U.S.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-KSB
(Mark
One)
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ANNUAL
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
Fiscal Year Ended: April 30, 2008
OR
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o
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TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
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For
the
transition period from _______________ to _______________
Commission
file number: 000-51519
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True North Energy Corporation
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(Exact name of small business issuer as specified in its charter)
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Nevada
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98-0434820
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(State or other jurisdiction of
incorporation or organization)
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(IRS Employer Identification No.)
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2 Allen Center, 1200 Smith Street, 16
th
Floor, Houston, TX
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77002
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(Address of principal executive offices)
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(Postal Code)
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Issuer's
telephone number:
(713)
353-3948
Securities
registered under Section 12(b) of the Act:
None
Securities
registered under Section 12(g) of the Act:
Common
Stock, par value $0.0001 per share
Check
whether the issuer is not required to file reports pursuant to Section 13 or
15(d) of the Exchange Act.
o
Check
whether the issuer (1) filed all reports required to be filed by Section 13
or
15(d) of the Exchange Act during the past 12 months (or for such shorter period
that the issuer was required to file such reports), and (2) has been subject
to
such filing requirements for the past 90 days. Yes
x
No
o
Check
if
there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained,
to
the best of issuer's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment
to
this Form 10-KSB.
o
Indicate
by check mark whether the issuer is a shell company (as defined in Rule 12b-2
of
the Exchange Act). Yes
o
No
x
State
issuer's revenues for its most recent fiscal year: $1,225,735
As
of
July 23, 2008, there were 71,016,758 shares of the issuer's common stock, par
value $0.0001, issued and outstanding. Of these, 36,266,758 shares are held
by
non-affiliates of the issuer. The market value of securities held by
non-affiliates is approximately $6,165,349 based on the closing price of $0.17
for the issuer's common stock on July 23, 2008.
Transitional
Small Business Disclosure Format (check one): Yes
o
No
x
DOCUMENTS
INCORPORATED BY REFERENCE
If
the
following documents are incorporated by reference, briefly describe them and
identify the part of the Form 10-KSB (e.g., Part I, Part II, etc.) into
which the document is incorporated: (1) any annual report to security
holders; (2) any proxy or information statement; and (3) any
prospectus filed pursuant to Rule 424(b) or (c) of the Securities Act of 1933,
as amended (“Securities Act”).
Not
Applicable.
TABLE
OF CONTENTS
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Item
Number and Caption
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Page
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Forward-Looking
Statements
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2
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PART
I
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3
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1.
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Description
Of Business
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3
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2.
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Description
Of Property
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8
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3.
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Legal
Proceedings
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30
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4.
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Submission
Of Matters To A Vote Of Security Holders
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30
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PART
II
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31
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5.
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Market
For Common Equity, Related Stockholder Matters And Small Business
Issuer
Purchases Of Equity Securities
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31
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6.
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Plan
Of Operation
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36
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7.
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Financial
Statements
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41
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8.
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Changes
In And Disagreements With Accountants On Accounting, And Financial
Disclosure
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41
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8A.
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Controls
And Procedures
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43
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8B.
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Other
Information
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44
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PART
III
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44
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9.
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Directors,
Executive Officers, Promoters And Control Persons and Corporate
Governance; Compliance With Section 16(a) Of The Exchange
Act
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44
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10.
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Executive
Compensation
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48
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11.
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Security
Ownership Of Certain Beneficial Owners And Management And Related
Stockholder Matters
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50
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12.
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Certain
Relationships And Related Transactions and Director
Independence
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51
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13.
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Exhibits
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52
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14.
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Principal
Accountant Fees And Services
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60
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FORWARD-LOOKING
STATEMENTS
Except
for historical information, this report contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section
21E
of the Securities Exchange Act of 1934. Such forward-looking statements involve
risks and uncertainties, including, among other things, statements regarding
our
business strategy, future revenues and anticipated costs and expenses. Such
forward-looking statements include, among others, those statements including
the
words “expects,” “anticipates,” “intends,” “believes” and similar language. Our
actual results may differ significantly from those projected in the
forward-looking statements. Factors that might cause or contribute to such
differences include, but are not limited to, those discussed in the sections
“Description of Business – Risk Factors” and “Plan of Operation.” You
should carefully review the risks described in this Annual Report and in other
documents we file from time to time with the Securities and Exchange Commission.
You are cautioned not to place undue reliance on the forward-looking statements,
which speak only as of the date of this report. We undertake no obligation
to
publicly release any revisions to the forward-looking statements or reflect
events or circumstances after the date of this document.
Although
we believe that the expectations reflected in these forward-looking statements
are based on reasonable assumptions, there are a number of risks and
uncertainties that could cause actual results to differ materially from such
forward-looking statements. These factors include among others:
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The
risks associated with oil and gas
exploration;
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Our
ability to raise capital to fund capital
expenditures;
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Our
ability to find, acquire, market, develop and produce new
properties;
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Oil
and gas price volatility;
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Uncertainties
in the estimation of proved reserves and in the projection of future
rates
of production and timing of development
expenditures;
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Operating
hazards attendant to the natural gas and oil
business;
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Downhole
drilling and completion risks that are generally not recoverable
from
third parties or insurance;
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Availability
and cost of material and equipment;
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Delays
in anticipated start-up dates;
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Actions
or inactions of third-party operators of our
properties;
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Our
ability to find and retain skilled
personnel;
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Regulatory
developments;
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Environmental
risks; and
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General
economic conditions.
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All
references in this Form 10-KSB to the “Company,” “True North,” “we,” “us” or
“our” are to True North Energy Corporation. All references to share amounts in
this Form 10-KSB give retroactive effect to a 5:1 forward stock split that
was
effected by the Company on April 18, 2006.
PART
I
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ITEM 1.
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DESCRIPTION
OF BUSINESS
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Company
Overview
We
are
engaged in the acquisition, exploration, development and production of oil
and
gas properties in Alaska, Texas and Colorado. During the year ended April 30,
2007 we also participated in oil and gas exploration activities in Louisiana.
We
first became an oil and gas exploration and development company in February
2006, but until the September 19, 2007 closing of a Purchase and Sale Agreement
with Prime Natural Resources, Inc. had no developed reserves or production,
and
had not realized any revenues from our operations. We were incorporated in
Nevada in April 2004 under the name Ameriprint International Ltd. to engage
in
the business of providing printing and packaging solutions to entities of all
sizes and to specialize in providing templated, low cost, quality printing
of
high volume, high turnover print materials. We conducted minimal operations
in
this area and discontinued these operations in January 2006.
Alaska
Properties
Our
principal Alaska assets consist of oil and gas leases covering approximately
35,000 acres in the Cook Inlet (25,000 acres) and Beaufort Sea (“North Slope”)
(10,000 acres) areas of Alaska, the rights to which we acquired during January
and May 2006. All of the North Slope and Cook Inlet leases have been registered
in our name.
Presently,
we hold a 100% working interest in our Alaska leases but may elect to sell
a
portion of our interests at some point in the future. The Cook Inlet leases
provide for a net revenue interest of 87.5% prior to an overriding 5% royalty.
The North Slope leases provide for a net revenue interest of approximately
83.3%
prior to an overriding 5% royalty. We pay annual rental fees of approximately
$48,000 on the Cook Inlet leases and approximately $16,000 on the North Slope
leases.
In
connection with our acquisition of the Cook Inlet leases we are obligated to
drill or cause to be drilled, at our expense, on or before November 27, 2010,
a
test well to completion or abandonment, on at least one of three designated
Cook
Inlet leases, to a bottomhole depth and location at lease sufficient to test
both the West Foreland and the Hemlock formations. Failure to drill the test
well during that time period, to completion or abandonment, will result in
our
forfeiture of the three designated leases. These designated leases cover
approximately 17,150 acres. In connection with our acquisition of the North
Slope leases we are obligated to drill or cause to be drilled, at our expense,
on or before March 1, 2012, to completion or abandonment, a test well on each
of
the four leases comprising our North Slope leases, to a bottom hole depth and
location of at least 4,000 feet. Our failure to do so with respect to any such
leases during this time period will result in our forfeiture of the North Slope
lease or leases to which such failure relates.
On
November 6, 2007 we entered into a pooling agreement (the “Pooling Agreement”)
with Savant Alaska, LLC (“Savant“), which was given effect as of July 1, 2007.
Savant holds leases for the exploration and production of oil and natural gas
in
an area of Alaska that is contiguous to certain of our North Slope Alaskan
interests. Under the Pooling Agreement, we and Savant agreed that we would
pool
certain leasehold interests, on a net acreage basis, and further agreed to
jointly drill a test well within the Savant Kupcake Prospect. The test well
was
planned to be drilled to a depth of 11,000 feet in order to test the Kemik
formation. We were unable to raise our share of the test well drilling costs
in
time, which would have resulted in our earning a working interest within the
pooled area of approximately 8.5%, and in January 2008 the Pooling Agreement
was
terminated by mutual agreement. Effective January 23, 2008 however, we entered
into an Acreage Contribution Contract (the “Contract”) with Savant, pursuant to
which we agreed to conditionally assign to Savant the part of our leasehold
interest that was to be the subject of the Pooling Agreement (the “Lease
Acreage”) in exchange for Savant’s drilling a test well within the Kupcake
Prospect and allowing us to potentially earn a working interest of up to 2%
in
the future production unit if the test well was successful. Savant and its
partners commenced drilling the test well in March 2008 and completed drilling
in April 2008 upon reaching a depth of 10,686 feet. At such time, Savant decided
to plug and abandon the test well as it did not result in a commercial discovery
of crude oil or natural gas reserves. The entire cost, expense, risk of
drilling, production testing, plugging and abandoning of the test well was
borne
by Savant and its drilling partners. Savant has met all of the requirements
under the Contract. Accordingly, we are in the process of assigning part of
one
of our North Slope leases (approximately 90 acres) as contribution acreage
to
Savant. We anticipate that the assignment will be completed by the end of 2008.
We continue to hold a 100% working interest in the remaining acreage
(approximately 9,910 acres).
Colorado
Properties
In
June
2007 we acquired certain oil and gas interests and properties in northwest
Colorado in an area covering more than 17,000 acres. At the time of acquisition
and presently, these oil and gas interests had no production. We hold a 100%
working interest in the leases comprising part of the acquired assets. The
acquired leases expire in 2016. We continue to refine our development plans
for
the area. The purchase price for the interests and properties was approximately
$1.4 million, together with an overriding royalty of one to three percent based
on the applicable net revenue interest remaining after the landowner’s royalty
and existing burdens have been deducted. The purchase price was paid $345,477
in
cash and $1,064,000 in shares of our restricted common stock. Pursuant thereto,
on July 6, 2007 we issued 1,832,769 shares of common stock to the seller. In
January 2007 we had loaned $180,000 to the seller. Interest, at an annual rate
of 5%, was due on the loan until paid. The loan, together with all interest
due
thereon, was collected in full at the closing of the
acquisition.
Texas
Properties
On
August
31, 2007 our wholly owned subsidiary, ICF Energy Corporation (“ICF“), entered
into a Purchase and Sale Agreement (the “Agreement”) with Prime Natural
Resources, Inc., a Texas corporation (“Prime”) pursuant to which, on September
19, 2007, ICF acquired certain oil and gas properties and related assets (the
property and assets are hereinafter collectively referred to as the “Prime
Assets”) located in Brazoria County, Texas from Prime for approximately $3.7
million, including closing and other transaction-related costs. The purchase
price was paid with a combination of cash ($2.4 million), 1,928,375 shares
of
our restricted common stock valued at approximately $926,000, and the assumption
of certain liabilities totaling approximately $343,000. The Prime Assets
included the Devon Fee Unit and the O’Leary Unit No. 1 and covered an aggregate
of approximately 1,150 acres. The Prime Assets included two producing wells
with
an estimated 701,772 Mcfe of proved reserves to the Company as well as three
additional exploration prospects in the Old Ocean Unit in Brazoria County,
Texas. Daily production currently approximates 500,000 standard cubic feet
per
day of gas and six barrels of oil per day, net to the Company. As discussed
in
greater detail below under “Valens Securities Purchase Agreement,” we financed
the purchase of the Prime Assets through the issuance of an aggregate of
$3,750,000 in secured promissory notes.
