American Exploration Corporation
|
||
(Name of small business issuer in its charter)
|
Nevada
|
98-0518266
|
|
(State or other jurisdiction of
incorporation or organization)
|
(I.R.S. Employer
Identification No.)
|
700 6th Avenue SW, Suite 1520
Calgary, Alberta
Canada T2P 0T8
|
||
(Address of principal executive offices)
|
||
(403) 233-8484
|
||
(Issuer’s telephone number)
|
Securities registered pursuant to Section 12(b) of the Act:
|
Name of each exchange on which registered:
|
|
None
|
||
Securities registered pursuant to Section 12(g) of the Act:
|
||
Common Stock, $0.001
|
||
(Title of Class)
|
Large accelerated filer
|
o
|
Accelerated filer
|
o
|
Non-accelerated filer
|
o
|
Smaller reporting company
|
x
|
Class
|
Outstanding as of August 15, 2013
|
|
Common Stock, $0.001
|
120,273,333
|
June 30,
2013
|
December 31,
2012
|
|||||||
ASSETS
|
||||||||
Current Assets
|
||||||||
Cash and cash equivalents
|
$
|
4,341
|
$
|
4,458
|
||||
Total Assets
|
$
|
4,341
|
$
|
4,458
|
||||
LIABILITIES AND STOCKHOLDERS’ DEFICIT
|
||||||||
Current Liabilities
|
||||||||
Accounts payable and accrued liabilities
|
$
|
64,354
|
$
|
41,289
|
||||
Accounts payable – related parties
|
627,766
|
511,662
|
||||||
Short-term notes payable
|
184,978
|
185,000
|
||||||
Short-term notes payable – related parties
|
147,790
|
148,225
|
||||||
Convertible notes – related party
|
95,000
|
100,310
|
||||||
Advances from officer and Spotlight
|
61,936
|
29,972
|
||||||
Total Liabilities
|
1,181,824
|
1,016,458
|
||||||
Commitments and contingencies
|
||||||||
Stockholders’ Deficit
|
||||||||
Common stock, $0.001 par value, 2,100,000,000 shares authorized:
|
||||||||
60,273,333 shares issued and outstanding
|
60,273
|
60,273
|
||||||
Additional paid-in capital
|
6,785,043
|
6,646,657
|
||||||
Accumulated other comprehensive income
|
862
|
(3,244)
|
||||||
Accumulated deficit during exploration stage
|
(8,023,661)
|
(7,715,686)
|
||||||
Total Stockholders’ Deficit
|
(1,177,483)
|
(1,012,000)
|
||||||
Total Liabilities and Stockholders’ Deficit
|
$
|
4,341
|
$
|
4,458
|
Period from Inception
|
||||||||||||||||||||
Three Months Ended June 30,
|
Six Months Ended June 30,
|
(May 11, 2006) to
|
||||||||||||||||||
2013
|
2012
|
2013
|
2012
|
June 30, 2013
|
||||||||||||||||
Revenue
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
||||||||||
Operating expenses
|
||||||||||||||||||||
General and administrative
|
158,252
|
151,481
|
291,235
|
296,161
|
4,260,051
|
|||||||||||||||
Depreciation and amortization
|
-
|
-
|
-
|
-
|
11,277
|
|||||||||||||||
Impairment of oil & gas properties
|
-
|
-
|
-
|
-
|
3,771,001
|
|||||||||||||||
Total operating expenses
|
158,252
|
151,481
|
291,235
|
296,161
|
8,042,329
|
|||||||||||||||
Loss from operations
|
(158,252)
|
(151,481)
|
(291,235)
|
(296,161)
|
(8,042,329)
|
|||||||||||||||
Other income (expense)
|
||||||||||||||||||||
Interest expense
|
(8,299)
|
(7,842)
|
(16,740)
|
(13,720)
|
(153,971)
|
|||||||||||||||
Loss on sale of assets
|
-
|
-
|
-
|
-
|
(1,161)
|
|||||||||||||||
Other income
|
-
|
-
|
-
|
-
|
173,800
|
|||||||||||||||
Total other income (expense)
|
(8,299)
|
