assets; accordingly, actual results could vary significantly from such estimates. Assets to be disposed of are carried at the lower of their financial statement carrying amount or fair value less costs to sell.
The Company obtained an independent reserve report for the years ended March 31, 2008 and 2007 which indicated the carrying value of the oil and gas properties did not exceed their net realizable value. At March 31, 2006, the Company recorded a reserve for impairment of $555,085. No further impairment was needed at March 31, 2008 and 2007.
Other Comprehensive Income (Loss)
The Company follows SFAS No. 130, “Reporting Comprehensive Income”, which establishes standards for the reporting and display of comprehensive income and its components in the financial statements. For the years ended March 31, 2008 and 2007, the only components of comprehensive (loss) were foreign currency translation adjustments.
Segment Reporting
The Company follows SFAS No.131, “Disclosure about Segments of an Enterprise and Related Information”. Certain information is disclosed, per SFAS 131, based on the way management organizes financial information for making operating decisions and assessing performance. The Company currently operates in one business segment and will evaluate additional segment disclosure requirements as it expands operations.
Stock-Based Compensation
The Company has a stock based compensation plan whereby stock options are granted in accordance with the policies of regulatory authorities. On January 1, 2006, the Company adopted the provisions of SFAS No.123(R), "Share Based Payments." SFAS 123(R) requires that the cost of share-based payment transactions (including those with employees and non-employees) be recognized in the financial statements. SFAS 123(R) applies to all share-based payment transactions in which an entity acquires goods or services by issuing (or offering to issue) its shares, share options, or other equity instruments (except for those held by an ESOP) or by incurring liabilities (1) in amounts based (even in part) on the price of the entity’s shares or other equity instruments, or (2) that require (or may require) settlement by the issuance of an entity’s shares or other equity instruments. There was no material effect on the financial statements.
Accounts Receivable
The Company uses the direct write off method for bad debts. This method expenses uncollectible accounts when they become unrealizable. Any difference between this method and the allowance method is not material.
Revenue Recognition
Revenues from the sale of oil and gas production are recognized when title passes, generally in the month of production.
Recent Pronouncements
With the exception of those listed below, there have been no recent accounting pronouncements or changes in accounting pronouncements, since the date of these financial statements, that are of material significance or have potential material significance, to the Company.
In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities - an amendment to FASB Statement No. 133”, SFAS No. 161 is intended to improve financial standards for derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance, and cash flows. Entities are required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments; (b) how derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations; and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. It is effective for financial statements issued for fiscal years beginning after November 15, 2008, with early adoption encouraged. The adoption of this statement did not have a material effect on our company’s financial statements.
In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles”. SFAS 162 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles in the United States. It is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles”. The adoption of this statement did not have a material effect on our company’s financial statements.
In May 2008, the FASB issued SFAS No. 163, “Accounting for Financial Guarantee Insurance Contracts - An interpretation of FASB Statement No. 60”. SFAS 163 requires that an insurance enterprise recognize a claim liability prior to an event of default when there is evidence that credit deterioration has occurred in an insured financial obligation. It also clarifies how Statement 60 applies to financial guarantee insurance contracts, including the recognition and measurement to be used to account for premium revenue and claim liabilities, and requires expanded disclosure about financial guarantee insurance contracts. It is effective for financial statements issued for fiscal years beginning after December 15, 2008, except for some disclosures about the insurance enterprise’s risk-management activities. SFAS 163 requires that disclosures about the risk-management activities of the insurance enterprise be effective for the first period beginning after issuance. Except for those disclosures, earlier application is not permitted. The adoption of this statement did not have a material effect on our company’s financial statements.
In October 2008, the FASB issued FSP FAS 157-3, “Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active” (“FSP FAS 157-3”), to help constituents measure fair value in markets that are not active. FSP FAS 157-3 is consistent with the joint press release the FASB issued with the Securities and Exchange Commission (“SEC”) on September 30, 2008, which provides general clarification guidance on determining fair value under SFAS No. 157 when markets are inactive. FSP FAS 157-3 was effective upon issuance, including prior periods for which financial statements had not been issued. The adoption of FSP 157-3 did not have a material impact on the Company’s financial statements.
In December 2008, the SEC adopted major revisions to its rules governing oil and gas company reporting requirements. These include provisions that permit the use of new technologies to determine proved reserves and that allow companies to disclose their probable and possible reserves to investors. These disclosure requirements also require companies to report the independence and qualifications of the person primarily responsible for the preparation or audit of reserve estimates, and to file reports when a third party is relied upon to prepare or audit reserves estimates. The new rules also require that oil and gas reserves be reported and the full-cost ceiling value calculated using an average price based upon the prior 12-month period. The new oil and gas reporting requirements are effective for annual reports on Form 10-K for fiscal years ending on or after December 31, 2009, with early adoption not permitted. Adoption will not have a material impact on our financial position, results of operations and financial disclosures, as we disposed of our oil and gas interests effective June 1, 2008 (see Note 10).
In April 2009, the FASB issued two FASB Staff Positions (“FSP”) intended to provide additional application guidance and enhanced disclosures regarding fair value measurements and impairments of securities. FSP No. FAS 157-4, “Determining Fair Value When the Volume or Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly, as codified in FASB ASC topic Fair Value Measurement and Disclosure”, provides additional guidelines for estimating fair value in accordance with FASB SFAS No. 157, Fair Value Measurements (“SFAS 157”). Adoption did not have a material impact on our financial position, results of operations and financial disclosures.
In June 2009, the FASB issued Accounting Standards Codification (“ASC”) 855 (previously SFAS No. 165, “Subsequent Events”), which establishes general standards for and disclosures of events that occur after the balance sheet date but before the financial statements are issued or available to be issued. It is effective for interim and annual periods ending after June 15, 2009. There was no material impact on the Company’s financial statements, upon the adoption of this standard.
In June 2009, the FASB issued ASC 810 (previously SFAS No. 167) for determining whether to consolidate a variable interest entity. These amended standards eliminate a mandatory quantitative approach to determine whether a variable interest gives the entity a controlling financial interest in a variable interest entity in favour of a qualitatively focused analysis, and require an ongoing reassessment of whether an entity is the primary beneficiary. This Statement is effective for reporting periods beginning after November 15, 2009. Adoption of this ASC did not impact our financial statements.
In June 2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles”, as codified in FASB ASC topic “Generally Accepted Accounting Principles”, a replacement of FASB Statement No. 162. This standard establishes only two levels of GAAP, authoritative and non-authoritative. This ASC was not intended to change or alter existing GAAP, and the Company’s adoption effective September 1, 2009, did not have any impact on its financial statements other than to modify certain existing disclosures.
In June 2009, the FASB issued Accounting Standards Update (“ASU”) 2009-02, “Omnibus Update-Amendments to Various Topics for Technical Corrections”. This omnibus ASU detailed amendments to various topics for technical corrections. The adoption of ASU 2009-02 did not have a material impact on our financial statements.