Drilling
and Exploration Activities
We
participated in the drilling of five exploratory oil and gas wells in Louisiana
and Texas during the year ended April 30, 2007. None of these exploratory wells
resulted in a commercial discovery. We expended approximately $6.3 million
in
connection with our participation in such drilling activities. Our working
interests in these wells ranged from 8.75% to 25.0% and our share of the related
capital expenditures varied from 11.7% to 33.3%. The five exploratory wells
consisted of the Frost National Bank Deep Prospect (“McLean #1 Well”) in Live
Oak County Texas, the Zodiac II prospect in Jefferson Davis and Calcasieu
Parishes in Louisiana (the “Walker LA Properties Findley #19-1 Well”), the
Deweyville Prospect (“Hankamer #1 Well”) located in Newton County Texas and
Calcasieu Parish in Louisiana, and two wells in Pointe Coupee Parish, Louisiana
that were drilled pursuant to our October 1, 2006 and January 1, 2007
Development Agreements with BP America Production Company (the “O. Jarreau Heirs
No. 1 Well” and “A. Major Heirs No. 1 Well”). Other than our participation in
the Savant well as previously described, we did not participate in exploration
or drilling activities during the year ended April 30, 2008.
Advisory
Board
On
October 5, 2006 we created an advisory board and appointed five persons to
serve
thereon. Each advisory board member (an “Advisor”) is independent and has an
extensive background in oil and gas and/or financial matters including but
not
limited to corporate governance, compliance, deal flow, and technical matters
such as geosciences, drilling, engineering and risk management. The Advisors
provide us with advice and assistance with strategic business and financial
matters. Each Advisor devotes a minimum of 30 days annually to the provision
of
the advisory services. We have entered into engagement letters with each of
the
Advisors. Thereunder, the term of engagement of each Advisor is one year. Each
Advisor and we have the right to terminate the engagement upon 30 days prior
written notice. The engagement will be automatically extended for additional
one
year periods, if not terminated by us or the Advisor at least 30 days prior
to
the applicable anniversary date. Pursuant to the extension provision, the
engagement of each of our Advisors was extended for an additional one year
period as of October 5, 2007. In consideration of the services being provided,
each Advisor is entitled to receive the following:
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50,000
shares of our restricted common stock payable at the end of each
year of
service;
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A
quarterly fee consisting of 5,000 shares of our restricted common
stock
payable within ten days of the end of each fiscal quarter; and
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Reimbursement
of all reasonable and customary out of pocket business expenses incurred
in the performance of his duties under the letter agreement. Expenses
in
excess of $5,000 require prior approval by us.
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The
advisory board consists of James Gouveia, George Lindahl III, J. Lanier Yeates,
Jeffrey B. Ahbe, and Neville W. Patterson. The background of each Advisor is
provided below.
James
(Jim) Gouveia, P. Eng.
Mr.
Gouveia is a Partner in Rose & Associates LLP., a Houston, Texas based firm
that provides consultancy and training services to exploration and production
companies in designing, implementing and sustaining risk analysis systems.
He is
a lead partner for S.E. Asia and the Russian Federation. Mr. Gouveia is a
recognized expert in portfolio and project risk management and has 27 years
of
experience as a practicing reservoir engineer, commercial analyst, evaluations
engineer, and multi-disciplinary sub-surface manager. He has provided expert
guidance to major oil and gas industry clients on the characterization and
economic analysis of tight gas, heavy oil, international, offshore development
and coal bed methane unconventional resource. Mr. Gouveia has provided
independent reserve and chance assessments for exploration prospects in major
oil and gas basins all over the world. He is an active member of the petroleum
industry in the major oil and gas centers in North America - Calgary, Denver,
Houston and New Orleans. Mr. Gouveia is a past Director of Risk Management
for
Amoco Energy North America and holds a Bachelor of Applied Science degree in
Chemical Engineering from the University of Toronto.
George
Lindahl III
Mr.
Lindahl was a Managing Partner in Sandefer Capital Partners located in Houston,
Texas from 2002 to 2007. Mr. Lindahl is a past Vice Chairman of Anadarko
Petroleum and past Chairman and CEO of Union Pacific Resources. He served as
an
Executive Vice President of Walker Energy and has over 30 years of oil and
gas
industry experience within both technical arenas as a geologist and a
geophysicist and in executive and managerial roles. Mr. Lindahl currently serves
as a Board Member of the Houston Museum of Natural Science, the Goodwill of
Houston, the Foundation Board of US Oncology and the Cynthia Woods Mitchell
Pavilion. He is currently a Director of EVEP, a public Exploration and
Production Master Limited Partnership. Mr. Lindahl graduated from the University
of Alabama with a Bachelor of Science in Geology. He has completed Graduate
Studies at Tulane University and is a graduate of the Advanced Management
Program at the Harvard Business School.
J.
Lanier Yeates
Mr.
Yeates is a partner of the Gordon Arata McCollam & Eagan Law Firm resident
in the Houston office of the firm. He is licensed to practice law in Texas
and
Louisiana. His practice is focused on the energy industry. Mr. Yeates has taught
Louisiana Oil and Gas Law as a member of the Adjunct Faculty of the University
of Houston Law Center and has served as both a member of the Advisory Council
of
the Louisiana Mineral Law Institute and its Chairman for multiple terms. Mr.
Yeates served as Vice-Chairman of the American Bar Association Energy Policy
Committee and the Oil & Natural Gas Exploration and Production Committee. He
has served on the Technical Subcommittee of the AAPL-OCS Committee’s Deepwater
Offshore Operating Agreement Model Form Subcommittee, which developed a
deepwater offshore operating agreement that was adopted in 2000 by the AAPL
as a
model form. Mr. Yeates was appointed for two terms by Governor George W. Bush
and served as Vice Chairman of the Spindletop Centennial Celebration Commission
and planned the 100th anniversary celebration of the discovery of the Lucas
Gusher in the Spindletop Field.
Mr.
Yeates currently serves as Chairman of the Board of Directors of the LSU
Foundation and Chairman of Campanile Charities, Inc. He is a past President
of
the LSU Law Alumni Association. His memberships include the United States
Supreme Court Bar Association, the State Bar of Texas, and the College of the
State Bar of Texas, the Pro-Bono College of the State Bar of Texas, the
Louisiana State Bar Association, the American Bar Association, the Houston
Bar
Association, and the American Law Institute. Mr. Yeates is a graduate of the
Louisiana State University Law School where he served as Associate Editor of
the
Louisiana Law Review and was graduated Order of the Coif. Mr. Yeates has
published numerous articles and other publications and has been a frequent
speaker on subjects of importance to the energy industry. In 2004, he published
his first novel, Bay of One Hundred Fires.
Jeffrey
B. Ahbe
Mr.
Ahbe
is the President of Ahbe Capital Investment Group Inc., located in Denver,
Colorado and is a co-founder of PMT Energy LLC. Mr. Ahbe’s oil and gas career
spans over 23 years. He has served as an Executive Vice President of Union
Pacific Resources Canada and held numerous executive positions with that company
including General Manager of North America operating divisions. While at Union
Pacific, Mr. Ahbe was a key member of the team that completed the acquisition
of
Norcen Canada and the merger between Union Pacific Resources and Anadarko
Petroleum. Mr. Ahbe has worked extensively over the years with the financial
and
investment banking communities and has worked with corporate and regulatory
leaders in the United States, Canada and overseas. Mr. Ahbe is currently a
member of the board of Eastern Platinum Limited (trading on Toronto and London
exchanges), Barplats Investments Limited (trading on the Johannesburg Stock
Exchange), and is a director and principal of several privately held companies,
including First Platinum Inc. Pty. (S.A.), SRH LLC, Montana Eagle LLC, and
Hat
Tricks Inc. Mr. Ahbe has served as a past director of the Colorado Oil and
Gas
Association. He received both his Bachelors and Masters of Sciences Degrees
from
Purdue University and has completed the Executive Program in Business at
Northwestern University’s Kellogg Business School.
Neville
W. Patterson
Mr.
Patterson is the President and Founder of W. A. Fritze (North America) Inc.,
a
privately held international bulk wine and spirits-alcohol trading company.
The
company’s business activities and focus is the procurement, sale and ocean
shipment of bulk alcohol products between suppliers and purchasers located
in
North America, Europe, South Africa and South America.
Mr.
Patterson graduated as an accountant in Cape Town, South Africa and possesses
30
plus years of international corporate and entrepreneurial experience spanning
four continents. Previously he served in various senior corporate finance and
treasury positions while in the employ of Mobil Oil, Turbo Resources, Unilever
and Wiggins Teape (formerly a subsidiary of British America Tobacco). During
his
career he has developed an extensive specialized knowledge of certain offshore
financial and commodity markets and has been involved in advising and
facilitating business strategies and in the development of new markets for
those
companies wishing to expand into markets where he is already
established.
Note
Financing
Effective
March 30, 2007 we issued and sold a $500,000 Convertible Promissory Note (the
“Note”) to a single investor (the “Noteholder”) respecting a loan of which we
received $250,000 during April 2007 and the remaining $250,000 during May 2007.
The Note bore interest at the rate of 8% per annum. Subject to prior conversion
or acceleration, the principal balance of the Note was due in a single payment
on March 30, 2010. Interest was payable semi-annually with the first such
interest payment due on October 1, 2007. In the event we completed an offering
(the “Offering”) of $10 million or more of equity or debt securities within 90
days of the date of the Note (the “Offering Completion Date”), the Note,
including any accrued and unpaid interest, was to be automatically converted
into like shares or securities issued by us in the Offering on the same terms
that such like shares or securities were purchased by subscribers in the
Offering. The amount of like shares or securities so issued was to be based
on
the amount of principal and interest converted.
In
the
event an Offering was not completed by the Offering Completion Date, which
was
the case, we became obligated to issue common stock purchase warrants (the
“Warrants”) to the Noteholder. The Warrants were to be exercisable for a period
of three years commencing on the date of issuance of the Warrants. The number
of
shares of our common stock issuable upon exercise of the Warrants and the
exercise price was to be calculated based upon the average closing price of
our
common stock for the 20 business days preceding the date of the Note (the
“Average Price”). The number of shares that the Noteholder was to be entitled to
purchase upon exercise of the Warrants was to be calculated by dividing the
principal amount of the Note by the Average Price. Fractional shares resulting
from the calculation were to be rounded up to the next whole share. The exercise
price of the Warrants was to be equal to 140% of the Average
Price.
In
August
2007 we cancelled our $500,000 convertible promissory note dated March 30,
2007
(the “Cancelled Note”) and replaced it with two $250,000 convertible promissory
notes, dated April 10, 2007 and May 15, 2007, respectively (the “Replacement
Notes”). The holder of the Cancelled Note agreed to the cancellation and
replacement as the date of the new notes reflected the actual dates on which
funds were received by us from the holder. Except for timeline changes owing
to
the dates of the Replacement Notes, the Replacement Notes contain the same
material terms as the Cancelled Note. They bear interest at the rate of 8%
per
annum and subject to prior conversion or acceleration, note principal is due
in
a single payment on the third anniversary of the date of the note. Interest
on
the Replacement Notes is payable semi-annually with the first of such interest
payments due the first day of the first month following 180 days from the
respective dates of the Replacement Notes.