(7,842)
|
(16,740)
|
(13,720)
|
18,668
|
|||||||||||||||
Net loss
|
$
|
(166,551)
|
(159,323)
|
(307,975)
|
(309,881)
|
(8,023,661)
|
||||||||||||||
Other comprehensive income
|
||||||||||||||||||||
Gain on foreign currency translation
|
8,429
|
1,625
|
4,106
|
34
|
862
|
|||||||||||||||
Total comprehensive loss
|
$
|
(158,122)
|
$
|
(157,698)
|
$
|
(303,869)
|
$
|
(309,847)
|
$
|
(8,022,799)
|
||||||||||
Net loss per common share – basic and diluted
|
$
|
(0.00
|
)
|
$
|
(0.00)
|
$
|
(0.01
|
)
|
$
|
(0.01
|
)
|
|||||||||
Weighted average common shares outstanding - basic and diluted
|
60,273,333
|
60,273,333
|
60,273,333
|
60,273,333
|
Six Months Ended June 30,
|
Inception
(May 11, 2006) to
|
|||||||||||
2013
|
2012
|
June 30, 2013
|
||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES
|
||||||||||||
Net loss
|
$
|
(307,975)
|
$
|
(309,881
|
)
|
$
|
(8,023,661
|
)
|
||||
Adjustments to reconcile net loss to net cash used by operating activities:
|
||||||||||||
Depreciation and amortization expense
|
-
|
-
|
11,277
|
|||||||||
Amortization of debt discount
|
-
|
-
|
60,945
|
|||||||||
Share-based compensation
|
138,386
|
138,386
|
2,051,371
|
|||||||||
Impairment of oil & gas properties
|
-
|
-
|
3,771,001
|
|||||||||
Loss on sale of assets
|
-
|
-
|
1,161
|
|||||||||
Changes in operating assets and liabilities:
|
|
|
||||||||||
Accounts payable and accrued liabilities
|
47,931
|
31,277
|
89,055
|
|||||||||
Accounts payable - related parties
|
115,223
|
96,116
|
626,718
|
|||||||||
Net cash used in operating activities
|
(6,435)
|
(44,102
|
)
|
(1,412,133
|
)
|
|||||||
CASH FLOWS FROM INVESTING ACTIVITIES
|
||||||||||||
Website
|
-
|
-
|
(10,000
|
)
|
||||||||
Acquisition of unproved oil and gas properties
|
-
|
-
|
(1,108,551
|
)
|
||||||||
Net cash used in investing activities
|
-
|
-
|
(1,118,551
|
)
|
||||||||
CASH FLOWS FROM FINANCING ACTIVITIES
|
||||||||||||
Proceeds from issuance of common stock and warrants
|
-
|
- |
2,063,250
|
|||||||||
Proceeds from notes payable
|
-
|
30,000
|
185,000
|
|||||||||
Proceeds from advances from officer and Spotlight
|
7,050
|
1,800
|
189,831
|
|||||||||
Proceeds from issuance of convertible debt - related parties
|
-
|
-
|
95,227
|
|||||||||
Net cash provided by financing activities
|
7,050
|
31,800
|
2,533,308
|
|||||||||
Effect of exchange rate changes on cash
|
(732)
|
2,217
|
1,717
|
|||||||||
Increase (decrease) in cash during the period
|
615
|
(10,085
|
)
|
2,624
|
||||||||
Cash, beginning of the period
|
4,458
|
16,513
|
-
|
|||||||||
Cash, end of the period
|
$
|
4,341
|
$
|
6,428
|
$
|
4,341
|
||||||
Supplemental cash flow information:
|
||||||||||||
Taxes paid
|
$
|
-
|
$
|
-
|
$
|
-
|
||||||
Interest paid
|
$
|
-
|
$
|
-
|
$
|
-
|
||||||
NON-CASH INVESTING AND FINANCING TRANSACTIONS
|
||||||||||||
Common stock issued for oil and gas property
|
$
|
-
|
$
|
-
|
$
|
2,664,750
|
||||||
Cancellation of loan from director
|
$
|
-
|
$
|
-
|
$
|
5,000
|
||||||
Cancellation of shares
|
$
|
-
|
$
|
-
|
$
|
86,139
|
||||||
Reclassification from payables to advances for the amount paid by Spotlight
|
$
|
27,953
|
$
|
-
|
$
|
27,953
|
Date