In August 2009, the FASB issued ASU 2009-03, “SEC Update - Amendments to Various Topics Containing SEC Staff Accounting Bulletins”. This ASU updated cross-references to Codification text. The adoption of ASU 2009-03 did not have a material impact on our financial statements.
In August 2009, the FASB issued ASU 2009-05, which amends ASC Topic 820, Measuring Liabilities at Fair Value, which provides additional guidance on the measurement of liabilities at fair value. These amended standards clarify that in circumstances in which a quoted price in an active market for the identical liabilities is not available, we are required to use the quoted price of the identical liability when traded as an asset, quoted prices for similar liabilities, or quoted prices for similar liabilities when traded as assets. If these quoted prices are not available, we are required to use another valuation technique, such as income approach or a market approach. These amended standards are effective from October 1, 2009, and do not have a significant impact on our financial statements.
In September 2009, the FASB issued ASU 2009-06,, “Income Taxes” (Topic 740), ”Implementation Guidance on Accounting for Uncertainty in Income Taxes and Disclosure Amendments for Non-public Entities”, which provides implementation guidance on accounting for uncertainty in income taxes, as well as eliminates certain disclosure requirements for non-public entities. This update is effective for interim and annual periods ending after September 15, 2009. The adoption of this standard did not have an impact on the Company’s financial position and results of operations since it provides only implementation and disclosure amendments.
In September 2009, the FASB issued ASU 2009-07, “Technical Corrections to SEC Paragraphs”. This corrected various SEC paragraphs in response to comment letters. The adoption of ASU 2009-07 did not have material impact on our financial statements.
In September 2009, the FASB issued ASU 2009-12, “Fair Value Measurements and Disclosures (Topic 820) - Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent)”. This ASU amends Subtopic 820-10, “Fair Value Measurements and Disclosures - Overall”, to permit a reporting entity to measure the fair value of certain investments on the basis of the net asset value per share of the investment (or its equivalent). This ASU also requires new disclosures, by major category of investments including the attributes of investments within the scope of this amendment to the Codification. The guidance in this update is effective for interim and annual periods ending after December 15, 2009. The adoption of this standard did not have a material impact on the Company’s financial position and results of operations.
In October 2009, the FASB issued guidance on revenue recognition that will become effective for the Company beginning April 1, 2010, with earlier adoption permitted. Under the new guidance on arrangements that include software elements, tangible products that have software components that are essential to the functionality of the tangible product will no longer be within the scope of the software revenue recognition guidance, and software-enabled products will now be subject to other relevant revenue recognition guidance. In addition, the FASB issued guidance on revenue arrangements with multiple deliverables that are outside the scope of the software revenue recognition guidance. Under the new guidance, when vendor specific objective evidence or third party evidence for deliverables in an arrangement cannot be determined, a best estimate of the selling price is required to separate deliverables and allocate arrangements consideration using the relative selling price method. The new guidance includes new disclosure requirements on how the application of the relative selling price method affects the timing and amount of revenue recognition. Adoption of this new guidance did not have a material impact on our financial statements.
In December 2009, the FASB issued ASU 2010-06 “Fair Market Value Measurements and Disclosures” (Topic 820) “Improving Disclosures about Fair Value Measurements”. This ASU requires some new disclosures and clarifies some existing disclosure requirements about fair value measurement as set forth in ASC Subtopic 820-10. The FASB’s objective is to improve these disclosures and, thus, increase the transparency in financial reporting. The adoption of this ASU did not have a material impact on the Company’s financial statements.
In January 2010, the FASB issued ASU 2010-03, “Oil and Gas Reserve Estimation and Disclosures” (“ASU 2010-03”), which provides amendments to ASC topic “Extractive Activities-Oil and Gas”. The objective of ASU 2010-03 is to align the oil and gas reserve estimation and disclosure requirements of the ASC with the requirements in the SEC’s “Modernization of Oil and Gas Reporting: Final Rule”. Similar to the SEC requirements, the FASB requirements were effective for periods ending on or after December 31, 2009. The SEC introduced a new definition of oil and gas producing activities which allows companies to include volumes in their reserve base from unconventional resources. The FASB also addresses the impact of changes in the SEC’s rules and definitions on accounting for oil and gas producing activities. Initial adoption did not have an impact on our Company’s financial statements as we disposed of our oil and gas interests effective June 1, 2008 (see Note 10).
In January 2010, the FASB issued ASU 2010-04, “Accounting for Various Topics - Technical Corrections to SEC Paragraphs“. ASU 2010-04 makes technical corrections to existing SEC guidance, including the following topics: accounting for subsequent investments, termination of an interest rate swap, issuance of financial statements - subsequent events, use of residential method to value acquired assets other than goodwill, adjustments in assets and liabilities for holding gains and losses, and selections of discount rate used for measuring defined benefit obligation. The adoption of ASU 2010-04 did not have a material impact on the Company’s financial statements.
In January 2010, the FASB issued ASU 2010-06, “Improving Disclosures about Fair Value Measurements” (“ASU 2010-06”), which provides amendments to ASC topic “Fair Value Measurements and Disclosures”. This will provide more robust disclosures about (i) the different classes of assets and liabilities measured at fair value, (ii) the valuation techniques and inputs used, (iii) the activity in Level 3 fair value measurements, and (iv) the transfers between Levels 1, 2 and 3. ASU 2010-06 is effective for fiscal years and interim periods beginning after December 15, 2009. Adoption did not have a material impact on our financial statements.
In February 2010, the FASB issued ASU 2010-09 (ASU 2010-09), "Subsequent Events (Topic 855)." The amendments remove the requirements for an SEC filer to disclose a date, in both issued and revised financial statements, through which subsequent events have been reviewed. Revised financial statements include financial statements revised as a result of either correction of an error or retrospective application of U.S. GAAP. ASU 2010-09 is effective for interim or annual financial periods ending after June 15, 2010. The Company does not expect the provisions of ASU 2010-09 to have a material effect on the financial position, results of operations or cash flows of the Company
In April 2010, the FASB issued ASU 2010-12, “Income Taxes” (Topic 740). ASU No.2010-12 amends FASB Accounting Standard Codification subtopic 740-10 “Income Taxes” to include paragraph 740-10-S99-4. On March 30, 2010 The President signed the “Health Care & Education Affordable Care Act” reconciliation bill that amends its previous Act signed on March 23, 2010. FASB ASC topic 740, “Income Taxes”, requires the measurement of current and deferred tax liabilities and assets to be based on provisions of enacted tax law. The effects of future changes in tax laws are not anticipated.” Therefore, the different enactment dates of the Act and reconciliation measure may affect registrants with a period-end that falls between March 23, 2010 (enactment date of the Act), and March 30, 2010 (enactment date of the reconciliation measure). However, the announcement states that the SEC would not object if such registrants were to account for the enactment of both the Act and the reconciliation measure in a period ending on or after March 23, 2010, but notes that the SEC staff “does not believe that it would be appropriate for registrants to analogize to this view in any other fact patterns.” The adoption of this standard did not have a material impact on the Company’s financial position and results of operations.