Pursuant
to the terms of the April 10, 2007 Replacement Note, on August 30, 2007 we
issued 182,249 common stock purchase warrants to the holder, each exercisable
for the purchase of one share of our common stock for a period of 3 years from
issuance at a price of $1.92 per share. Pursuant to the terms of the May 10,
2007 Replacement Note, on August 30, 2007 we issued 298,330 common stock
purchase warrants to the holder, each exercisable for the purchase of one share
of our common stock for a period of 3 years from issuance at a price of $1.17
per share. In connection with the Valens financing discussed below, the holder
of the Replacement Notes entered into a subordination agreement in which it
agreed to take a junior position to that of the Valens entities.
August
2007 Bridge Financing
On
August
23, 2007 we received an aggregate of $250,000 in loan proceeds from two persons
(the “Lenders”) and issued to each of the Lenders a secured promissory note in
the principal amount of $125,000 (each a “Note” and collectively the “Notes”).
Each Note bore interest at the rate of 12% per annum. Subject to earlier
payment, at our option, interest on the unpaid principal amount of each Note
was
payable in monthly installments commencing September 1, 2007 and principal
was
due and payable on the earlier of November 19, 2007 or 15 days following the
closing of the asset acquisition we had entered into with Prime. If all interest
and principal due on the Note was not paid on or before November 19, 2007 the
interest rate was to be increased to 24% per annum from November 19, 2007 until
the Note was repaid in full.
Until
paid in full, each Note was secured by 1,250,000 shares of our restricted common
stock (the “Stock”) standing in the name of Massimiliano Pozzoni or John
Folnovic. In connection therewith, we made, executed, acknowledged, delivered
and filed such documents and instruments, including without limitation a
financing statement on Form UCC-1, as was reasonably necessary, to effect
complete, or perfect the security interest of the Lenders in the Stock. Pursuant
to the Notes we issued 50,000 shares (the “Shares”) of our restricted common
stock to and in the name of each Lender. At the loan closings, we paid each
Lender a cash fee of $3,750 to reimburse them for the costs and expenses
incurred by them in connection with the loan transaction. We further agreed
to
pay the reasonable fees and disbursements of their respective legal counsels
in
connection with the enforcement of their rights under the Notes. On September
19, 2007 the Notes were repaid in full from proceeds received pursuant to the
Valens Securities Purchase Agreement discussed below.
Valens
Securities Purchase Agreement
On
September 18, 2007 we and our wholly-owned subsidiary ICF entered into a
Securities Purchase Agreement (the “Securities Purchase Agreement”) with Valens
U.S. SPV I, LLC (“Valens US”), a Delaware limited liability company in its
capacity as Agent and with Valens US and Valens Offshore SPV II, Corp. in their
capacities as purchasers (the “Purchasers”). Pursuant to the Securities Purchase
Agreement, we and ICF sold secured term notes (the “Secured Notes”) to the
Purchasers in the aggregate principal amount of $3,750,000, following which
the
Purchasers became our and ICF's senior secured lenders. At closing, on September
19, 2007, we utilized approximately $2,260,000 of the Secured Notes proceeds
to
pay Prime the balance of the cash component of the purchase price due to Prime
under the Prime Purchase Agreement entered into on August 31, 2007. On September
19, 2007, we also issued 1,928,375 shares of our common stock to Prime
representing payment of the stock component of the purchase due to Prime under
the Prime Purchase Agreement.
The
cash
and stock payments allowed us to complete ICF’s acquisition of certain oil and
gas assets of Prime including two producing wells with an estimated 701,772
Mcfe
of proved reserves, net to the Company. All revenues from these producing assets
and all other assets owned by ICF are required to flow through a controlled
lockbox account to insure that part of such revenues will be used to repay
the
obligations under the Secured Notes. In the event of a default by us or ICF
under the Securities Purchase Agreement, the Secured Notes or any related
agreements, the Purchasers will have the right to block the account until the
default is remedied. Repayment of the Secured Notes and satisfaction of our
and
ICF’s other obligations under the Securities Purchase Agreement and related
agreements has been secured by the grant of liens and other security interests
on all of our and ICF’s principal assets. To further secure the debt, we have
pledged our ICF shares to the Purchasers.
In
addition to the foregoing, pursuant to the Securities Purchase Agreement and
related agreements:
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we
issued common stock purchase warrants to the Purchasers to purchase
up to
an aggregate of 1,953,126 shares of our common stock (the “Company
Warrants”);
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ICF
issued common stock purchase warrants to the Purchasers to purchase
up to
an aggregate of 1,000 shares of common stock of ICF (the “ICF Warrants”);
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ICF
issued to the Purchasers an aggregate 5% overriding royalty interest
in
the oil and gas properties of ICF which reduces to an aggregate 3%
overriding royalty interest upon the payment in full of the Secured
Notes;
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we
and ICF paid to the Purchasers and/or Valens Capital Management,
LLC, the
investment manager for the Purchasers an aggregate of approximately
$336,000 consisting of transaction fees, advance prepayment discount
deposits, due diligence fees and the reimbursement of expenses (including
legal fees and expenses) incurred by the Purchasers in connection
with the
entering into of the Securities Purchase Agreement and related agreements;
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we
and ICF agreed to negative covenants customary for transactions of
this
type;
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we
and ICF granted registration rights to the Purchasers with respect
to the
shares underlying the Company and ICF warrants;
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we
and ICF granted the Purchasers a right of first refusal to provide
additional financing sought by us, ICF, or our respective subsidiaries,
if
any, until such time as all obligations of ours and ICF to the Purchasers
have been paid in full excluding financing for the proposed Powder
River
Transaction, as hereinafter
defined;
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we
and ICF entered into an agreement with the Purchasers to negotiate
the
terms of a shareholders’ agreement between the Purchasers and the then
shareholders of ICF at such time, if ever, that the Purchasers exercise
the ICF warrants, such shareholders agreement to require ICF to seek
the
written approval of the Purchasers before taking certain actions;
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EH&P
Investments AG (“EH&P”), the holder of an aggregate of $500,000 of our
promissory notes entered into a subordination agreement with Valens
US, in
its capacity as agent for the Purchasers in which EH&P agreed to take
a junior position to that of the Purchasers;
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we
utilized approximately $252,384 of the net proceeds from the Secured
Notes
to pay off our August 23, 2007 secured promissory notes in the aggregate
principal amount $250,000;
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we
and ICF entered into a Collateral Assignment with Valens US, in its
capacity as agent for the Purchasers, whereby we and ICF assigned
to
Valens US for the ratable benefit of Valens US and the Purchasers
all of
our rights, but not the obligations, under the Prime Purchase Agreement
and related agreements;
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we
and ICF entered into a Master Security Agreement, dated September
18, 2007
whereby we assigned and granted to Valens US, as Agent, for the ratable
benefit of the Purchasers, a security interest in certain property
now
owned or at any time thereafter acquired by us or ICF, or in which
we or
ICF have or at any time in the future may acquire any right, title,
or
interest;
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we
paid $192,000, agreed to issue 300,000 common stock purchase warrants
with
an exercise price of $0.48 per share and granted piggyback registration
rights with respect to the shares underlying the warrants to a financial
advisor as a finder’s fee; and
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we
and ICF executed a post closing letter dated as of September 18,
2007 with
Valens US, in its capacity as Agent for the Purchasers, in which
Valens US
agreed to allow us to satisfy certain requirements under the Securities
Purchase Agreement on a post closing basis, the failure of which
to
achieve within the applicable time limits contained therein constitutes
an
event of default under the Securities Purchase Agreement and related
agreements.
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The
Secured Notes, which mature on September 18, 2010 (the “Maturity Date”), provide
for interest payments on the outstanding principal amount at the rate of 13%
per
annum payable monthly in arrears. Amortizing payments of principal are also
due
monthly. Commencing October 1, 2007 and on the first business day of such
succeeding month thereafter through and including the Maturity Date (each an
“Amortization Date”) we and ICF are required, jointly and severally, to make
monthly payments to the Purchasers in an amount equal to the monthly
Amortization Amount (which includes any accrued and unpaid interest on such
portion of the principal amount) plus any and all other unpaid amount which
are
then owing under the Notes, the Purchase Agreement and/or any related
agreements. For each Amortization Date during the period ending on September
18,
2008, Amortization Amount means an amount equal to the greater of (i) $100,000
and (ii) sixty percent (60%) of the net revenue (the “Net Revenue Amount”)
relating to all oil and gas properties of ICF (collectively, the Oil and Gas
Properties”) for the calendar month immediately preceding the applicable
Amortization Date and (b) for each Amortization Date thereafter, an amount
equal
to the greater of (i) $100,000 and (ii) eighty percent (80%) of the Net Revenue
Amount relating to the Oil and Gas Properties for the calendar month immediately
preceding the applicable Amortization Date, provided, however, such percentage
will increase to one hundred percent (100%) upon the occurrence and during
the
continuance of an event of default.
The
Company Warrants are exercisable at any time during the five year period ending
September 18, 2012 at an exercise price equal to the lesser of (i) $0.48 per
share or, (ii) if the transactions contemplated by a purchase and sale agreement
involving oil and gas assets and properties in Wyoming’s Powder River Basin (the
“Powder River Transaction”) being negotiated between us and Angel LLC, CN Energy
LLC, Swanson Energy Company, LLC, Fuel Exploration, LLC, MHBR Energy LLC, and
Rocky Mountain Rig LLC (collectively the “Sellers”) had
been consummated, a price equal to the then fully diluted price per share
of the Company common stock issued by us to the Sellers in connection with
such
purchase and sale agreement. The Company Warrants contain customary adjustment
provisions for events affecting the Company and its common stock. The Powder
River Transaction was not consummated because we were unable to raise the funds
necessary to consummate that acquisition.
The
ICF
Warrants were only exercisable in the event the Powder River Transaction was
not
consummated on or before January 18, 2008. As that did not happen, the ICF
Warrants are presently exercisable. The exercise price of the ICF Warrants
is
$0.01 per share. The ICF Warrants contain a cashless exercise provision and
customary adjustment provisions for events affecting ICF and its common stock.
The Purchasers have been granted registration rights with respect to the ICF
Warrants.
On
March
31, 2008 the Purchasers made an additional advance to us in the aggregate amount
of $425,000. The September 18, 2007 and March 31, 2008 advances are now
evidenced by March 31, 2008 Amended and Restated Notes in the aggregate
principal amount of $3,931,883. In consideration of the March 31, 2008 advance
we paid certain fees and expenses aggregating to approximately $34,370 to the
Purchasers and affiliated parties and issued an aggregate of 1,739,130 shares
of
our restricted common stock (the “Shares”) to the Purchasers. In connection
therewith, we entered into a March 31, 2008 Registration Rights Agreement with
the Purchasers pursuant to which we granted the Purchasers demand registration
rights with respect to the Shares.
The
demand registration rights are exercisable in the event the Purchasers determine
that they are unable to sell all of the Shares pursuant to Rule 144 under the
Securities Act of 1933, as amended. Upon receipt of a demand notice from the
Purchasers, we are required to file a registration statement covering the resale
of the Shares no more than 30 days thereafter and to have the registration
statement declared effective no later than 30 days following the filing date
in
the event the SEC determines not to review the registration statement or 90
days
following the filing date if the SEC determines to review the registration
statement. Notwithstanding the foregoing, we shall have 120 days following
the
filing date to have the registration statement declared effective if the SEC
issues more than two comment letters on the registration statement. Our failure
to file the registration statement on time, have it declared effective on time,
or maintain its effectiveness, will result in our having to pay liquidated
damages to the Purchasers in an amount equal to $4,250 for each 30 days period
(prorated for partial periods) that we are in default subject to a maximum
cap
of $42,500. We are not obligated to effect more than two demand registrations
under the Registration Rights Agreement.
