2. Basis of Presentation and Significant Accounting Policies

The accompanying condensed consolidated balance sheet as of January 31, 2011 has been derived from our audited financial statements. The accompanying unaudited condensed interim consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). The accompanying consolidated financial statements are expressed in U.S. dollars. These consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries: (i) Elmworth Energy Corporation, incorporated in the Province of Alberta, Canada, (ii) Integrated Operating Systems, incorporated in the State of Colorado and (iii) Triangle USA Petroleum Corporation, incorporated in the State of Colorado, and its wholly owned subsidiaries. These financial statements also include the accounts of the Company's 83% owned subsidiary RockPile Holdings LLC, incorporated in the state of Delaware. All significant intercompany balances and transactions have been eliminated. The Company's fiscal year-end is January 31.

Certain information and footnote disclosure normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to SEC rules and regulations. We believe the disclosures made are adequate to make the information not misleading. We recommend that these consolidated financial statements be read in conjunction with our audited financial statements and notes included in our Annual Report on Form 10-K for the fiscal year ended January 31, 2011.

In the opinion of management, the interim data includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results for the interim period. The results of operations for the three and nine month periods ended October 31, 2011 are not necessarily indicative of the operating results for the entire fiscal year ending January 31, 2012.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities including contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Estimates of oil and natural gas reserve quantities provide the basis for calculation of depletion, depreciation, amortization and impairment, each of which represents a significant component of the consolidated financial statements. Management estimated the proved reserves at October 31, 2011 with consideration of (1) the proved reserve estimates for the prior fiscal year-end prepared by independent engineering consultants and (2) significant new discoveries and changes during the interim period in production, ownership, and other factors underlying reserve estimates.

Significant Accounting Policies

For descriptions of the Company's significant accounting policies, please see pages F-7 through F-10 of our Annual Report on Form 10-K for the fiscal year ended January 31, 2011.

Amortization of oil and gas property costs is computed quarterly and not year-to-date, using the estimated proved reserves as of the end of the quarter. Amortization for the fiscal year is the sum of the four quarterly amortization amounts.

On October 17, 2011, the Company entered into a definitive amended and restated limited liability company agreement of RockPile Holdings, LLC, a Delaware limited liability company ("RockPile"), between RockPile, the Company, and certain other investors named therein. RockPile is a pressure pumping company. Pursuant to the Agreement, the Company retained approximately 83% of RockPile, with overall total capital commitments of $24 million. The approximately 27% noncontrolling interest is included as a separate component of total equity. In addition, the net income (loss) on the consolidated statements of operations includes the net income (loss) attributable to the noncontrolling interest.

Recent Accounting Pronouncements

As of October 31, 2011, there have been no recent accounting pronouncements currently relevant to the Company in addition to those discussed on page F-10 of our Annual Report on Form 10-K for the fiscal year ended January 31, 2011.

Reclassifications

Certain amounts in the fiscal 2011 consolidated financial statements have been reclassified to conform to the fiscal 2012 financial statement presentation. Such reclassifications have had no effect on net loss for the period ended October 31, 2010.

Asset Retirement Obligations

The following table reflects the change in asset retirement obligations for the periods presented:

	For the nine months ended
	October 31, 2011	October 31, 2010
Balance, beginning of period	$1,403,697	$1,180,515
Liabilities incurred	31,112	17,403
Revision of estimates	164,176	-
Liabilities settled	(76)	(29,394)
Accretion	211,105	196,454
Balance, end of period	$1,810,014	$1,364,978
Current portion, end of period	$1,732,121	$ -
Long-term portion, end of period	$ 77,893	$1,364,978

The $1,732,121 current liability at October 31, 2011 is for reclamation of frac ponds and abandonment of well bores in Canada that previously were expected to be reclaimed no sooner than 2013.