In April 2010, the FASB issued ASU 2010-14, "Accounting for Extractive Activities - Oil & Gas." ASU 2010-14 amends paragraph 932-10-S99-1 due to SEC Release No. 33-8995, "Modernization of Oil and Gas Reporting”. The amendments to the guidance on oil and gas accounting are effective August 31, 2010, and will not have a significant impact on the Company's financial position, as effective June 1, 2008, the Company sold its oil and gas properties in the Smoky Hill Area of Alberta, Canada (see Note 10).
In May 2010, the FASB issued ASU 2010-19 (ASU 2010-19), “Foreign Currency (Topic 830): Foreign Currency Issues: Multiple Foreign Currency Exchange Rates”. The amendments in this update are effective as of the announcement date of March 18, 2010. The provisions of ASU 2010-19 did not have a material effect on the financial position, results of operations or cash flows of the Company.
On August 2, 2010, the FASB issued ASU 2010-21, “Accounting for Technical Amendments to Various SEC Rules and Schedules-Amendments to SEC Paragraphs Pursuant to Release No. 33-9026: Technical Amendments to Rules, Forms, Schedules and Codification of Financial Reporting Policies.” The ASU reflects changes made by the SEC in Final Rulemaking Release No. 33-9026 , which was issued in April 2009 and amended SEC requirements in Regulation S-X ( 17 CFR 210.1-01 et seq.) and Regulation S-K ( 17 CFR 229.10 et seq.) and made changes to financial reporting requirements in response to the FASB's issuance of SFAS No. 141(R) , “Business Combinations” (ASC 805), and SFAS No. 160, “Non-controlling Interests in Consolidated Financial Statements-an amendment of ARB No. 51” ( FASB ASC 810 ). The provisions of ASU 2010-21 did not have a material impact on its financial statements.
The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
Note 3. Oil and Gas Properties
On November 21, 2001, the Company entered into a farm-in agreement (the “Farm-in”) with Olympia Energy Inc. (succeeded by Churchill Energy Inc) under which the Company shared the development costs and revenues for a natural gas project in the Smoky area near Grande Prairie, Alberta, Canada (the “Bolton Prospect”), which encompasses 5,760 acres. Under the terms of the Farm-in, the Company was to fund 25% of the costs of exploration and development and earn a 15% interest after payout on the Bolton Prospect.
Drilling on an initial well began in November 2001. The well was drilling to a total depth of 4,830 meters in March 2002 and logged. A completion program was attempted on the well, but the well flowed small amounts of gas and large amounts of salt water. Various attempts to shut off the salt water were unsuccessful. Testing showed the well to be un-productive, and the zone was plugged and abandoned.
At March 31, 2004, the Company had advanced a total of $3,617,725 under the Farm-in with Olympia Energy, Inc. towards the drilling and development costs at the Bolton Prospect. The Company determined and recorded an impairment loss of $2,370,902 for the year ended March 31, 2003.
On January 10, 2005, the Company entered into a farm-in agreement with Netco Energy Inc. (“Netco”) under which Netco was to pay 100% of the costs related to the Company’s 15% working interest in the exploration and development of an exploratory well to earn 60% of the Company’s interest in two sections of land in the Bolton area of Alberta. Netco was to earn a 9% interest, after payout, in the well and the well spacing unit and one additional section of land.
The Company commenced production on the Bolton Prospect in fiscal 2005 on a restricted and interrupted basis and, accordingly, was still considered in the pre-production stage as at March 31, 2005. During fiscal 2006, compression facilities were installed, permitting the wells to produce gas on an unrestricted and uninterrupted basis. The Company obtained an independent reserve report as of March 31, 2006 which established proved reserves associated with the properties in accordance with SFAS 69. Accordingly, the properties were reclassified from unproved to proved properties in fiscal 2006. As a consequence of the establishment of proved reserves, the Company initiated recording depletion and depreciation expenses in fiscal 2006.
As a consequence of the independent reserve report, the Company determined that there was an impairment in its oil and gas properties and recognized an impairment loss of $555,085 for the year ended March 31, 2006.
The following table sets forth the capitalized costs and associated accumulated depletion and depreciation, including impairments, relating to the Company’s oil and gas production, exploration and development activities:
Exploration
$2,124,728
$2,124,728
Development
2,045,299
1,992,534
Asset Retirement Obligation Costs
3,085
3,085
Less: Impairment
(2,925,987)
(2,925,987)
1,247,125
1,194,360
Accumulated Depletion, Depreciation
and Amortization
(347,306)
(229,657)
Oil and Gas Properties
Proven
$ 899,819
$ 964,703
Note 4: Asset Retirement Obligations
The Company’s asset retirement obligations result from net ownership interests in oil and gas properties including well sites, gathering systems and processing facilities.
SFAS 143 “Accounting for Asset Retirement Obligations” requires that an asset retirement obligation (“ARO”) associated with the retirement of a tangible long-lived asset be recognized as a liability in the period in which a legal obligation is incurred and becomes determinable, with an offsetting increase in the carrying amount of the associated asset. The cost of the tangible asset, including the initially recognized ARO, is depleted such that the cost of the ARO is recognized over the useful life of the asset. The ARO is recorded at fair value, and accretion expense is recognized over time as the discounted liability is accreted to its expected settlement value. The value of the ARO is measured using expected future cash outflows discounted at the Company’s credit-adjusted risk-free interest rate.
The Company records an abandonment liability associated with its oil and gas wells when those assets are placed in service.
The Company estimates the total undiscounted amount of cash flows required to settle its asset retirement obligations is approximately $17,000. The majority of the costs will be incurred after 2020. An inflation factor of 1.5% has been applied to the estimated assets retirement cost. A credit-adjusted, risk-free rate of 10% was used to calculate the fair value of the asset retirement obligations.
The asset retirement obligation liability is as follows:
Balance, March 31, 2007
$ 3,040
Liabilities incurred
Nil
Accretion expense
1,750
Balance, March 31, 2008
$4,790
Note 5. Stockholders’ Equity (Deficit)
Equity Incentive Plan
On May 6, 1999 the Board of Directors adopted a stock option plan (“The Plan”) which was subsequently approved by over 50% of our shareholders. The Plan allows for the issuance of incentive stock options to employees, consultants, directors, and others providing service of special significance to our company. The Plan is administered by the Board of Directors. The Plan provides for the issuance of up to 2,500,000 options. The exercise price of each option shall be determined by the Board or by the CEO with reference to such factors as current fair market value of the common stock, net book value per share, other remuneration already being received by the optionee. No option may be exercised more than five years from the date of grant and they vest on the date granted. The Plan does not have an expiry date.