|
Stated
|
Original
|
|||||||||||
Of
|
Interest
|
Principal
|
Due
|
||||||||||
Note
|
Rate
|
Amount
|
Date
|
Default
|
|||||||||
Promissory Note
|
|||||||||||||
#1 |
06/02/10
|
5
|
%
|
$
|
50,000
|
On Demand
|
No
|
||||||
#2 |
02/04/11
|
5
|
%
|
30,000
|
On Demand
|
No
|
|||||||
#3 |
05/04/11
|
5
|
%
|
35,000
|
On Demand
|
No
|
|||||||
#4 |
08/11/11
|
10
|
%
|
20,000
|
On Demand
|
No
|
|||||||
#5 |
12/05/11
|
10
|
%
|
20,000
|
On Demand
|
No
|
·
|
1,000,000 options to the Company’s Chief Executive Officer, who is also a director of the Company.
|
·
|
1,150,000 options to three Directors of the Company
|
·
|
150,000 options to the Company’s Chief Financial Officer
|
·
|
400,000 options to three consultants to the Company
|
Options
|
Weighted-Average Exercise Price
|
Aggregate
Intrinsic Value
|
||||||||||
Outstanding at January 1, 2012
|
3,900,000
|
$
|
0.58
|
$
|
-
|
|||||||
Granted
|
-
|
-
|
-
|
|||||||||
Exercised
|
-
|
-
|
-
|
|||||||||
Expired
|
-
|
-
|
-
|
|||||||||
Outstanding at June 30, 2013
|
3,900,000
|
$
|
0.58
|
$
|
-
|
|||||||
Exercisable at June 30, 2013
|
3,016,667
|
$
|
0.52
|
$
|
-
|
EXHIBIT NO. | DOCUMENT | |
3.1 | Articles of Incorporation (1) | |
3.1.2 | Articles of Incorporation as amended. | |
3.1.3 | Articles of Merger between Minhas Energy Consultants and American Energy Corp. (2) | |
3.2 | Bylaws (1) | |
10.1 | Option Agreement between American Energy Corporation and Westrock Land Corporation dated October 2008. (3) | |
10.2 | 5% Convertible Debenture dated October 13, 2009 between American Exploration Corporation and DMS Ltd. (4) | |
10.3 | Stock Option Plan of American Exploration Corporation dated September 14, 2009. (5) | |
10.4 | Merger Agreement and Plan of Merger dated March __, 2010 between American Exploration Corporation and Mainland Resources Inc. | |
10.5 | Merger Agreement dated February 15, 2013 between American Exploration Corp. and Spotlight Innovations LLC. (8) | |
10.6 | Stock Purchase Agreement dated May 16, 2013 between American Exploration Corporation and Orange Investments Ltd. (9) | |
16. 1 | Letter from Moore & Associates dated August 11, 2009. (6) | |
16. 2 | Letter from Seale & Beers, CPAs dated November 2, 2009. (7) | |
31.1 | Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act. | |
31.2 | Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act. | |
32.1 | Certification of Chief Executive Officer and Chief Financial Officer Under Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act. |
101.INS **
|
XBRL Instance Document
|
|
101.SCH **
|
XBRL Taxonomy Extension Schema Document
|
|
101.CAL **
|
XBRL Taxonomy Extension Calculation Linkbase Document
|
|
101.DEF **
|
XBRL Taxonomy Extension Definition Linkbase Document
|
|
101.LAB **
|
XBRL Taxonomy Extension Label Linkbase Document
|
|
101.PRE **
|
XBRL Taxonomy Extension Presentation Linkbase Document
|
AMERICAN EXPLORATION CORPORATION
|
|||
Dated: August 15, 2013
|
By:
|
/s/ STEVE HARDING
|
|
Steve Harding, Chief Executive Officer
|
|||
Dated: August 15, 2013
|
By:
|
/s/ BRIAN MANKO
|
|
Brian Manko, Chief Financial Officer
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
a.