Prime
Consulting Agreements
On
December 21, 2007 we entered into a nine-month consulting agreement (the
‘Consulting Agreement”) with Prime pursuant to which Prime provides us with
bookkeeping, accounting, financial reporting and related services. The
Consulting Agreement was given retroactive effect to October 1, 2007, the date
on which Prime began rendering such services. As compensation for the services
rendered to us by Prime under the Consulting Agreement we paid Prime a monthly
cash fee of $5,000 and also paid Prime a quarterly fee in the form of shares
of
our common stock valued at $45,000 payable at the end of each of the quarters
ended December 31, 2007, March 31, 2008 and June 30, 2008. The number of shares
issuable to Prime for each quarterly period is determined by taking the average
closing price of our common stock during the last five business days of each
month during the quarter and apportioning such number of shares equal to the
amount of $15,000 for each of the three months comprising the quarter. We have
granted Prime piggyback registration rights with respect to these share
payments. The Consulting Agreement also provides for the payment of expense
reimbursement to Prime. On January 30, 2008 we issued 167,101 shares to Prime
constituting payment of the stock fee due to Prime under the Consulting
Agreement for the three months ended December 31, 2007. On June 19, 2008 we
issued 176,179 shares to Prime constituting payment of the stock fee due to
Prime under the Consulting Agreement for the three months ended March 31, 2008.
A total of 182,193 shares are payable to Prime, but have not yet been issued,
relative to payment of the stock fee due Prime under the Consulting Agreement
for the three months ended June 30, 2008.
On
June
30, 2008 we entered into a twelve month consulting agreement with Prime which
is
identical, in all material respects, to the December 21, 2007 Consulting
Agreement, except that it has a twelve-month term and provides for a quarterly
stock fee valued at $60,000.
Charter
Amendment to Increase Authorized Capital
By
written consents dated May 4, 2007 our board of directors and our stockholders
holding 34,750,000 (approximately 53.7%) of our outstanding common shares on
May
4, 2007 authorized us to amend our Articles of Incorporation to increase our
authorized capital stock from 120 million shares consisting of 100 million
shares of common stock, $0.0001 par value and 20 million shares of preferred
stock, $0.0001 par value to 270 million shares, consisting of 250 million shares
of common stock, $0.0001 par value and 20 million shares of preferred stock,
$0.0001 par value. The amendment required the affirmative vote of a majority
of
the outstanding shares of common stock entitled to vote thereon. There were
no
dissenters’ rights applicable to the amendment. Our stockholders were provided
with notice of the proposed amendment. We filed the Certificate of Amendment
to
our Articles of Incorporation on October 9, 2007.
Principal
Products and Services
We
have
limited oil and gas producing properties. We need to raise a significant amount
of capital to pay for our planned exploration and development activities. If
we
cannot raise the capital we require or find partners that can fund our required
expenditures, we will not be able to drill and our business will fail. Even
assuming that we obtain the financing we require, if we do not discover and
produce additional commercial quantities of oil and natural gas, we will have
minimal products or services to offer and our business could fail.
Competitive
Business Conditions
The
oil
and natural gas industry is highly competitive. We compete with private and
public companies in all facets of the oil and natural gas business. Numerous
independent oil and gas companies, oil and gas syndicators, and major oil and
gas companies actively seek out and bid for oil and gas prospects and properties
as well as for the services of third-party providers, such as drilling
companies, upon which we rely. Many of these companies not only explore for,
produce and market oil and natural gas, but also carry out refining operations
and market the resultant products worldwide. Most of our competitors have longer
operating histories and substantially greater financial and other resources
than
we do.
Competitive
conditions may be affected by various forms of energy legislation and/or
regulation considered from time to time by the government of the United States
and other countries, as well as factors that we cannot control, including
international political conditions, overall levels of supply and demand for
oil
and gas, and the markets for synthetic fuels and alternative energy
sources.
In
an
effort to achieve operating efficiency, we intend to rely on independent
contractors to assist in conducting our operations including the provision
of
technical, geological, geophysical and financial reports on our leased
properties. Because of current high-energy prices, lead times necessary to
acquire drilling rigs or the services of independent contractors in the industry
are high. As a result, we may not be able to compete successfully and
competitive pressures may adversely affect our business, results of operations
and financial condition.
Patents,
Trademarks and Licenses
We
do not
own any patents, trademarks, copyrights or other forms of intellectual
property.
Need
for Governmental Approval and the Effects of Regulations
We
presently are subject to various laws and regulations of the United States,
as
well as the states and municipalities in which we operate that govern the
exploration, development and production of oil and natural gas. The Alaska
Department of Natural Resources - Division of Oil and Gas and the Alaska Oil
and
Gas Conservation Commission determine most of the procedures and regulations
that concern oil and gas exploration and production activities in Alaska. The
Railroad Commission of Texas - Oil and Gas Division determines most of the
procedures and regulations that concern oil and gas exploration and production
activities in Texas. The Colorado Oil and Gas Conservation Commission determines
most of the procedures and regulations that concern oil and gas exploration
and
production activities in Colorado. We also are subject to, or will be subject
to, regulation by, among others, the Alaska Department of Commerce, Community
and Economic Development; the Alaska Department of Fish and Game; the U.S.
Environmental Protection Agency; the U.S. Fish and Wildlife Service; and the
U.S. Department of the Interior Bureau of Land Management. We will have to
abide
by and follow the procedures established by the above agencies. These procedures
are generally designed to prevent pollution, to provide funds or procedures
for
cleaning up air pollution that cannot be prevented, and generally to protect
land, water, air, flora and fauna from unnecessary or undue damage or
disturbance.
Research
and Development
We
have
not performed any research and development since our inception.
Employees
John
Folnovic serves as our President and Chief Executive Officer. Massimiliano
Pozzoni, our largest shareholder, serves as our Secretary, Treasurer and
Principal Financial Officer.
We
have
used a number of independent contractors on an as-needed basis to conduct our
operating activities and expect to continue to do so. Our management team will
select and hire these independent contractors and manage and evaluate their
work
performance. We intend to use various independent contractors to provide
technical, geological, geophysical and financial reports on our properties.
We
are
not subject to any collective bargaining agreements. We believe that our
relationships with our employee and independent contractors are
satisfactory.
Our
Business Strategy
For
a
description of our business strategy, see “Plan of Operation - Business
Strategy.
”
Risk
Factors
In
addition to the other information set forth elsewhere in this Form 10-KSB,
you
should carefully consider the following risk factors when evaluating us. The
trading price of our shares will be affected by the performance of our business
relative to, among other things, competition, market conditions and general
economic and industry conditions. The value of our shares may decrease,
resulting in a loss. The risk factors listed below are not all
inclusive.
RISKS
RELATED TO OUR COMPANY
We
have a history of operating losses which may
continue.
We
have a
history of losses and may continue to incur operating and net losses for the
foreseeable future. We incurred net losses of $11,783,731 and $9,069,110 during
the years ended April 30, 2008 and 2007, respectively. As of April 30, 2008,
our
accumulated deficit was $21,005,787. We have not achieved profitability on
a
quarterly or on an annual basis. We may not be able to reach a level of revenue
to achieve profitability. Our gross revenues for the years ended April 30,
2008
and 2007 were $1,225,735 and $0, respectively. If our revenues grow more slowly
than anticipated or if our operating expenses exceed expectations, then we
may
not be able to achieve profitability in the near future or at all, which may
depress the price for our common stock.
Our
auditors have indicated that our inability to generate sufficient revenue raises
substantial doubt as to our ability to continue as a going
concern.
Our
audited financial statements for the year ended April 30, 2008 were prepared
on
a going concern basis in accordance with United States generally accounting
principles. The going concern basis of presentation assumes that we will
continue in operation for the foreseeable future and will be able to realize
our
assets and discharge our liabilities and commitments in the normal course of
business. However, our auditors have indicated that our minimal revenues and
significant accumulated losses since February 1, 2006 (inception of exploration
stage) raise substantial doubt as to our ability to continue as a going concern.
In the absence of additional financing or significant revenues and profits,
we
may have to curtail or cease operations. However, we cannot guarantee that
will
be able to obtain sufficient additional funds when needed, or that such funds,
if available, will be obtainable on terms satisfactory to us. In the event
that
these plans cannot be effectively realized, there can be no assurance that
we
will be able to continue as a going concern.
Negative
covenants in the Securities Purchase Agreement governing our September 2007
secured term notes limit, among other things, our ability to incur debt, pay
dividends, raise additional capital, create liens on our properties and issue
equity securities with registration rights, which may impair our ability to
pursue our objectives.
The
September 18, 2007 Securities Purchase Agreement governing our September 18,
2007 secured term notes contains various negative covenants that limit, among
other things, our ability to incur debt, pay dividends, raise additional
capital, create liens on our properties and issue equity securities with
registration rights without the prior consent of the agent for our September
18,
2007 note holders. These negative covenants may impair our ability to pursue
our
business objectives. Any failure to comply with these covenants may constitute
a
breach under the September 18, 2007 Securities Purchase Agreement governing
our
September 18, 2007 notes that provides the holders of the September 18, 2007
notes with the right to require us to purchase all or any part of the then
outstanding principal amount of the September 2007 notes. We may not have
sufficient funds to purchase the September 18, 2007 notes upon such a
breach.
Rules
issued under the Sarbanes-Oxley Act of 2002 may make it difficult for us to
retain or attract qualified officers and directors, which could adversely affect
the management of our business and our ability to obtain or retain listing
of
our common stock.
We
may be
unable to attract and retain those qualified officers, directors and members
of
board committees required to provide for our effective management because of
rules and regulations that govern publicly held companies, including, but not
limited to, certifications by principal executive officers. The enactment of
the
Sarbanes-Oxley Act has resulted in the issuance of rules and regulations and
the
strengthening of existing rules and regulations by the SEC, as well as the
adoption of new and more stringent rules by the stock exchanges and NASDAQ.
The
perceived increased personal risk associated with these recent changes may
deter
qualified individuals from accepting roles as directors and executive
officers.
Further,
some of these recent changes heighten the requirements for board or committee
membership, particularly with respect to an individual’s independence from the
corporation and level of experience in finance and accounting matters. We may
have difficulty attracting and retaining directors with the requisite
qualifications. If we are unable to attract and retain qualified officers and
directors, the management of our business and our ability to obtain or retain
listing of our shares of common stock on any stock exchange or NASDAQ (assuming
we elect to seek and are successful in obtaining such listing) could be
adversely affected.
If
we fail to maintain an effective system of disclosure and internal controls,
we
may not be able to accurately report our financial results or detect fraud.
Consequently, investors could lose confidence in our financial reporting and
this may decrease the trading price of our stock.
We
must
maintain effective disclosure and internal controls to provide reliable
financial reports and detect fraud. Based on our evaluation as of April 30,
2008, we concluded that we do maintain effective disclosure controls and
procedures. Failure to implement changes to our controls that we may identify
in
the future as necessary to maintain an effective system of such controls could
harm our operating results and cause investors to lose confidence in our
reported financial information. Any such loss of confidence would have a
negative effect on the trading price of our stock.
We
have a limited operating history in the oil and gas business. Accordingly,
you
will have little basis upon which to evaluate our ability to achieve our
business objectives.
We
have
been an oil and gas company since February 1, 2006 and have minimal oil and
gas
operations and revenues. As an oil and gas exploration and development company
with a limited operating history, properties and related assets, it is difficult
for potential investors to evaluate our business. Our operations are therefore
subject to all of the risks inherent in the establishment of a new business
enterprise and must be considered in light of the expenses, difficulties,
complications and delays frequently encountered in connection with the formation
of any new business, as well as those risks that are specific to the oil and
gas
industry. Investors should evaluate us in light of the delays, expenses,
problems and uncertainties frequently encountered by companies developing
markets for new products, services and technologies. We may never overcome
these
obstacles.