On February 26, 2003, options to purchase a total of 225,000 shares of Common Stock at an exercise price of $0.10 per share were granted to two officers pursuant to the Plan. Subsequently, on January 20, 2004, the Company cancelled 150,000 share options previously granted to one of the officers. The Company’s Common Stock was trading at $0.115 per share on the date of the grant. The fair value of the options was estimated on the date of the grant utilizing the Black-Scholes option pricing model with the following weighted average assumptions: expected life of the options of 5-years, expected volatility of 114.65%, risk-free interest rate of 4.2%, and no dividend yield. The weighted average fair value for the options granted was approximately $0.12 per share.
The changes in the outstanding stock options during the years ended March 31, 2008 and March 31, 2007 are summarized as follows:
AT MARCH 31, 2008, THERE WERE NO OPTIONS OUTSTANDING. THE OPTIONS EXPIRED ON FEBRUARY 26, 2008.
Note 6. Income Taxes
The Company accounts for income taxes under SFAS 109, "Accounting for Income Taxes", which requires use of the liability method. SFAS 109 provides that deferred tax assets and liabilities are recorded based on the differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes, referred to as temporary differences. Deferred tax assets and liabilities at the end of each period are determined using the currently enacted tax rates applied to taxable income in the periods in which the deferred tax assets and liabilities are expected to be settled or realized.
The provision (benefit) for income taxes consists of the following components:
The tax effects of temporary differences and carry forwards that give rise to significant portions of deferred tax assets and liabilities consist of the following:
A reconciliation of the statutory U.S. federal rate and effective rates is as follows:
Statutory U.S. federal rate
34.00%
State income taxes
--- %
Total
34.00%
The Company’s provision for income taxes differs from applying the statutory United States federal income tax rate to income before income. The primary differences result from net operating losses.
The net operating loss carryforward will expire through 2027. The deferred tax asset has been fully reserved at March 31, 2008. The change in the valuation allowance during the year ended March 31, 2008 was $70,000.
Note 7. Related Party Transactions
(a)
Administrative Services Agreement
During March 2002, the Company entered into a verbal agreement with a related party, Caravel Management Corp. (“Caravel”), in which Caravel will provide administrative services on a month-to-month basis. Total expenses recognized under this agreement for the years ended March 31, 2008 and 2007 were $50,760 and $51,000, respectively.
(b) Loans Payable - Related Party
On March 31, 2006, the Company entered into a revised Demand Promissory Note, which replaces all previous loan agreements with a related party. The Demand Promissory Note, in the amount of CDN $980,905 bears interest at 15% per annum, calculated and compounded monthly, and is payable quarterly. Any principal amount outstanding under the loan is payable upon demand. The loan is payable in Canadian dollars. As of March 31, 2008, the balance of the loan payable was CDN $1,060,905 (US $1,032,109).
Note 8. Disclosures about Oil and Gas Producing Activities
Oil and Gas Operations
The following table sets forth the revenue and direct cost information relating to the Company’s oil and gas production activities for the years ended March 31, 2008 and 2007:
Production revenues
$ 266,037
$ 263,651
Direct operating expenses
Royalties
12,615
7,063
Operating expenses
91,180
106,738
Depletion and depreciation
119,578
125,763
Results of operations
$42,664
$24,087
Amortization rate per boe
$ 18.93
$ 10.37
Costs Incurred in Oil and Gas Property Acquisition, Exploration and Development Activities.
The following table sets forth the costs incurred in the Company’s oil and gas property acquisition, exploration and development activities:
Property acquisition
$ Nil
$ Nil
Exploration
Nil
Nil
Development
52,945
234,398
52,945
234,398
Asset retirement obligation costs
3,085
3,085
Costs incurred
$ 57,735
$ 237, 483
Capitalized Costs
The following table sets forth the capitalized costs and associated depletion and depreciation, including impairments, relating to the Company’s oil and gas production, exploration and development activities:
Unproved properties
$ Nil
$ Nil
Proved properties
1,247,125
1,194,360
Less: Accumulated depletion,
depreciation and amortization
347,306
29,657
$ 899,819
$ 964,703
Note 9. Supplemental Oil And Gas Disclosures (Unaudited)
Reserve Information
The following estimates of proved and proved developed reserve quantities and related standardized measure of discounted net cash flow are estimates only, and do not purport to reflect realizable values or fair market values of the Company's reserves. The Company emphasizes that reserve estimates are inherently imprecise and that estimates of new discoveries are more imprecise than those of producing oil and gas properties. Accordingly, these estimates are expected to change as future information becomes available. All of the Company's reserves are located in Canada.
Proved reserves are estimated reserves of crude oil (including condensate and natural gas liquids) and natural gas that geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Proved developed reserves are those expected to be recovered through existing wells, equipment, and operating methods. Proved developed reserves have been evaluated in accordance with SEC Guideline 2 and SFAS 69.
The standardized measure of discounted future net cash flows is computed by applying year-end prices of oil and gas (with consideration of price changes only to the extent provided by contractual arrangements) to the estimated future production of proved oil and gas reserves, less estimated future expenditures (based on year-end costs) to be incurred in developing and producing the proved reserves, less estimated future income tax expenses (based on year-end statutory tax rates, with consideration of future tax rates already legislated) to be incurred on pretax net cash flows less tax basis of the properties and available credits, and assuming continuation of existing economic conditions. The estimated future net cash flows are then discounted using a rate of 10 percent a year to reflect the estimated timing of the future cash flows.
The following table illustrates the Company’s net proved reserves, including changes, and proved developed reserves, as estimated by independent petroleum engineers:
Proved Developed Oil and Gas Reserves
March 31,
March 31,
Oil
(Mbbls)
Oil
(Mbbls)
Balance beginning of the year
1.1
2.9
Revisions of previous estimates
Nil
(.9)
Extensions, discoveries and other additions
Production
0.8
(0.4)
Nil
(0.9)
Balance end of the year
1.5
1.1
March 31,
March 31,
Gas
Gas
(MMcf)
(MMcf)
Balance beginning of the year
310.0
466.0
Revisions of previous estimates
Nil
(114.4)
Extensions, discoveries and other additions
Production
90.5
(34.5)
Nil
(41.6)
Balance end of the year
366.0
310.0
Standardized Measure of Discounted Future Net Cash Flows
March 31,
March 31,
$000s
$000s
Future cash inflows
$5,886
$2,516
Future production costs
(1,147)
(1,329)
Future development costs
Nil
Nil
Future income tax expenses
Nil
Nil
Future net cash flows
10% annual discount for
Estimated timing of cash flows
4,739
(589)
1,187
(587)
$ 4,150
$ 600
Note 10. Subsequent Events
September 18, 2008, Nation and Netco Energy, Inc., entered into a sales and purchase agreement to sell their assets in the Smoky Area of Alberta for total net proceeds of CDN $1,600,000. The agreement was effective June 1, 2008, and at the closing, Nation received CDN $1,095,000 (US $941,935) and Netco received CDN $505,000 (US $434,408) for their respective interests.
On October 16, 2008 and November 18, 2008 the Company repaid a portion of the Demand Note in the amounts of CDN $545,000 (US$505,847) and CDN $420,000 (US$397,201) respectively.