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
b.
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
c.
|
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
d.
|
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
|
5.
|
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
|
a.
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
|
b.
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
a.
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
b.
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
c.
|
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
d.
|
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
|
5.
|
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
|
a.
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
|
b.
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
|
/s/ "Steve Harding"
|
|
Steve Harding
|
|
Chief Executive Officer
|
/s/ "Brian Manko"
|
|
Brian Manko
|
|
Chief Financial Officer, Principal Accounting Officer
|
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Details Narrative)
|
6 Months Ended | |
---|---|---|
Jun. 30, 2013
|
Jun. 30, 2012
|
|
Notes to Financial Statements | ||
Dilutive effect of options to purchase | 3,900,000 | 3,900,000 |
CONSOLIDATED STATEMENTS OF OPERATIONS (USD $)
|
3 Months Ended | 6 Months Ended | 86 Months Ended | ||
---|---|---|---|---|---|
Jun. 30, 2013
|
Jun. 30, 2012
|
Jun. 30, 2013
|
Jun. 30, 2012
|
Jun. 30, 2013
|
|
Consolidated Statements Of Operations | |||||
Revenue | |||||
Operating expenses | |||||
General and administrative | 158,252 | 151,481 | 291,235 | 296,161 | 4,260,051 |
Depreciation and amortization | 11,277 | ||||
Impairment of oil and gas properties | 3,771,001 | ||||
Total operating expenses | 158,252 | 151,481 | 291,235 | 296,161 | 8,042,329 |
Loss from operations | (158,252) | (151,481) | (291,235) | (296,161) | (8,042,329) |
Other Income (expense) | |||||
Interest expense | (8,299) | (7,842) | (16,740) | (13,720) | (153,971) |
Loss on sale of assets | (1,161) | ||||
Other income | 173,800 | ||||
Total other income (expense) | (8,299) | (7,842) | (16,740) | (13,720) | 18,668 |
Net loss | (166,551) | (159,323) | (307,975) | (309,881) | (8,023,661) |
Other comprehensive income | |||||
Gain on foreign currency translation | 8,429 | 1,625 | 4,106 | 34 | 862 |
Total comprehensive loss | (158,122) | (157,698) | (303,869) | (309,847) | (8,022,799) |
Net loss per common share - basic and diluted | $ 0.00 | $ 0 | $ (0.01) | $ (0.01) | |
Weighted average common shares outstanding - basic and diluted | $ 60,273,333 | $ 60,273,333 | $ 60,273,333 | $ 60,273,333 |
NOTES PAYABLE
|
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2013
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Notes to Financial Statements | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Note 5 - NOTES PAYABLE | From June 2010 to December 2011, the Company entered the following notes with the same unrelated third party:
On April 28, 2012, the Company borrowed $30,000 pursuant to a note payable agreement with another unrelated third party. The note is due on demand and accrues interest at 10% per annum.