Strategic
relationships upon which we may rely are subject to change, which may diminish
our ability to conduct our operations.
Our
ability to successfully acquire oil and gas businesses and properties, to
discover reserves, to participate in extraction opportunities, and to identify
and enter into commercial arrangements with customers will depend on our
developing and maintaining close working relationships with industry
participants and on our ability to select and evaluate suitable businesses
and
properties and consummate transactions in a highly competitive environment.
These realities are subject to change and may impair our ability to
grow.
To
develop our business, we will endeavor to use the business relationships of
our
management to enter into strategic relationships, which may take the form of
joint ventures with private parties and contractual arrangements with other
oil
and gas companies, including those that supply equipment and other resources
that we expect to use in our business. We may not be able to establish these
strategic relationships, or if established, we may not be able to maintain
them.
In addition, the dynamics of our relationships with strategic partners may
require us to incur expenses or undertake activities we would not otherwise
be
inclined to in order to fulfill our obligations to these partners or maintain
our relationships. If our strategic relationships are not established or
maintained, our business prospects may be limited, which could diminish our
ability to conduct our operations.
Competition
in obtaining rights to acquire and develop oil and gas reserves and to market
our production may impair our business.
The
oil
and gas industry is highly competitive. Other oil and gas companies may seek
to
acquire property leases and other properties and services that we also seek
to
acquire. This competition has become increasingly intense as the price of oil
and gas on the commodities markets has risen in recent years. Additionally,
other companies engaged in our line of business may compete with us from time
to
time in obtaining capital from investors. Competitors include larger companies,
which, in particular, may have access to greater resources, may be more
successful in the recruitment and retention of qualified employees, and may
conduct their own refining and petroleum marketing operations. The breadth
and
scope of these companies may provide them with a competitive advantage over
us.
In addition, actual or potential competitors may be strengthened through the
acquisition of additional assets and interests. If we are unable to compete
effectively or adequately respond to competitive pressures, this inability
may
materially adversely affect our results of operation and financial
condition.
The
natural resource industry is highly competitive in all aspects, including the
distribution and marketing of petroleum products. The oil and gas industry
competes with other industries in the supply of energy, fuel, and related
products to consumers. Development of new projects or expansion of existing
operations could materially increase the supply of oil and gas in the
marketplace. Depending upon the levels of future demand, increased supplies
could negatively impact the prices obtained for oil and gas.
We
may be unable to obtain additional capital that we will require to implement
our
business plan, which would restrict our ability to
grow.
We
have a
limited amount of working capital that will not be sufficient to fully fund
our
planned operations including participation in an increasing number of
development and exploration projects. We will require additional capital to
continue to operate our business beyond the initial phase and to expand our
operations. We may be unable to obtain the additional capital required.
Future
acquisitions, development, production and marketing activities, as well as
our
administrative requirements (such as salaries, insurance expenses and general
overhead expenses, as well as legal compliance and accounting expenses) will
require a substantial amount of additional capital and cash flow. We may not
be
successful in locating suitable financing transactions in the time period
required or at all, and we may not be able to obtain the capital we require
by
other means. If we do not succeed in raising additional capital, we may be
unable to fund our operations going forward.
Our
ability to obtain needed financing may be impaired by such factors as the
capital markets (both generally and in the oil and gas industry in particular),
our status as a relatively new enterprise without a demonstrated operating
history, the location of our oil and gas properties, the price of oil and gas
on
the commodities markets (which will impact the amount of asset-based financing
available to us), or the retention or loss of key management. Further, if oil
and gas prices on the commodities markets decrease, then our revenues will
likely decrease, and such decreased revenues may increase our requirements
for
capital. If the amount of capital we are able to raise from financing activities
is not sufficient to satisfy our capital needs, we may be required to curtail
or
cease our operations. Further, we may be forced to sell certain of our assets
in
an untimely fashion or on less than favorable terms.
We
may
incur substantial costs in pursuing future capital financing, including
investment banking fees, legal fees, accounting fees, securities law compliance
fees, printing and distribution expenses and other costs. We also may be
required to recognize non-cash expenses in connection with certain securities
we
may issue, such as convertible notes and warrants, which may adversely impact
our financial condition.
We
may not be able to effectively expand operations or manage our growth, which
may
harm our profitability.
Our
strategy envisions expanding our business. If we fail to effectively manage
our
growth, our financial results could be adversely affected. Growth may place
a
strain on our management systems and resources. We must continue to refine
and
expand our business development capabilities, our systems and processes, and
our
access to financing sources. As we grow, we must continue to hire, train,
supervise and manage new employees. We cannot assure you that we will be able
to:
|
|
·
|
meet
our capital needs;
|
|
|
·
|
expand
our systems effectively or efficiently or in a timely manner;
|
|
|
·
|
allocate
our human resources optimally;
|
|
|
·
|
identify
and hire qualified employees or retain valued employees; or
|
|
|
·
|
incorporate
effectively the components of any business that we may acquire in
our
effort to achieve growth.
|
If
we are
unable to manage our growth, our operations and our financial results could
be
adversely affected by inefficiency, which could diminish our profitability.
Our
business may suffer if we do not attract and retain talented
personnel.
Our
success will depend in large measure on the abilities, expertise, judgment,
discretion, integrity and good faith of our management and other personnel
in
conducting our intended business. We presently have a small management team
that
we intend to expand in conjunction with our planned operations and growth.
The
loss of a key individual or our inability to attract suitably qualified staff
could materially adversely impact our business. We presently do not maintain
“key man” life insurance on any member of our management team.
Our
success depends on the ability of our management and employees to interpret
market and geological data correctly and to interpret and respond to economic,
market and other conditions in order to locate and adopt appropriate investment
opportunities, monitor such investments, and ultimately, if required, to
successfully divest such investments. Further, no assurance can be given that
our key personnel will continue their association or employment with us or
that
replacement personnel with comparable skills can be found. We have sought to
and
will continue to ensure that management and any key employees are appropriately
compensated; however, their services cannot be guaranteed. If we are unable
to
attract and retain key personnel, our business may be adversely affected.
RISKS
RELATED TO OUR INDUSTRY
Losses
and liabilities arising from uninsured or under-insured hazards could have
a
material adverse effect on our business.
Our
operations are subject to the customary hazards of recovering, transporting
and
processing hydrocarbons such as fires, explosions and gaseous leaks, and
migration of harmful substances, blowouts and oil spills. A casualty occurrence
might result in the loss of equipment or life, as well as injury, property
damage or other liability. It cannot be assured that our insurance will be
sufficient to cover any such casualty occurrences or disruptions. Our operations
could be interrupted by natural disasters or other events beyond our control.
Losses and liabilities arising from uninsured or under-insured events could
have
a material adverse effect on our business, financial condition and results
of
operations.
Amendments
to current laws and regulations governing our operations could have a material
adverse impact on our business.
Our
business is subject to substantial regulation under local and federal laws
relating to the exploration for, and the development, upgrading, marketing,
pricing, taxation and transportation of oil, gas and related products and other
matters. Amendments to current laws and regulations governing operations and
activities of oil and gas operations could have a material adverse impact on
our
proposed business. In addition, there can be no assurance that income tax laws,
royalty regulations and government incentive programs related to the oil and
gas
industry generally, will not be changed in a manner which may adversely affect
us and cause delays, inability to complete, or abandonment of
properties.
Permits,
leases, licenses and approvals are required from a variety of regulatory
authorities at various stages of exploration and extraction. There can be no
assurance that the various government permits, leases, licenses and approvals
sought will be granted to us or, if granted, will not be cancelled or will
be
renewed upon expiration.
Estimates
of oil and gas reserves that we make may be inaccurate. The 3D seismic data
and
other advanced technologies we use cannot eliminate exploration risk. These
factors could impair our ability to generate revenues from
operations.
There
are
numerous uncertainties inherent in estimating quantities of oil and gas
resources, including many factors beyond our control, and no assurance can
be
given that expected levels of resources or recovery of oil and gas will be
realized. In general, estimates of recoverable oil and gas resources are based
upon a number of factors and assumptions made as of the date on which resource
estimates are determined, such as geological and engineering estimates that
have
inherent uncertainties and the assumed effects of regulation by governmental
agencies and estimates of future commodity prices and operating costs, all
of
which may vary considerably from actual results. All such estimates are, to
some
degree, uncertain and classifications of resources are only attempts to define
the degree of uncertainty involved. For these reasons, estimates of the
recoverable quantities of oil and gas, the classification of such resources
based on risk of recovery, prepared by different engineers or by the same
engineers at different times, may vary substantially.
Our
expenditures on exploration may not result in new discoveries of oil or natural
gas in commercially viable quantities. It is difficult to project the costs
of
implementing an exploratory drilling program due to the inherent uncertainties
of drilling in unknown formations, the costs associated with encountering
various drilling conditions, such as over-pressured zones and tools lost in
the
hole, and changes in drilling plans and locations as a result of prior
exploratory wells or additional seismic data and interpretations thereof.
Even
when
used and properly interpreted, 3D seismic data and visualization techniques
only
assist geoscientists in identifying subsurface structures and hydrocarbon
indicators. They do not allow the interpreter to know conclusively if
hydrocarbons are present or economically producible. In addition, the use of
3D
seismic data becomes less reliable when used at increasing depths. We could
incur losses as a result of expenditures on unsuccessful wells. If exploration
costs exceed our estimates, or if our exploration efforts do not produce results
which meet our expectations, our exploration efforts may not be commercially
successful, which could adversely impact our ability to generate revenues from
our operations.
We
may not be able to develop oil and gas reserves on an economically viable basis
and our reserves and production may decline as a result.
If
we
succeed in acquiring or discovering oil or natural gas reserves, we cannot
assure that these reserves will be capable of production levels we project
or in
sufficient quantities to be commercially viable. On a long-term basis, our
viability depends on our ability to find or acquire, develop and commercially
produce additional oil and natural gas reserves. Without the addition of
reserves through acquisition, exploration or development activities, our
reserves and production will decline over time as reserves are produced. Our
future reserves will depend not only on our ability to develop then-existing
properties, but also on our ability to identify and acquire additional suitable
producing properties or prospects, to find markets for the oil and natural
gas
we develop and to effectively distribute our production into our markets.
Future
oil and gas exploration may involve unprofitable efforts, not only from dry
wells, but from wells that are productive but do not produce sufficient net
revenues to return a profit after drilling, operating and other costs.
Completion of a well does not assure a profit on the investment or recovery
of
drilling, completion and operating costs. In addition, drilling hazards or
environmental damage could greatly increase the cost of operations, and various
field operating conditions may adversely affect the production from successful
wells. These conditions include delays in obtaining governmental approvals
or
consents, shut-downs of connected wells resulting from extreme weather
conditions, problems in storage and distribution and adverse geological and
mechanical conditions. While we will endeavor to effectively manage these
conditions, we cannot be assured of doing so optimally, and we will not be
able
to eliminate them completely in any case. Therefore, these conditions could
diminish our revenue and cash flow levels and result in the impairment of our
oil and natural gas interests.
Abandonment
and reclamation costs are unknown and may be
substantial.
We
will
be responsible for compliance with terms and conditions of environmental and
regulatory approvals and all laws and regulations regarding the abandonment
of
our properties and reclamation of lands at the end of their economic life,
which
abandonment and reclamation costs may be substantial. A breach of such
legislation and/or regulations may result in the issuance of remedial orders,
the suspension of approvals, or the imposition of fines and penalties, including
an order for cessation of operations at the site until satisfactory remedies
are
made. It is not possible to estimate with certainty the abandonment and
reclamation costs since they will be a function of regulatory requirements
at
the time.