On January 1, 2009 the Company entered into a written agreement revising the previous verbal agreement with Caravel (see Note 7). The agreement provides for administrative services, office rent and supplies for US$7,865 per month.
Effective November 1, 2010 the Company revised its agreement with Caravel to provide administrative services for $3,500 per month.
The Company has evaluated all subsequent transactions from the balance sheet date through the date of issuance of this report, and has determined that all material subsequent events have been disclosed above.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A
ITEM 9A (T). CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures and remediation
As required by Rule 13a-15 under the Securities Exchange Act, in connection with this annual report on Form 10-K, under the direction of our Chief Executive Officer and Chief Financial Officer, we have evaluated our disclosure controls and procedures as of March 31, 2008, including the remedial actions discussed below, we have concluded that, as of March 31, 2008, our disclosure controls and procedures were ineffective as discussed in greater detail below. As of the date of this filing, we are still in the process of remediating such material weaknesses in our internal controls and procedures. Additionally, we are currently inactive as we seek new business opportunities.
It should be noted that while our management believes our disclosure controls and procedures provide a reasonable level of assurance, they do not expect that our disclosure controls and procedures or internal controls will prevent all error and all fraud. A control system, no matter how well conceived or operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of internal control is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
Management’s annual report on internal control over financial reporting
Management is responsible for establishing and maintaining internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Our management evaluated, under the supervision and with the participation of our Chief Executive Officer, the effectiveness of our internal control over financial reporting as of March 31, 2008.
Based on its evaluation under the framework in Internal Control - Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission, our management concluded that our internal control over financial reporting was not effective as of March 31, 2008, due to the existence of significant deficiencies constituting material weaknesses, as described in greater detail below. A material weakness is a control deficiency, or combination of control deficiencies, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.
This annual report does not include an attestation report from our company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our company’s independent registered public accounting firm pursuant to temporary rules of the SEC that permit our company to provide only management’s report in this annual report.
Limitations on Effectiveness of Controls
Our Chief Executive Officer and Chief Financial Officer do not expect that our disclosure controls or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.
Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additional controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
Material Weaknesses Identified
In connection with the preparation of our financial statements for the year ended March 31, 2008, certain significant deficiencies in internal control became evident to management that represent material weaknesses, including:
i.
Lack of a sufficient number of independent directors for our board and audit committee. We currently have no independent director on our board, which is comprised of one director. As a publicly-traded company, we strive to have a majority of our board of directors be independent;
ii.
Insufficient segregation of duties in our finance and accounting functions due to limited personnel. During the year ended March 31, 2008, we had limited staff that performed nearly all aspects of our financial reporting process, including, but not limited to, access to the underlying accounting records and systems, the ability to post and record journal entries and responsibility for the preparation of the financial statement. This creates certain incompatible duties and a lack of review over the financial reporting process that would likely result in a failure to detect errors in spreadsheets, calculations, or assumptions used to compile the financial statements and related disclosures as filed with the SEC. These control deficiencies could result in a material misstatement of our interim or annual financial statements that would not be prevented or detected;
iii.
Insufficient corporate governance policies. Although we have a code of ethics which provides broad guidelines for corporate governance, our corporate governance activities and processes are not always formally documented. Specifically, decisions made by the board to be carried out by management should be documented and communicated on a timely basis to reduce the likelihood of any misunderstandings regarding key decisions affecting our operations and management; and
Plan for Remediation of Material Weaknesses
We intend to take appropriate and reasonable steps to make the necessary improvements to remediate these deficiencies. We intend to consider the results of our remediation efforts and related testing as part of our year-end 2010 assessment of the effectiveness of our internal control over financial reporting.
Subject to receipt of additional financing, we intend to undertake the below remediation measures to address the material weaknesses described in this annual report. Such remediation activities include the following:
1.
We continue to recruit at least one, preferably two or more, additional independent board members to join our board of directors and will consider the adoption of an audit committee at such time as additional board members are retained; and
2.
We intend to continue to update the documentation of our internal control processes, including formal risk assessment of our financial reporting processes.
Changes in Internal Controls over Financial Reporting
There were no changes in our internal control over financial reporting during the fourth quarter of our fiscal year ended March 31, 2008 that have materially affected or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B.
ITEM 9B. OTHER INFORMATION
None
PART III
ITEM 10.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Directors and Executive Officers
Name
Position Held with our Company
Age
Date First
Elected or Appointed
John R. Hislop
Chairman of the Board, President, Chief Executive Officer, Chief Financial Officer, Secretary and Director
June 4, 1999
Summary Background
The following is a brief account of the education and business experience during the past five years of each director and executive officer, indicating the principal occupation during that period, and the name and principal business of the organization in which such occupation and employment were carried out.
John R. Hislop, chairman of the board, president, chief executive officer, chief financial officer, secretary and director
Mr. Hislop has been the President and Chief Executive Officer of our company since October 22, 2003 and the Chairman, Chief Financial Officer, Secretary and a Director of our company since June 1999. Since 1990, Mr. Hislop has been working as an independent financial consultant and has served as an officer and director of various emerging growth companies. Mr. Hislop is currently serving as a Director and/or Officer on the following companies: Director of Q Investments Ltd., (formerly Cubix Investments Ltd.), an investment holding company for various public oil and gas companies, since February 1994; Director of XXL Energy Corp. (formerly Exxel Energy Corp.) since October 15, 2001, Chairman of the Board of XXL Energy Corp. (formerly Exxel Energy Corp.) since July 27, 2006, President and Chief Executive Officer of XXL Energy Corp. (formerly Exxel Energy Corp.) since December 31, 2008; and has also served as President and Chief Executive Officer of XXL Energy Corp. (formerly Exxel Energy Corp.) from October 15, 2001 to July 27, 2006 and served as Chief Financial Officer of XXL Energy Corp. (formerly Exxel Energy Corp.) from October 15, 2001 to October 2, 2003; Director of Patriot Petroleum Corp. since April 7, 1999 and President and Chief Executive Officer of Patriot Petroleum Corp. since October 22, 2003. In the past five years, Mr. Hislop has also served as a director of the following companies: Warrior Energy N.V. (formerly Luxmatic Technologies N.V) from October 1997 to February 2008 (Mr. Hislop also served as President from October 1997 to February 2008 and Chief Executive Officer from November 2003 to February 2008); and Bucking Horse Energy Inc. (formerly NRG Investments Inc.) from April 2006 to March 2008 (Mr. Hislop also served as President and Chief Executive Officer from April 2006 to March 2008). Mr. Hislop trained as a Chartered Accountant with Ernst & Young and has a bachelor of Commerce in Finance from the University of British Columbia.
We believe Mr. Hislop is qualified to serve on our board of directors because of his knowledge of our company’s history and current operations, which he gained from working for our company as described above, in addition to his education and business experience as described above.
Term of Office
The directors serve until their successors are elected by the shareholders. Vacancies on the Board of Directors may be filled by appointment of the majority of the continuing directors. The executive officers serve at the discretion of the Board of Directors.
