Accounting Changes and Error Corrections

3 Months Ended

Jun. 30, 2012

Accounting Changes and Error Corrections [Abstract]

Accounting Changes and Error Corrections [Text Block]

NOTE 14- CORRECTION OF ERROR IN PREVIOUSLY ISSUED FINANCIAL STATEMENTS

As disclosed in the financial statements as of and for the year ended September 30, 2011, management has determined that certain errors were contained in the Company's financial statements.

The errors were related to an incorrect application of conversion option derivative and warrant derivative accounting related to convertible debentures entered into by the Company on or about December 14, 2009, April 23, 2010 and October 18, 2010 (Note 7).   As discussed in Note 2, embedded derivatives that are not clearly and closely related to the host contract are bifurcated and recognized at fair value with changes in fair value recognized as either a gain or loss in earnings if they can be reliably measured.

Management has also assessed undeveloped properties in both North Dakota and Kansas and determined restatement of financial statements is appropriate for the quarters ended June 30, 2011 and prior.   The Uniontown, Kansas project was acquired for $2,200,000 in 2007, and consisted of mineral leases covering approximately 35,000 acres in Bourbon County, KS.  During 2008, it was determined that the Company only actually permitted approximately one-third of the leases it had acquired initially, and therefore recognized an impairment for the remaining two-thirds of the original cost ($1,474,000).  Throughout 2007 and 2008, the Company paid approximately $295,000 to renew these leases, each for a term of three years.  The payments represented acquisition costs, and since the property was not yet in production the leases should not have been subject to amortization but is instead subjected to an annual impairment test.

The adjustments required to appropriately record these adjustments are material to the previously filed financial statements, thus management is restating these financial statements.  The accompanying financial statements have been restated to reflect the corrections.   As discussed in Note 1, certain reclassifications have been made for comparative purposes.

The effects of the Company's previously issued June 30, 2011 statement of operations is as follows:

		For the three months ended June 30, 2011				Previously reported		Increase (Decrease)		Restated
REVENUE
			Oil sales		$	45,379		-	$		45,379
			Natural gas sales			7,353		-			7,353
				TOTAL REVENUE		52,732		-			52,732
OPERATING EXPENSES
			Production costs - oil			19,843		-			19,843
			Production costs - natural gas			3,347		-			3,347
			Depreciation, depletion and amortization			193,351		(2,022)			191,329
			Loss on write-off and sales of leases and equipment			102,875		(360)			102,515
			Accretion of asset retirement obligation			11,620		(7,746)			3,874
			General and administrative			183,314		-			183,314
				TOTAL OPERATING EXPENSES		514,350		(10,128)			504,222
OPERATING LOSS						(461,618)		(10,128)			(451,490)
OTHER INCOME (EXPENSE)
			Interest and financing costs			(70,430)		1,848			(68,582)
			Miscellaneous income (expense)			55,352		(1,084)			54,268
			Gain (loss) on extinguishment and conversion of debt			101,459		(159,276)			(57,817)
			Gain (loss) on change in fair value of conversion option derivative			-		178,432			178,432
			Gain (loss) on change in fair value of warrant derivative			-		249,956			249,956
			Amortization of discount on debentures			(293,060)		76,686			(216,374)
				TOTAL OTHER INCOME (EXPENSE)		(206,679)		346,562			139,883
	INCOME (LOSS) BEFORE INCOME TAX					(668,297)		356,690	$		(311,607)
	Provision for income tax					-		-			-
	NET INCOME (LOSS)				$	(668,297)	$	356,690	$		(311,607)

		For the nine months ended June 30, 2011				Previously reported		Increase (Decrease)		Restated
REVENUE
			Oil sales		$	195,794	$	-	$		195,794
			Natural gas sales			28,294		-			28,294
				TOTAL REVENUE		224,087		-			224,087
OPERATING EXPENSES
			Production costs - oil			88,264		-			88,264
			Production costs - natural gas			6,315		-			6,315
			Depreciation, depletion and amortization			578,467		(23,391)			555,077
			Loss on write-off and sales of leases and equipment			102,875		(360)			102,515
			Accretion of asset retirement obligation			11,620		-			11,620
			General and administrative			675,757		-			675,757
				TOTAL OPERATING EXPENSES		1,463,298		(23,751)			1,439,547
OPERATING LOSS						(1,239,211)		23,751			(1,215,460)
OTHER INCOME (EXPENSE)
			Interest and financing costs			(210,685)		765			(209,920)
			Miscellaneous income (expense)			55,352		-			55,352
			Loss on initial recording of derivatives			-		(342,187)			(342,187)
			Gain (loss) on extinguishment and conversion of debt			-		(218,457)			(218,457)
			Gain (loss) on change in fair value of conversion option derivative			-		806,342			806,342
			Gain (loss) on change in fair value of warrant derivative			-		623,200			623,200
			Accretion of convertible note payable
			Amortization of discount on debentures			(635,982)		7,043			(628,939)
				TOTAL OTHER INCOME (EXPENSE)		(791,315)		876,706			85,391
	INCOME (LOSS) BEFORE INCOME TAX					(2,030,526)		900,457			(1,130,069)
	Provision for income tax					-					-
	NET INCOME (LOSS)				$	(2,030,526)	$	900,457	$		(1,130,069)