Our
inability to obtain necessary facilities could hamper our
operations.
Oil
and
gas extraction and development activities are dependent on the availability
of
equipment, transportation, power and technical support in the particular areas
where these activities will be conducted, and our access to these facilities
may
be limited. To the extent that we conduct our activities in remote areas, needed
facilities may not be proximate to our operations, which will increase our
cost
of doing business. Demand for such limited equipment and other facilities or
access restrictions may affect the availability of such equipment to us and
may
delay exploration and development activities. The quality and reliability of
necessary facilities may also be unpredictable and we may be required to make
efforts to standardize our facilities, which may entail unanticipated costs
and
delays. Shortages and/or the unavailability of necessary equipment or other
facilities will impair our activities, either by delaying our activities,
increasing our costs or otherwise.
We
may have difficulty distributing our production, which could harm our financial
condition.
In
order
to sell the oil and gas that we are able to produce, we will have to make
arrangements for storage and distribution to the market. We will rely on local
infrastructure and the availability of transportation for storage and shipment
of our products, but infrastructure development and storage and transportation
facilities may be insufficient for our needs at commercially acceptable terms
in
the localities in which we operate. This could be particularly problematic
to
the extent that our operations are conducted in remote areas that are difficult
to access, such as areas that are distant from shipping and/or pipeline
facilities. These factors may affect our ability to explore and develop
properties and to store and transport our oil and gas production and may
increase our expenses.
Furthermore,
weather conditions or natural disasters, actions by companies doing business
in
one or more of the areas in which we will operate, or labor disputes may impair
the distribution of oil and gas and in turn diminish our financial condition
or
ability to maintain our operations.
Prices
and markets for oil and gas are unpredictable and tend to fluctuate
significantly, which could reduce profitability, growth and the value of our
business.
Our
revenues and earnings, if any, will be highly sensitive to the price of oil
and
gas. Prices for oil and gas are subject to large fluctuations in response to
relatively minor changes in the supply of and demand for oil and gas, market
uncertainty, and a variety of additional factors beyond our control. These
factors include, without limitation, weather conditions, the condition of the
U.S. and global economies, the actions of the Organization of Petroleum
Exporting Countries, governmental regulations, political stability in the Middle
East and elsewhere, war or the threat of war in oil and gas producing regions,
the foreign supply of oil and gas, the price of foreign imports and the
availability of alternate fuel sources. Significant changes in long-term price
outlooks for oil and gas could have a material adverse effect on us.
Increases
in our operating expenses will impact our operating results and financial
condition.
Extraction,
development, production, marketing (including distribution costs) and regulatory
compliance costs (including taxes) will substantially impact the net revenues
we
derive from the oil and gas that we produce. These costs are subject to
fluctuations and variation in different locales in which we will operate, and
we
may not be able to predict or control these costs. If these costs exceed our
expectations, our results of operations may be adversely affected. In addition,
we may not be able to earn net revenue at our predicted levels, which may impact
our ability to satisfy our obligations.
Penalties
we may incur could impair our business.
Failure
to comply with government regulations could subject us to civil and criminal
penalties, could require us to forfeit property rights, and may affect the
value
of our assets. We also may be required to take corrective actions, such as
installing additional equipment or taking other actions, each of which could
require us to make substantial capital expenditures. We also could be required
to indemnify our employees in connection with any expenses or liabilities that
they may incur individually in connection with regulatory action against them.
As a result, our future business prospects could deteriorate due to regulatory
constraints, and our profitability could be impaired by our obligation to
provide such indemnification to our employees.
Environmental
risks may adversely affect our business.
Oil
and
gas extraction operations present environmental risks and hazards and are
subject to environmental regulation pursuant to a variety of federal, state,
provincial and municipal laws and regulations. Environmental legislation
provides for, among other things, restrictions and prohibitions on spills,
releases or emissions of various substances produced in association with oil
and
gas operations. The legislation also requires that facility sites be operated,
maintained, abandoned and reclaimed to the satisfaction of applicable regulatory
authorities. Compliance with such legislation can require significant
expenditures and a breach may result in the imposition of fines and penalties,
some of which may be material. Environmental legislation is evolving in a manner
we expect may result in stricter standards and enforcement, larger fines and
liability, and potentially increased capital expenditures and operating costs.
The discharge of oil, gas or other pollutants into the air, soil or water may
give rise to liabilities to governments and third parties and may require us
to
incur costs to remedy such discharges. The application of environmental laws
to
our business may cause us to curtail our production or increase the costs of
our
production, development or exploration activities.
Challenges
to title to our properties may impact our financial
condition.
Title
to
oil and gas interests is often not capable of conclusive determination without
incurring substantial expense. While we intend to make appropriate inquiries
into the title of properties and other development rights we acquire, title
defects may exist. In addition, we may be unable to obtain adequate insurance
for title defects, on a commercially reasonable basis or at all. If title
defects do exist, it is possible that we may lose all or a portion of our right,
title and interests in and to the properties to which the title defects relate.
If our property rights are reduced, our ability to conduct our exploration,
development and production activities may be impaired.
RISKS
RELATED TO OUR COMMON STOCK
There
has been a limited trading market for our common stock that may impair your
ability to sell your shares.
There
has
been a limited trading market for our common stock since our inception. The
lack
of an active market may impair your ability to sell your shares at the time
you
wish to sell them or at a price that you consider reasonable. The lack of an
active market may also reduce the fair market value of your shares. An inactive
market may also impair our ability to raise capital by selling shares of capital
stock and may impair our ability to acquire other assets or companies by using
common stock as consideration.
Our
common stock is currently quoted on the NASD’s Over-the-Counter Bulletin Board
under the symbol “TNEN.OB.” As indicated above, our common stock is not actively
traded. As a result, investors may find it difficult to obtain accurate
quotations of the price of our common stock. This situation severely limits
the
liquidity of our common stock, and would likely reduce the market price
of our common stock and hamper our ability to raise additional capital.
The
market price of our common stock is likely to be highly volatile and subject
to
wide fluctuations.
Assuming
we are able to establish an active trading market for our common stock, the
market price of our common stock is likely to be highly volatile and could
be
subject to wide fluctuations in response to a number of factors that are beyond
our control, including:
|
|
·
|
Dilution
caused by our issuance of additional shares of common stock and other
forms of equity securities, which we expect to make in connection
with
future capital financings to fund our operations and growth, to attract
and retain valuable personnel, and in connection with future strategic
partnerships with other companies;
|
|
|
·
|
Announcements
of acquisitions, reserve discoveries or other business initiatives
by our
competitors;
|
|
|
·
|
Fluctuations
in revenue from our oil and gas business as new reserves come to
market;
|
|
|
·
|
Changes
in the market for oil and gas commodities and/or in the capital markets
generally;
|
|
|
·
|
Changes
in the demand for oil and gas, including changes resulting from the
introduction or expansion of alternative fuels;
|
|
|
·
|
Quarterly
variations in our revenues and operating expenses;
|
|
|
·
|
Changes
in the valuation of similarly situated companies, both in our industry
and
in other industries;
|
|
|
·
|
Changes
in analysts’ estimates affecting us, our competitors and/or our industry;
|
|
|
·
|
Changes
in the accounting methods used in or otherwise affecting our industry;
|
|
|
·
|
Additions
and departures of key personnel;
|
|
|
·
|
Announcements
of technological innovations or new products available to the oil
and gas
industry;
|
|
|
·
|
Announcements
by relevant governments pertaining to incentives for alternative
energy
development programs; and
|
|
|
·
|
Fluctuations
in interest rates and the availability of capital in the capital
markets.
|
These
and
other factors are largely beyond our control, and the impact of these risks,
individually or in the aggregate, may result in material adverse changes to
the
market price of our common stock and/or our results of operations and financial
condition.
Our
operating results may fluctuate significantly, and these fluctuations may cause
our stock price to decline.
Our
operating results will likely vary in the future primarily as the result of
fluctuations in our revenues and operating expenses, including the coming to
market of oil and gas reserves that we are able to develop, expenses that we
incur, the price of oil and gas in the commodities markets, and other factors.
If our results of operations do not meet the expectations of current or
potential investors, the price of our common stock may decline.
We
do not expect to pay dividends in the foreseeable
future.
We
do not
intend to declare dividends for the foreseeable future, as we anticipate that
we
will reinvest any future earnings in the development and growth of our business.
Therefore, investors will not receive any funds unless they sell their common
stock, and stockholders may be unable to sell their shares on favorable terms
or
at all. Investors cannot be assured of a positive return on investment or that
they will not lose the entire amount of their investment in our common
stock.
Applicable
SEC rules governing the trading of “penny stocks” will limit the trading and
liquidity of our common stock, which may affect the trading price of our common
stock.
Our
common stock is considered to be a “penny stock” and is therefore subject to SEC
rules and regulations that (i) impose limitations upon the manner in which
our
shares may be publicly traded and (ii) regulate broker-dealer practices in
connection with transactions in “penny stocks.” Penny stocks generally are
equity securities with a price of less than $5.00 (other than securities
registered on certain national securities exchanges or quoted on the NASDAQ
system, provided that current price and volume information with respect to
transactions in such securities is provided by the exchange or system). 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 that provides information about penny stocks and the risks
in the penny stock market. The broker-dealer must also 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. In addition, the penny stock rules generally require that prior to
a
transaction in a penny stock, the broker-dealer 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 a stock that becomes subject to the penny
stock rules and may increase the difficulty investors might experience in
attempting to liquidate such securities.
You
may experience dilution of your ownership interests because of the future
issuance of additional shares of our common stock and our preferred
stock.
In
the
future, we may issue our authorized but previously unissued equity securities,
resulting in the dilution of the ownership interests of our present
stockholders. We are currently authorized to issue an aggregate of 270,000,000
shares of capital stock consisting of 250,000,000 shares of common stock and
20,000,000 shares of preferred stock with preferences and rights to be
determined by our board of directors. As of July 25, 2008, there were 71,016,758
shares of common stock outstanding, 182,193 shares issuable to Prime pursuant
to
the Consulting Agreement, and 7,139,260 shares reserved for issuance upon the
exercise of outstanding warrants.
|
ITEM 2.
|
DESCRIPTION
OF PROPERTY
|
Properties
Our
principal executive office is located at 1200 Smith Street, 16th Floor, Houston,
Texas 77002. We pay a monthly rental of $300 per month for this virtual office
lease, which we utilize for certain of our administrative needs. At that
location, we have access to conference and meeting room facilities on an as
needed basis. We also sublease approximately 175 square feet of office space
at
1400 Woodloch Forest Drive, Suite 530, The Woodlands, Texas 77380 at a monthly
cost of $850. We utilize this space for administrative needs as well including,
but not limited to, our banking, oil and gas operations, and public company
filing requirements. This sublease has a present term of six-months that expires
on July 31, 2008 and is renewable thereafter for additional six-month terms.
We
also lease approximately 1,470 feet of office space in Golden, Colorado at
the
rate of $2,500 per month. The lease commenced on September 1, 2007 and runs
through December 31, 2008. We believe that our property leases are suitable
for
our current and projected needs.