Committees of the Board
We do not have an audit or compensation committee at this time.
Family Relationships
None
Significant Employees
We have no significant employees other than the sole director and officer described above.
Involvement in Certain Legal Proceedings
Our directors, executive officers and control persons have not been involved in any of the following events during the past ten years:
1.
any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;
2.
any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);
3.
being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; or
4.
being found by a court of competent jurisdiction (in a civil action), the Securities and Exchange Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated;
5.
being the subject of, or party to, any federal or state judicial or administrative order, judgment, decree, or finding not subsequently reversed, suspended or vacated relating to an alleged violation of: (i) any federal or state securities or commodities law or regulation; or (ii) any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order, or (iii) any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or
6.
being the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a) (26) of the Securities Exchange Act of 1934), any registered entity (as defined in Section 1(a) (29) of the Commodity Exchange Act), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.
Audit Committee Financial Expert
We currently do not have an audit committee and have therefore determined that we do not have a member that qualifies as an "audit committee financial expert" as defined in Item 407(d)(5)(ii) of Regulation S-K. We believe that the members of our board of directors are capable of analyzing and evaluating our financial statements and understanding internal controls and procedures for financial reporting. In addition, we believe that retaining an independent director who would qualify as an "audit committee financial expert" would be overly costly and burdensome and is not warranted in our circumstances given the early stages of our development and minimum operating activities to date.
Code of Ethics
Effective July 13, 2004, our company's board of directors adopted a Code of Business Conduct and Ethics that applies to, among other persons, members of our board of directors, our company's officers including our president (being our principal executive officer) and our company's chief financial officer (being our principal financial and accounting officer), contractors, consultants and advisors. As adopted, our Code of Business Conduct and Ethics sets forth written standards that are designed to deter wrongdoing and to promote:
(1) honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships;
(2) full, fair, accurate, timely, and understandable disclosure in reports and documents that we file with, or submit to, the Securities and Exchange Commission and in other public communications made by us;
(3) compliance with applicable governmental laws, rules and regulations;
(4) the prompt internal reporting of violations of the Code of Business Conduct and Ethics to an appropriate person or persons identified in the Code of Business Conduct and Ethics; and
(5) accountability for adherence to the Code of Business Conduct and Ethics.
Our Code of Business Conduct and Ethics requires, among other things, that all of our company's personnel shall be accorded full access to our president and secretary with respect to any matter which may arise relating to the Code of Business Conduct and Ethics. Further, all of our company's personnel are to be accorded full access to our company's board of directors if any such matter involves an alleged breach of the Code of Business Conduct and Ethics by our company officers.
In addition, our Code of Business Conduct and Ethics emphasizes that all employees, and particularly managers and/or supervisors, have a responsibility for maintaining financial integrity within our company, consistent with generally accepted accounting principles, and federal, provincial and state securities laws. Any employee who becomes aware of any incidents involving financial or accounting manipulation or other irregularities, whether by witnessing the incident or being told of it, must report it to his or her immediate supervisor or to our company's president or secretary. If the incident involves an alleged breach of the Code of Business Conduct and Ethics by the president or secretary, the incident must be reported to any member of our board of directors. Any failure to report such inappropriate or irregular conduct of others is to be treated as a severe disciplinary matter. It is against our company policy to retaliate against any individual who reports in good faith the violation or potential violation of our company's Code of Business Conduct and Ethics by another.
Our Code of Business Conduct and Ethics was filed with the Securities and Exchange Commission as Exhibit 14.1 to our annual report on Form 10-KSB filed on July 15, 2004. We will provide a copy of the Code of Business Conduct and Ethics to any person without charge, upon request. Requests can be sent to: Nation Energy Inc., Suite 900 - 609 West Hastings Street, Vancouver, British Columbia, V6B 4W4.
Section 16(a) Beneficial Ownership Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our executive officers and directors and persons who own more than 10% of a registered class of our equity securities to file with the Securities and Exchange Commission initial statements of beneficial ownership, reports of changes in ownership and annual reports concerning their ownership of our common stock and other equity securities, on Forms 3, 4 and 5 respectively. Executive officers, directors and greater than 10% shareholders are required by the Securities and Exchange Commission regulations to furnish our company with copies of all Section 16(a) reports they file.
To the best of our knowledge, based solely on our review of the copies of such forms received by us, or written representations from certain reporting persons, we believe that all filing requirements applicable to our executive officers, directors and greater than 10% shareholders were complied with other than as disclosed in the table below
Name
Number of Late Reports
Number of Transactions Not Reported on a Timely Basis
Failure to File Requested Forms
John R Hislop
-
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The following table summarizes the compensation paid to our president and chief executive officer during the last fiscal year. No other officers or directors received annual compensation in excess of $100,000 during the last three complete fiscal years.
(1) The value of perquisites and other personal benefits, securities and property for the named executive officers that do not exceed the lesser of $50,000 or 10% of the total of the annual salary and bonus is not reported herein.
(2) Mr. Hislop was appointed the president and chief executive officer of our company on October 22, 2003.
(3) On March 31, 2008, a verbal arrangement was effective with Mr. Hislop to receive remuneration in the amount of $4,230 per month for services, office rent, administration and supplies. During the fiscal year ended March 31, 2007 Mr. Hislop received $4,250 per month and for the fiscal year ended March 31, 2006 he received $4,280. This arrangement was between our company and Caravel Management Corp., a private management company owned by Mr. Hislop.
As of the date of this annual report, we have no compensatory plan or arrangement with respect to any officer that results or will result in the payment of compensation in any form from the resignation, retirement or any other termination of employment of such officer's employment with our company, from a change in control of our company or a change in such officer's responsibilities following a change in control.
Employment or Consulting Agreements
Other than as described below, we have not entered into any employment or consulting agreements with any of our current officers, directors or employees.
On January 1, 2009 we entered into a written contract with Caravel Management Corp., to provide office rent, reception, compliance and accounting services for $7,865 per month. The agreement commenced on January 1, 2009 and continues on a month to month basis unless terminated by the parties. The agreement may be terminated by either party upon 30 days notice. After one year following the effective date of the agreement, the monthly fee increases by 3% subject to any required regulatory or stock exchange approval. Prior to January 1, 2009, we had a verbal contract with Caravel Management Corp., to provide these services for a fee of $4,250 per month.
There are no arrangements or plans in which we provide pension, retirement or similar benefits for directors or executive officers, except that our directors and executive officers may receive stock options at the discretion of our board of directors. Other than the management agreements discussed above, we do not have any material bonus or profit sharing plans pursuant to which cash or non-cash compensation is or may be paid to our directors or executive officers, except that stock options may be granted at the discretion of our board of directors.
Stock Options/SAR Grants
There were no stock options or stock appreciation rights made during the fiscal year ended March 31, 2008.
Stock Options/SAR Exercise
There were no stock options or stock appreciation rights exercised during the fiscal year ended March 31, 2008.