As of June 30, 2013, and through the date of this filing, the Company has not received a demand notice from the lender noted above for payment of principal or interest of these notes payable. |
GOING CONCERN (Details Narrative) (USD $)
|
3 Months Ended | 6 Months Ended | 86 Months Ended | ||
---|---|---|---|---|---|
Jun. 30, 2013
|
Jun. 30, 2012
|
Jun. 30, 2013
|
Jun. 30, 2012
|
Jun. 30, 2013
|
|
Notes to Financial Statements | |||||
Incurred net losses | $ (166,551) | $ (159,323) | $ (307,975) | $ (309,881) | $ (8,023,661) |
Working capital deficit | $ 1,177,483 | $ 1,177,483 | $ 1,177,483 |
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BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
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6 Months Ended |
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Jun. 30, 2013
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Notes to Financial Statements | |
Note 1 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES | The accompanying unaudited interim financial statements of American Exploration Corporation (the Company or American) have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q. They do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for a complete financial presentation. In the opinion of management, all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP"), have been included in the accompanying unaudited financial statements. Operating results for the periods presented are not necessarily indicative of the results that may be expected for the full year.
These financial statements should be read in conjunction with the audited financial statements and footnotes that are included as part of the Companys Form 10-K for the year ended December 31, 2012.
The Company was originally incorporated under the laws of the state of Nevada on May 11, 2006. The Companys current focus is oil and gas exploration and development. The Company has limited operations, is considered an exploration stage company, and has had no revenues from operations to date.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 revenue and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include those regarding the recoverability of the Companys unevaluated oil and gas properties and valuation of option and warrant transactions.
Reclassification
Certain amounts for prior periods have been reclassified to conform to the current period presentation.
Income (Loss) per Common Share
Basic net loss per common share is computed by dividing the net income (loss) attributable to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted net income per share is computed by dividing the net income attributable to common shareholders by the weighted-average number of common and common equivalent shares outstanding during the period. Common share equivalents included in the diluted computation represent shares issuable upon assumed exercise of stock options and warrants or the assumed conversion of convertible debt instruments, using the treasury stock and if converted method. For periods in which net losses are incurred, weighted average shares outstanding is the same for basic and diluted loss per share calculations, as the inclusion of common share equivalents would have an anti-dilutive effect.
For the six months ended June 30, 2013 and 2012, the dilutive effect of options to purchase 3,900,000 and 3,900,000 shares of common stock and warrants to purchase Nil and Nil shares of common stock, respectively, were excluded from the diluted earnings per share calculation because their effect would have been anti-dilutive.
Oil and Gas Properties, Full Cost Method
The Company has elected to use the full cost method of accounting for oil and gas producing activities. Costs to acquire mineral interests in oil and gas properties, to drill and equip exploratory wells used to find proved reserves, and to drill and equip development wells, including directly related overhead costs and related asset retirement costs, are capitalized.
Under this method, all costs, including internal costs directly related to acquisition, exploration and development activities, are capitalized as oil and gas property costs on a country by country basis. Properties not subject to amortization consist of exploration and development costs which are evaluated on a property-by-property basis. Amortization of these unproved property costs begins when the properties become proved or their values become impaired. The Company assesses the realizability of unproved properties on at least an annual basis or when there has been an indication that impairment in value may have occurred. Impairment of unproved properties is assessed based on management's intention with regard to future exploration and development of individually significant properties and the ability of the Company to obtain funds to finance such exploration and development. If the results of an assessment indicate that the properties are impaired, the amount of the impairment is added to the capitalized costs to be amortized.
In applying the full cost method, the Company performs an impairment test (ceiling test) at each reporting date, whereby the carrying value of property and equipment is compared to the estimated present value of its proved reserves. The estimated present value of proved reserves is based upon future net revenues (after consideration of current economic and operating conditions at the end of the period) discounted at a 10 percent interest rate, plus the cost of properties not being amortized, plus the lower of cost or fair market value of unproved properties included in costs being amortized, less the income tax effects related to book and tax basis differences of the properties. If capitalized costs exceed this limit, the excess is charged as an impairment expense.
As of June 30, 2013, the Company had no proved properties and the exploratory well on the Companys properties has previously been fully impaired pending future development.