Acreage
The
following table sets forth certain information regarding our developed and
undeveloped lease acreage as of April 30, 2008. “Developed Acreage” refers to
acreage on which wells have been drilled or completed to a point that would
permit production of oil and natural gas in commercial quantities. “Undeveloped
Acreage” refers to acreage on which wells have not been drilled or completed to
a point that would permit production of oil and natural gas in commercial
quantities whether or not the acreage contains proved reserves.
|
|
|
2007-08
|
|
4/30/2008
Proved
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production
|
|
Reserves-
|
|
Working
|
|
Developed Acreage
|
|
Undeveloped Acreage
|
|
Total Acreage
|
|
|
|
|
Mcfe
|
|
Mcfe
|
|
Interest
|
|
Gross
|
|
Net
|
|
Gross
|
|
Net
|
|
Gross
|
|
Net
|
|
|
Alaska
|
|
|
-
|
|
|
-
|
|
|
100.00
|
%
|
|
-
|
|
|
-
|
|
|
35,000
|
|
|
35,000
|
|
|
35,000
|
|
|
35,000
|
|
|
Colorado
|
|
|
-
|
|
|
-
|
|
|
100.00
|
%
|
|
-
|
|
|
-
|
|
|
17,000
|
|
|
17,000
|
|
|
17,000
|
|
|
17,000
|
|
|
Texas
|
|
|
143,041
|
|
|
551,441
|
|
|
30.14
|
%
|
|
1,150
|
|
|
430
|
|
|
2,400
|
|
|
640
|
|
|
3,550
|
|
|
1,070
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
143,041
|
|
|
551,441
|
|
|
|
|
|
1,150
|
|
|
430
|
|
|
54,640
|
|
|
52,640
|
|
|
55,550
|
|
|
53,070
|
|
An
element of an oil or natural gas lease is the obligation to drill upon the
fields that are acquired. If the Company is not successful in securing
additional capital some of these leases might be lost.
Volumes,
Prices and Oil & Natural Gas Operating Expense
The
following table sets forth certain information regarding the production volumes
of, average sales prices received for and average production costs associated
with our sales of oil and natural gas for the periods indicated.
|
|
|
Year Ended April
30,
|
|
|
|
|
2008
|
|
2007
|
|
|
Production
volumes:
|
|
|
|
|
|
|
|
|
Oil
(Bbls)
|
|
|
1,649
|
|
|
-
|
|
|
Natural
gas (Mcf)
|
|
|
133,147
|
|
|
-
|
|
|
Standard
cubic feet of gas equivalent (Mcfe)
|
|
|
143,041
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Average
sales prices:
|
|
|
|
|
|
|
|
|
Oil
(per Bbl)
|
|
$
|
91.52
|
|
$
|
-
|
|
|
Natural
gas (per Mcf)
|
|
$
|
8.07
|
|
$
|
-
|
|
|
Standard
cubic feet of gas equivalent (per Mcfe)
|
|
$
|
8.57
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Average
costs (per Mcfe)
(1)
|
|
$
|
3.18
|
|
$
|
-
|
|
|
(1)
|
Includes
direct lifting costs (labor, repairs and maintenance, materials and
supplies), workover costs and the administrative costs of production
offices, insurance and property and severance
taxes.
|
Oil
and Natural Gas Reserves
The
reserves as of April 30, 2008 were derived from reserve estimates prepared
by
the independent reserve engineers Netherland, Sewell & Associates, Inc. for
the Old Ocean Field. No reserve reports were provided to any government agency.
The PV-10 value was derived using constant prices as of the calculation date,
discounted at 10% per annum on a pretax basis, and is not intended to represent
the current market value of the estimated oil and natural gas reserves owned
by
the Company. For further information concerning the present value of future
net
revenues from these proved reserves, see Note 11 of Notes to Consolidated
Financial Statements.
The
following table sets forth our estimated net proved oil and natural gas reserves
and the PV-10 value of such reserves as of April 30, 2008.
|
|
|
Proved
Reserves
|
|
|
|
|
Developed
|
|
Undeveloped
|
|
Total
|
|
|
Oil
and condensate (Bbls)
|
|
|
8,407
|
|
|
-
|
|
|
8,407
|
|
|
Natural
gas (Mcf)
|
|
|
500,999
|
|
|
-
|
|
|
500,999
|
|
|
Total
proved reserves (Mcfe)
|
|
|
551,441
|
|
|
-
|
|
|
551,441
|
|
|
PV-10
Value
(1)(2)
|
|
$
|
4,073,978
|
|
$
|
-
|
|
$
|
4,073,978
|
|
|
(1)
|
The
PV-10 value as of April 30, 2008 is pre-tax and was determined by
using
the April 30, 2008 sales prices, which averaged $113.14 per Bbl of
oil and
$11.51 per Mcf of natural gas. Management believes that the presentation
of PV-10 value may be considered a non-GAAP financial measure. Therefore
we have included a reconciliation of the measure to the most directly
comparable GAAP financial measure (standardized measure of discounted
future net cash flows in footnote (2) below). Management believes
that the presentation of PV-10 value provides useful information
to
investors because it is widely used by professional analysts and
sophisticated investors in evaluating oil and natural gas companies.
Because many factors that are unique to each individual Company may
impact
the amount of future income taxes to be paid, the use of the pre-tax
measure provides greater comparability when evaluating companies.
It is
relevant and useful to investors for evaluating the relative monetary
significance of our oil and natural gas properties. Further, investors
may
utilize the measure as a basis for comparison of the relative size
and
value of our reserves to other companies.
|
|
|
|
|
|
Management
also uses this pre-tax measure when assessing the potential return
on
investment related to its oil and natural gas properties and in evaluating
acquisition candidates. The PV-10 value is not a measure of financial
or
operating performance under GAAP, nor is it intended to represent
the
current market value of the estimated oil and natural gas reserves
owned
by us. The PV-10 value should not be considered in isolation or as
a
substitute for the standardized measure of discounted future net
cash
flows as defined under GAAP.
|
|
|
|
|
(2)
|
Future
income taxes and present value discounted (10%) future income taxes
were
$nil and $nil, respectively, due to the Company having sufficient
NOL
carryforwards. Accordingly, the after-tax PV-10 value of Total Proved
Reserves (or “Standardized Measure of Discounted Future Net Cash Flows”)
is $4,073,978.
|
Development,
Exploration and Acquisition Capital Expenditures
The
following table sets forth certain information regarding the gross costs
incurred in the purchase of proved and unproved properties and in development
and exploration activities.
|
|
|
Year Ended April 30,
|
|
|
|
|
2008
|
|
2007
|
|
|
Property
acquisition costs:
|
|
|
|
|
|
|
|
|
Proved
|
|
$
|
3,482,558
|
|
$
|
-
|
|
|
Unproved
|
|
|
1,868,926
|
|
|
311,626
|
|
|
Exploration
costs
|
|
|
314,598
|
|
|
6,473,608
|
|
|
Development
costs
|
|
|
-
|
|
|
-
|
|
|
Asset
retirement obligation
(1)
|
|
|
50,000
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Total
costs incurred
|
|
$
|
5,716,082
|
|
$
|
6,785,234
|
|
|
(1)
|
Includes
non-cash asset retirement obligations accrued in accordance with
SFAS No.
143 of $50,000 and $nil, respectively, for the years ended April
30, 2008
and 2007, respectively.
|
|
ITEM 3.
|
LEGAL
PROCEEDINGS
|
Legal
Proceedings
In
the
ordinary course of our business, we may from time to time become subject to
routine litigation or administrative proceedings which are incidental to our
business. We are not a party to nor are we aware of any existing, pending or
threatened lawsuits or other legal actions involving us.
|
ITEM 4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY
HOLDERS
|
No
matters were submitted to a vote of security holders, through the solicitation
of proxies or otherwise, during the fourth quarter of the fiscal year covered
by
this report.
PART
II
|
ITEM 5.
|
MARKET
FOR COMMON EQUITY, RELATED STOCKHOLDER
MATTERS
AND SMALL BUSINESS ISSUER PURCHASES OF
EQUITY
SECURITIES
|
Market
Information
“Bid”
and
”ask” prices for our common stock have been quoted on the Over-The-Counter
Bulletin Board (the “OTCBB”) since April 18, 2005. Through March 28, 2006 our
common stock was traded under the symbol “AMPI.
”
In connection
with our name change that took effect on March 28, 2006, our trading symbol
was
changed to “TNEN.
”
The
following table sets forth the high and low closing bid prices for our common
stock for the fiscal quarters indicated as reported on the OTCBB by the National
Association of Securities Dealers Composite Feed or other qualified interdealer
quotation medium. The quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commission and may not represent actual
transactions.
|
Quarter Ended
|
|
High Bid
|
|
Low Bid
|
|
|
|
|
|
|
|
|
|
April
30, 2008
|
|
$
|
0.34
|
|
$
|
0.17
|
|
|
January
31, 2008
|
|
$
|
0.44
|
|
$
|
0.17
|
|
|
October
31, 2007
|
|
$
|
0.62
|
|
$
|
0.28
|
|
|
July
31, 2007
|
|
$
|
0.83
|
|
$
|
0.43
|
|
|
April
30, 2007
|
|
$
|
2.67
|
|
$
|
0.63
|
|
|
January
31, 2007
|
|
$
|
3.82
|
|
$
|
1.48
|
|
|
October
31, 2006
|
|
$
|
6.02
|
|
$
|
1.90
|
|
|
July
31, 2006
|
|
$
|
2.15
|
|
$
|
1.05
|
|
As
of
July 1, 2008, we had 62 shareholders of record of our common stock. The number
of holders of the common stock includes nominees of various depository trust
accounts for an undeterminable number of individual stockholders.
Dividends
We
have
never declared any cash dividends with respect to our common stock. Future
payment of dividends is within the discretion of our board of directors and
will
depend on our earnings, capital requirements, financial condition and other
relevant factors. Although there are no material restrictions limiting, or
that
are likely to limit, our ability to pay dividends on our common stock, we
presently intend to retain future earnings, if any, for use in our business
and
have no present intention to pay cash dividends on our common
stock.
Recent
Sales of Unregistered Securities
During
the past three years, we have issued the following securities without
registration under the Securities Act of 1933:
On
June
19, 2008 we issued 176,179 shares of our common stock to Prime representing
payment of the stock fee due Prime for the three-month period ended March 31,
2008 under the terms of the December 21, 2007 Consulting Agreement therewith.
The shares were issued in reliance on Section 4(2) of the Securities Act of
1933, as amended, since the foregoing issuance did not involve a public
offering, the recipient had access to information that would be included in
a
registration statement, the recipient took the shares for investment and not
resale, and we took appropriate measures to restrict resale.
On
May
20, 2008 we issued an aggregate of 25,000 shares of our common stock to our
five
advisory board members representing payment of the quarterly fee due to them
for
the quarter ended April 30, 2008. The shares were issued in reliance on Section
4(2) of the Securities Act of 1933, as amended, since the foregoing issuances
did not involve a public offering, the recipient had access to information
that
would be included in a registration statement, the recipient took the shares
for
investment and not resale, and we took appropriate measures to restrict
resale.
On
February 13, 2008 we issued an aggregate of 25,000 shares of our common stock
to
our five advisory board members representing payment of the quarterly fee due
to
them for the quarter ended January 31, 2008. The shares were issued in reliance
on Section 4(2) of the Securities Act of 1933, as amended, since the foregoing
issuances did not involve a public offering, the recipient had access to
information that would be included in a registration statement, the recipient
took the shares for investment and not resale, and we took appropriate measures
to restrict resale.
On
March
31, 2008, we issued 1,739,130 shares of our common stock to Valens U.S. SPV
I,
LLC and Valens Offshore SPV II, Corp. in connection with a $425,000 advance
to
us on that same date by the Valens entities. The shares were issued in reliance
on Section 4(2) of the Securities Act of 1933, as amended, since the foregoing
issuances did not involve a public offering, the recipient had access to
information that would be included in a registration statement, the recipient
took the shares for investment and not resale, and we took appropriate measures
to restrict resale.