Long-Term Incentive Plans
There are no arrangements or plans in which we provide pension, retirement or similar benefits for directors or executive officers, except that our directors and executive officers may receive stock options at the discretion of our board of directors. We do not have any material bonus or profit sharing plans pursuant to which cash or non-cash compensation is or may be paid to our directors or executive officers, except that stock options may be granted at the discretion of our board of directors.
We have no plans or arrangements in respect of remuneration received or that may be received by our executive officers to compensate such officers in the event of termination of employment (as a result of resignation, retirement, change of control) or a change of responsibilities following a change of control, where the value of such compensation exceeds $60,000 per executive officer.
Directors Compensation
We reimburse our directors for expenses incurred in connection with attending board meetings but did not pay director's fees or other cash compensation for services rendered as a director in the year ended March 31, 2008.
No cash compensation was paid to any of our directors for the director's services as a director during the fiscal year ended March 31, 2008. We have no standard arrangement pursuant to which our directors are compensated for their services in their capacity as directors except for the granting from time to time of incentive stock options. The board of directors may award special remuneration to any director undertaking any special services on behalf of our company other than services ordinarily required of a director. Other than indicated below, no director received and/or accrued any compensation for his services as a director, including committee participation and/or special assignments.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
As of November, 2010 there were 16,020,000 shares of our common stock outstanding. The following table sets forth certain information known to us with respect to the beneficial ownership of our common stock as of that date by (i) each of our directors, (ii) each of our executive officers, and (iii) all of our directors and executive officers as a group. Except as set forth in the table below, there is no person known to us who beneficially owns more than 5% of our common stock
Title of Class
Name & Address of Beneficial Owner
Amount and Nature of Beneficial Ownership(1)
Percent
of Class(2)
Common
John Hislop (3)
1589 Marpole Avenue
Vancouver, BC, Canada
V6J 2R9
10,003,500 Direct
62.44%
Common
All Directors and Officers as a class (1)
10,003,500
62.44%
5% Stockholders
Common
John Hislop (3)
1589 Marpole Avenue
Vancouver, BC, Canada
V6J 2R9
10,003,500 Direct
62.44%
Common
Jeffery Taylor
401-325 Howe Street
Vancouver, BC, Canada
V6C 1Z7
920,000 Direct
5.74%
Notes:
(1)
Under Rule 13d-3, a beneficial owner of a security includes any person who, directly or indirectly, through any contract arrangement, understanding, relationship, or otherwise has or shares: (i) voting power, which includes the power to vote, or to direct the voting of shares; and (ii) investment power, which includes the power to dispose or direct the disposition of shares. Certain shares may be deemed to be beneficially owned by more than one person (if, for example, persons share the power to vote or the power to dispose of the shares). In addition, shares are deemed to be beneficially owned by a person if the person has the right to acquire the shares (for example, upon exercise of an option) within 60 days of the date as of which the information is provided. In computing the percentage ownership of any person, the amount of shares outstanding is deemed to include the amount of shares beneficially owned by such person (and only such person) by reason of these acquisition rights.
(2)
The percentage of class is based on 16,020,000 shares of common stock issued and outstanding as of March 31, 2010.
(3)
John Hislop directly owns 228,000 shares of common stock of the Company and has voting and investment power over an additional 9,775,500 shares of common stock of the Company which he holds indirectly.
Changes in Control
We are unaware of any contract or other arrangement the operation of which may at a subsequent date result in a change in control of our company.
ITEM 13.
ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
Except as otherwise indicated below, we have not been a party to any transaction, proposed transaction, or series of transactions in which the amount involved exceeds $120,000, and in which, to our knowledge, any of our directors, officers, five percent beneficial security holder, or any member of the immediate family of the foregoing persons has had or will have a direct or indirect material interest.
We receive administrative services and back office support under a formal written management services agreement with Caravel Management Corp., pursuant to which we are charged 7,865 per month. Caravel Management Corp. is a private management company that is wholly-owned by John Hislop, our chairman, president, chief executive officer, secretary and chief financial officer. Effective November 1, 2010, the Company revised its agreement with Caravel Management to provide management services for $3,500 per month. The agreement with Caravel Management Corp. is on a month to month basis.
We have borrowed $781,425 under a loan agreement with Caravel Management Corp. The loan bears interest at 15% per annum, calculated and compounded monthly and is payable quarterly. Any principal amount outstanding under the loan is payable upon demand. The loan in payable in Canadian dollars and is secured by a Promissory Note.
During the year ended March 31, 2008, we borrowed an additional CDN $160,000 (US$151,458) and together with interest the balance of the loan and accrued interest was CDN $1,314,101 (US$1,278,433). During the year ended March 31, 2009 we paid a total of CDN $985,655 (US $782,142) and together with interest the balance at March 31, 2009 of principal and accrued interest totalled CDN $477,175 (US $378,650). During the year ended March 31, 2010 we paid an additional CDN $20,000 (US $19,693) with accrued interest brought the total loan balance to CDN $534,658 (US $526,445) at March 31, 2010.
Board of Directors
Our board of directors facilitates its exercise of independent supervision over management by endorsing the guidelines for responsibilities of the board as set out by regulatory authorities on corporate governance in the United States. Our board’s primary responsibilities are to supervise the management of our company, to establish an appropriate corporate governance system, and to set a tone of high professional and ethical standards.
The board is also responsible for:
·
Selecting and assessing members of the Board;
·
Choosing, assessing and compensating the Chief Executive Officer of our company, approving the compensation of all executive officers and ensuring that an orderly management succession plan exists;
·
Reviewing and approving our company’s strategic plan, operating plan, capital budget and financial goals, and reviewing its performance against those plans;
·
Adopting a code of conduct and a disclosure policy for our company, and monitoring performance against those policies;
·
Ensuring the integrity of our company’s internal control and management information systems;
·
Approving any major changes to our company’s capital structure, including significant investments or financing arrangements; and
·
Reviewing and approving any other issues which, in the view of the Board or management, may require Board scrutiny.
Orientation and Continuing Education
We have an informal process to orient and educate new recruits to the board regarding their role of the board, our committees and our directors, as well as the nature and operations of our business. This process provides for an orientation with key members of the management staff, and further provides access to materials necessary to inform them of the information required to carry out their responsibilities as a board member. This information includes the most recent board approved budget, the most recent annual report, the audited financial statements and copies of the interim quarterly financial statements.
The board does not provide continuing education for its directors. Each director is responsible to maintain the skills and knowledge necessary to meet his or her obligations as directors.
Nomination of Directors
The board is responsible for identifying new director nominees. In identifying candidates for membership on the board, the board takes into account all factors it considers appropriate, which may include strength of character, mature judgement, career specialization, relevant technical skills, diversity and the extent to which the candidate would fill a present need on the board. As part of the process, the board, together with management, is responsible for conducting background searches, and is empowered to retain search firms to assist in the nominations process. Once candidates have gone through a screening process and met with a number of the existing directors, they are formally put forward as nominees for approval by the board.