Foreign Exchange and Currency Translation
For the periods presented, the Company maintained cash accounts in Canadian and U.S. dollars, and incurred certain expenses denominated in Canadian dollars. The Company's functional and reporting currency is the U.S. dollar. Transactions denominated in foreign currencies are translated into U.S. dollars at exchange rates in effect on the date of the transactions. Assets and liabilities are translated using exchange rates at the end of each period. Exchange gains or losses on transactions are included in earnings. Adjustments resulting from the translation process are reported in a separate component of other comprehensive income and are not included in the determination of the results of operations.
Comprehensive Income
Accumulated other comprehensive income represents the accumulated balance of foreign currency translation adjustments.
Stock-Based Compensation
The Company measures the cost of employee services received in exchange for stock and stock options based on the grant date fair value of the awards. The Company determines the fair value of stock option grants using the Black-Scholes option pricing model. The Company determines the fair value of shares of non-vested stock (also commonly referred to as restricted stock) based on the last quoted price of our stock on the date of the share grant. The fair value determined represents the cost for the award and is recognized over the vesting period during which an employee is required to provide service in exchange for the award. As share-based compensation expense is recognized based on awards ultimately expected to vest, the Company reduces the expense for estimated forfeitures based on historical forfeiture rates, if historical forfeiture rates are available. Previously recognized compensation costs may be adjusted to reflect the actual forfeiture rate for the entire award at the end of the vesting period. Excess tax benefits, if any, are recognized as an addition to paid-in capital.
Subsequent Events
The Company evaluated all material subsequent events from June 30, 2013 through the date of the issuance of these consolidated financial statements for disclosure consideration.
Recent Accounting Pronouncements
There were various accounting standards and interpretations issued recently, none of which are expected to have a material effect on the Companys operations, financial position or cash flows. |
SPOTLIGHT MERGER AGREEMENT
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6 Months Ended |
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Jun. 30, 2013
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Notes to Financial Statements | |
Note 3 - SPOTLIGHT MERGER AGREEMENT | On February 12, 2013, the Company entered into a merger agreement (the Spotlight Merger Agreement) with Spotlight Innovation LLC, a limited liability company based in the State of Iowa ("Spotlight"). Completion of the merger is dependent upon certain conditions which have not been met as of June 30, 2013. In accordance with the terms and provisions of the Spotlight Merger Agreement, all of the issued and outstanding membership interests of Spotlight (the "Membership Interests") will be converted into the right to receive an aggregate of 7,500,000 fully paid and non-assessable shares of its restricted common stock on a post reverse split basis. Certain conditions were contemplated to be satisfied prior to closing of the Spotlight Merger Agreement which include, but are not limited to, the following: (i) Spotlight shall have completed and be satisfied with its due diligence review of the Company; (ii) the Company shall have received financing in an amount of at least $237,500 on terms approved by our Board of Directors, which shall be utilized to pay off certain of our liabilities; (iii) the Company shall have completed a 100:1 reverse stock split of our common stock; (iv) the Company shall have amended its certificate of incorporation to change its name to Spotlight Innovation, Inc.; (v) the Company shall have received approval from a majority of its shareholders of the Merger Agreement and the transactions contemplated therein; (vi) the current Board of Directors shall appoint Cris Grunewald as the sole member of the Board of Directors and the President/Chief Executive Officer and Secretary and a person to be designated by Spotlight as the Treasurer/Chief Financial Officer; and (vii) the Companys current officers and directors shall resign upon closing of the transactions contemplated in the Merger Agreement. The contemplated stock split of 100:1 was subsequently amended post-reporting period to a ratio of 500:1.
There is no guarantee the transaction contemplated in the Spotlight Merger Agreement will close, and if it does, when it will close, or that the operations of Spotlight will be successful.
If the merger is completed, the Company will change its business plan to Spotlights business plan. Spotlight was founded to identify, validate and finance healthcare-focused companies founded for the purpose of commercializing intellectual property developed by major centers of academia in the United States. Spotlight provides strategic partners the opportunity to participate in the financing of a preferred search for, acquisition of, and/or funding of companies holding licenses for the commercialization of intellectual property developed by academic institutions. The principals of Spotlight have been involved in all stages of the commercialization of healthcare intellectual property over the last eight years. |
INCOME TAXES
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6 Months Ended |
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Jun. 30, 2013
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Notes to Financial Statements | |
Note 6 - INCOME TAXES | Deferred income taxes are provided on a liability method whereby deferred tax assets and liabilities are established for the difference between the financial reporting and income tax basis of assets and liabilities as well as operating loss and tax credit carry forwards. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.
Realization of deferred tax assets is dependent upon sufficient future taxable income during the period that deductible temporary differences and carry-forwards are expected to be available to reduce taxable income.
At June 30, 2013, the Companys deferred tax assets consist primarily of net operating loss carry forwards. For the six months ended June 30, 2013, the material reconciling items between the tax benefit computed at the statutory rate and the actual benefit recognized in the financial statements consisted of expenses related to share-based compensation and the change in the valuation allowance during the applicable period. At June 30, 2013, the Company has recorded a 100% valuation allowance as management believes it is likely that any deferred tax assets will not be realized.
As of June 30, 2013 and December 31, 2012, the Company has a net operating loss carry forward of approximately $5.8 million and $5.7 million, respectively, which will expire between years 2026 and 2032. Due to the change in ownership provisions of the Tax Reform Act of 1986, the Companys net operating loss carry forwards could be subject to annual limitations should a change in ownership occur. |
RELATED PARTY TRANSACTIONS
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6 Months Ended |
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Jun. 30, 2013
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Notes to Financial Statements | |
Note 4 - RELATED PARTY TRANSACTIONS | Accounts Payable Related Parties
As of June 30, 2013, the Company owed an aggregate of $555,250 of compensation to its CEO and CFO.
Short-term Notes Payable Directors
As of June 30, 2013, former directors of the Company had outstanding loans to the Company of $87,790 that were used to pay operating expenses of the Company. Average interest of 10% per annum has been accrued to the lenders and the loans are due upon demand. All of these loans are unsecured and no interest has been paid to date. Accrued interest as of June 30, 2013, was $35,335.
Convertible Note Related Party
A 5% unsecured convertible debenture, due January 13, 2010, was also issued by the Company to a related party on October 13, 2009 for CDN $100,000 (USD $95,000). The unpaid principal amount can be converted at the option of the holder, into common stock at the price of $0.50 per share. The convertible note was not redeemed or converted at the maturity date, is currently in default and is still accruing interest. Accrued interest as of June 30, 2013 was $17,617.
Short-term Notes Payable - Mainland Resources
In September 2010, the Company borrowed $60,000 from Mainland Resources to pay the Companys operating costs during the merger period. The note bears interest at 12% and was due on December 31, 2010. The Company entered into multiple extensions of the note during the period the Company was contemplating its merger with Mainland. On December 21, 2011, the Company and Mainland Resources entered into a new promissory note (the New Promissory Note), which superseded and replaced the Original Promissory Note. The New Promissory Note evidenced the Corporations current obligation to pay to Mainland Resources $79,200, comprised of $60,000 in principal and $19,200 in accrued interest. The New Promissory Note is due on demand and bears interest at 12% per annum. As of June 30, 2013, through the date of this filing, the Company has not received a demand notice from Mainland Resources for payment of this note payable.
Advances from Officer and Spotlight
As of June 30, 2013, the Companys CEO has made total advances to the Company of $23,433. The Company also owes $38,503 in advances to Spotlight.
As of June 30, 2013, through the date of this filing, the Company has not received a demand notice from any of the related party lenders noted above for payment of these notes payable. |