Assessments
The board intends that individual director assessments be conducted by other directors, taking into account each director’s contributions at board meetings, service on committees, experience base, and their general ability to contribute to one or more of our company’s major needs. However, due to our stage of development and our need to deal with other urgent priorities, the board has not yet implemented such a process of assessment.
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Audit Fees
Our company booked the following aggregate fees billed by StarkSchenkein LLP for professional services rendered for the audit of our annual financial statements included in our Annual Report on Form 10-K for the fiscal years ended March 31, 2008 and 2007 and for the review of quarterly financial statements included in our Quarterly Reports were as follows:
Year Ended March 31, 2008
Year Ended March 31, 2007
Audit Fees
$24,086
$18,631
Audit Related Fees
$Nil
$Nil
Tax Fees
$Nil
$Nil
All Other Fees
$Nil
$Nil
Total
$24,086
$18,631
In the above table, “audit fees” are fees billed by our company’s external auditor for services provided in auditing our company’s annual financial statements for the subject year along with reviews of interim quarterly financial statements and involvement with various filings in arrears filed earlier in 2008. The fees recorded in the above noted table may not reflect the fees charged for that period due to the various filings that are in arrears, the figures in the table reflect all fees billed, not accrued, for reporting period. “Audit-related-fees” are fees not included in audit fees that are billed by the auditor for assurance and related services that are reasonably related to the performance of the audit review of our company’s financial statements. “Tax fees” are fees billed by the auditor for professional services rendered for tax compliance, tax advice and tax planning. “All other fees” are fees billed by the auditor for products and services not included in the foregoing categories.
Policy on Pre-Approval by Audit Committee of Services Performed by Independent Auditors
The board of directors pre-approves all services provided by our independent auditors. All of the above services and fees were reviewed and approved by the board of directors either before or after the respective services were rendered.
The board of directors has considered the nature and amount of fees billed by StarkSchenkein LLP and believes that the provision of services for activities unrelated to the audit is compatible with maintaining StarkSchenkein LLP as auditors.
PART IV
ITEM 15.
ITEM 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
Exhibits Required by Item 601 of Regulation S-K
Exhibit Number and Description
(3)
Articles of Incorporation/Bylaws
3.4
Certificate of Merger (Delaware) effective June 12, 2003 (incorporated by reference from our Quarterly Report on Form 10-QSB filed with the Securities and Exchange Commission on August 19, 2003)
3.5
Certificate of Merger (Wyoming) effective June 13, 2003 (incorporated by reference from our Quarterly Report on Form 10-qSB filed with the Securities and Exchange Commission on August 19, 2003)
3.6
Amended & Restated Bylaws (Wyoming) (incorporated by reference from our Quarterly Report on Form 10-QSB filed with the Securities and Exchange Commission on November 14, 2003)
3.7
Certificate of Incorporation (incorporated by reference from our Annual Report on Form 10K filed with the Securities and Exchange Commission on August 13, 2010).
(10)
Material Contracts
10.1
1999 Stock Option Plan (incorporated by reference from our Registration Statement on Form 10-SB filed with the Securities and Exchange Commission on March 31, 2000)
10.2
Farm-in Agreement with Olympia Energy Inc., dated November 21, 2001 (incorporated by reference from our Quarterly Report on Form 10-QSB filed with the Securities and Exchange Commission on February 14, 2002).
10.3
Agreement with Netco Energy Inc. dated January 10, 2005 (incorporated by reference from our Current Report on Form 8-K filed with the Securities and Exchange Commission on January 28, 2005).
10.4
Demand Promissory Note issued to Caravel Management Corp., dated March 31, 2006 (incorporated by reference from our Annual Report on Form 10K filed with the Securities and Exchange Commission on August 13, 2010).
10.5
Petroleum, Natural Gas and Related Rights Conveyance dated September 18, 2008 between Nation Energy Inc., Netco Energy Inc. and EnCana Oil & Gas Partnership (incorporated by reference from our Current Report on Form 8-K filed with the Securities and Exchange Commission on September 24, 2008).
10.6
Termination Agreement dated September 26, 2008 between Nation Energy Inc., and EnCana Oil and Gas Partnership (incorporated by reference from our Annual Report on Form 10K filed with the Securities and Exchange Commission on August 13, 2010).
10.7
Management Services Agreement dated January 1, 2009 between Nation Energy Inc., and Caravel Management Corp. (incorporated by reference from our Annual Report on Form 10K filed with the Securities and Exchange Commission on August 13, 2010).
10.8*
Management Services Agreement dated November 1, 2010 between Nation Energy Inc. and Caravel Management Corp.
(14)
Code of Ethics
14.1
Code of Business Conduct and Ethics (incorporated by reference from our Annual Report on Form 10-KSB filed with the Securities and Exchange Commission on July 15, 2004).
(31)
Section 302 Certifications
31.1*
Section 302 Certification under Sarbanes-Oxley Act of 2002
(32)
Section 906 Certifications
32.1*
Section 906 Certification under Sarbanes-Oxley Act of 2002
*Filed herewith
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
NATION ENERGY INC.
By: “John R Hislop”
John Hislop, President, Chief Executive Officer,
Chief Financial Officer, Secretary, and Director
(Principal Executive Officer, Principal Financial Officer
and Principal Accounting Officer)
Date: December 2, 2010
paration of the financial statement. This creates certain incompatible duties and a lack of review over the financial reporting process that would likely result in a failure to detect errors in spreadsheets, calculations, or assumptions used to compile the financial statements and related disclosures as filed with the SEC. These control deficiencies could result in a material misstatement of our interim or annual financial statements that would not be prevented or detected; iii.
Insufficient corporate governance policies. Although we have a code of ethics which provides broad guidelines for corporate governance, our corporate governance activities and processes are not always formally documented. Specifically, decisions made by the board to be carried out by management should be documented and communicated on a timely basis to reduce the likelihood of any misunderstandings regarding key decisions affecting our operations and management; and
Plan for Remediation of Material Weaknesses
We intend to take appropriate and reasonable steps to make the necessary improvements to remediate these deficiencies. We intend to consider the results of our remediation efforts and related testing as part of our year-end 2010 assessment of the effectiveness of our internal control over financial reporting.
Subject to receipt of additional financing, we intend to undertake the below remediation measures to address the material weaknesses described in this annual report. Such remediation activities include the following:
1.
We continue to recruit at least one, preferably two or more, additional independent board members to join our board of directors and will consider the adoption of an audit committee at such time as additional board members are retained; and
2.
We intend to continue to update the documentation of our internal control processes, including formal risk assessment of our financial reporting processes.
Changes in Internal Controls over Financial Reporting
There were no changes in our internal control over financial reporting during the fourth quarter of our fiscal year ended March 31, 2008 that have materially affected or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Directors and Executive Officers
Name
Position Held with our Company
Age
Date First
Elected or Appointed
John R. Hislop
Chairman of the Board, President, Chief Executive Officer, Chief Financial Officer, Secretary and Director
June 4, 1999
Summary Background