On
January 30, 2008 we issued 167,101 shares of our common stock to Prime
representing payment of the stock fee due to Prime for the three-month period
ended December 31, 2007 under the terms of the December 21, 2007 Consulting
Agreement therewith. The shares were issued in reliance on Section 4(2). The
shares were issued in reliance on Section 4(2) of the Securities Act of 1933,
as
amended, since the foregoing issuance did not involve a public offering, the
recipient had access to information that would be included in a registration
statement, the recipient took the shares for investment and not resale, and
we
took appropriate measures to restrict resale.
On
December 17, 2007 we issued an aggregate of 275,000 shares of our common stock
to our five advisory board members representing payment of the quarterly fee
for
the three-month period ended October 31, 2007 (25,000 shares) and the annual
fee
for the year ended October 5, 2007 (250,000 shares). The shares were issued
in
reliance on Section 4(2) of the Securities Act of 1933, as amended, since the
foregoing issuance did not involve a public offering, the recipient had access
to information that would be included in a registration statement, the recipient
took the shares for investment and not resale, and we took appropriate measures
to restrict resale.
On
September 19, 2007 we issued 300,000 five year common stock purchase warrants
with an exercise price of $0.48 per share to a financial advisor as a finder’s
fee. The Warrants were issued in reliance on Section 4(2) of the Securities
Act
of 1933, as amended, since the foregoing issuance did not involve a public
offering, the recipient had access to information that would be included in
a
registration statement, the recipient took the shares for investment and not
resale, and we took appropriate measures to restrict resale.
On
September 19, 2007 we issued 1,928,375 shares of our common stock to Prime.
The
shares were issued in reliance on Section 4(2) of the Securities Act of 1933,
as
amended, since the foregoing issuance did not involve a public offering, the
recipient had access to information that would be included in a registration
statement, the recipient took the shares for investment and not resale, and
we
took appropriate measures to restrict resale.
On
September 18, 2007 we issued 976,353 and 976,773 common stock purchase warrants
to Valens Offshore SPV II, Corp. and Valens U.S. SPV I, LLC, respectively.
The
warrants we issued in reliance on Section 4(2) of the Securities Act of 1933,
as
amended, since the foregoing issuance did not involve a public offering, the
recipient had access to information that would be included in a registration
statement, the recipient took the shares for investment and not resale, and
we
took appropriate measures to restrict resale.
On
August
30, 2007 we issued an aggregate of 100,000 shares of our common stock in
connection with an aggregate of $250,000 in bridge loans we received from two
persons on or about August 20, 2007. The shares were issued in reliance on
Section 4(2) of the Securities Act of 1933, as amended, since the foregoing
issuance did not involve a public offering, the recipient had access to
information that would be included in a registration statement, the recipient
took the shares for investment and not resale, and we took appropriate measures
to restrict resale.
On
August
30, 2007 we issued two common stock purchase warrants to one person, each dated
August 30, 2007 pursuant to the terms of $250,000 promissory notes dated April
10, 2007 and May 15, 2007. Each warrant is exercisable for a period of three
years from the date of issuance. One warrant is exercisable for the purchase
of
up to 298,333 shares of our common stock at an exercise price of $1.17 per
share. The other warrant is exercisable for the purchase of up to 182,249 shares
of our common stock at an exercise price of $1.92 per share. Each of the
warrants was issued in reliance on Section 4(2) of the Securities Act of 1933,
as amended, since the foregoing issuance did not involve a public offering,
the
recipient had access to information that would be included in a registration
statement, the recipient took the shares for investment and not resale, and
we
took appropriate measures to restrict resale.
On
August
30, 2007 we issued an aggregate of 25,000 shares of our common stock to our
five
advisory board members representing payment of the quarterly fee due to them
for
the quarter ended July 31, 2007. The shares were issued in reliance on Section
4(2) of the Securities Act of 1933, as amended, since the foregoing issuance
did
not involve a public offering, the recipient had access to information that
would be included in a registration statement, the recipient took the shares
for
investment and not resale, and we took appropriate measures to restrict
resale.
On
August
27, 2007 we issued 27,170 shares to one person pursuant to a January 1, 2007
Consulting Agreement. The shares were issued in reliance on Section 4(2) of
the
Securities Act of 1933, as amended, since the foregoing issuance did not involve
a public offering, the recipient had access to information that would be
included in a registration statement, the recipient took the shares for
investment and not resale, and we took appropriate measures to restrict
resale.
On
July
6, 2007 we issued 1,832,769 shares of our common stock to one person pursuant
to
a June 21, 2007 Purchase and Sale Agreement. The shares were issued in reliance
on Section 4(2) of the Securities Act of 1933, as amended, since the foregoing
issuance did not involve a public offering, the recipient had access to
information that would be included in a registration statement, the recipient
took the shares for investment and not for resale, and we took appropriate
measures to restrict resale.
On
May
11, 2007 we issued an aggregate of 25,000 shares of our common stock to our
five
advisory board members representing payment of the quarterly fee due to them
for
the quarter ended April 30, 2007. The shares were issued in reliance on Section
4(2) of the Securities Act of 1933, as amended, since the foregoing issuances
did not involve a public offering, the recipient had access to information
that
would be included in a registration statement, the recipient took the shares
for
investment and not resale, and we took appropriate measures to restrict
resale.
On
March
30, 2007 we issued a $500,000 convertible promissory note to one non-US
purchaser in an offshore transaction in reliance on Regulation S under the
Securities Act of 1933, as amended.
On
February 27, 2007 we issued an aggregate of 25,000 shares of our common stock
to
our five advisory board members representing payment of the quarterly fee due
to
them for the quarter ended January 31, 2007. The shares were issued in reliance
on Section 4(2) of the Securities Act of 1933, as amended, since the foregoing
issuances did not involve a public offering, the recipient had access to
information that would be included in a registration statement, the recipient
took the shares for investment and not resale, and we took appropriate measures
to restrict resale.
On
February 1, 2007 we issued 800,000 units at a price of $2.50 per unit, or $2
million on an aggregate basis, to one non-US purchaser in an offshore
transaction in reliance on Regulation S under the Securities Act of 1933, as
amended. Each unit consisted of one share of our common stock and one common
stock purchase warrant exercisable for the purchase of an additional share
of
common stock. Each warrant is exercisable for a period of three years at an
exercise price of $3.50 per share.
On
December 4, 2006 we issued 100,000 shares of our common stock to one non-US
person in connection with an April 2006 offshore transaction in reliance on
Regulation S under the Securities Act of 1933, as amended. The subscription
proceeds from such sale were received by us on April 21, 2006.
On
November 29, 2006 we issued an aggregate of 7,145 shares of our common stock
to
our five advisory board members representing payment of the prorated quarterly
fee due to them for the quarter ended October 31, 2006. The shares were issued
in reliance on Section 4(2) of the Securities Act of 1933, as amended, since
the
foregoing issuance did not involve a public offering, the recipient had access
to information that would be included in a registration statement, the recipient
took the shares for investment and not resale, and we took appropriate measures
to restrict resale.
On
November 13, 2006 we sold 400,000 units at a price of approximately $2.50 per
unit, or $1 million on an aggregate basis, to one non-US purchaser in an
offshore transaction in reliance on Regulation S under the Securities Act of
1933, as amended. Each unit consisted of one share of our common stock and
one
common stock purchase warrant exercisable for the purchase of an additional
share of common stock. Each warrant is exercisable for a period of three years
at an exercise price of $3.50 per share. The 400,000 shares comprising part
of
the units were issued on February 6, 2007.
On
October 2, 2006 we sold 400,000 units at a price of approximately $2.50 per
unit, or $1 million on an aggregate basis, to one non-US purchaser in an
offshore transaction in reliance on Regulation S under the Securities Act of
1933, as amended. Each unit consisted of one share of our common stock and
one
common stock purchase warrant exercisable for the purchase of an additional
share of common stock. Each warrant is exercisable for a period of three years
at an exercise price of $3.50 per share. The 400,000 shares comprising part
of
the units were issued on February 6, 2007.
On
August
28, 2006 we sold 555,555 units at a price of approximately $3.60 per unit,
or $2
million on an aggregate basis, to one non-US person in an offshore transaction
in reliance on Regulation S under the Securities Act of 1933, as amended. Each
unit consists of one share of our common stock and one common stock purchase
warrant exercisable for the purchase of an additional share of common stock.
Each warrant is exercisable for a period of three years at an exercise price
of
$5.00 per share.
On
August
11, 2006 we sold 350,000 units at a price of $1.00 per unit, or $350,000 on
an
aggregate basis, to one non-US person in an offshore transaction in reliance
on
Regulation S under the Securities Act of 1933, as amended. Each unit consists
of
one share of our common stock and one common stock purchase warrant exercisable
for the purchase of an additional share of common stock. Each warrant is
exercisable for a period of three years at an exercise price of $1.70 per
share.
On
July
27, 2006 we sold 650,000 units at a price of $1.00 per unit, or $650,000 on
an
aggregate basis, to one non-US person in an offshore transaction in reliance
on
Regulation S under the Securities Act of 1933, as amended. Each unit consists
of
one share of our common stock and one common stock purchase warrant exercisable
for the purchase of an additional share of common stock. Each warrant is
exercisable for a period of three years at an exercise price of $1.70 per share.
On
May 9,
2006 we sold 1,250,000 units at a price of $0.80 per unit or $1 million on
an
aggregate basis to one person in reliance on Regulation S under the Securities
Act of 1933, as amended. Each unit consists of one share of our common stock
and
one common stock purchase warrant exercisable for the purchase of an additional
share of common stock. Each warrant is exercisable for a period of 3 years
at an
exercise price of $1.60 per share.
In
March
2006 we sold 100,000 shares of our common stock at a price of $0.50 per share
or
$50,000 on an aggregate basis to one person in reliance on Regulation S of
the
Securities Act of 1933, as amended.
Effective
January 27, 2006, we issued 10 million shares of our restricted common stock
to
Massimiliano Pozzoni in consideration of our acquisition of certain Alaska
oil
& gas leases from Mr. Pozzoni. The sale of the shares to Mr. Pozzoni was
made in reliance on Section 4(2) of the Securities Act of 1933, as amended.
Securities
Authorized For Issuance Under Equity Compensation Plans
We
have
no stock option or other equity compensation plans and have never had any such
plans.
|
ITEM 6.
|
PLAN
OF OPERATION
|
We
commenced operation as an oil and gas exploration and development company in
February 2006. We presently are engaged in oil and gas activities in
Alaska, Texas and Colorado. During the year ended April 30, 2007 we also
participated in oil and gas exploration activities in Louisiana.
We
only
recently began to generate revenues. Our ability to develop and maintain a
meaningful level of revenues from operations is dependent on our ability to
successfully drill exploration and production wells and complete producing
property acquisitions. At the present time, we own interests in two producing
wells, which cover approximately 1,150 acres and produce about 500,000 standard
cubic feet of gas and six barrels of oil per day, net to the Company.
Alaska
Properties
In
January and May 2006, we acquired oil and gas leases representing approximately
25,000 acres in the Cook Inlet basin and approximately 10,000 acres in the
North
Slope basin areas of Alaska. We currently maintain a 100% working interest
ownership in our Alaska leases, but may elect to sell a portion of our interests
at some point in the future.
In
January 2008 we entered into an agreement with Savant Alaska LLC pursuant to
which we agreed to assign to Savant certain of our interests in State of Alaska
Lease ADL-390839 in exchange for our earning a working interest of up to 2%
in a
production unit if the test well Savant planned to drill on adjacent acreage
was
successful. The test well was drilled at the sole expense of Savant and its
drilling partners. On April 17, 2008 Savant announced that the Kupcake-1 well
had been drilled to its target depth of 10,686 feet but would be plugged and
abandoned as it did not result in a commercial discovery of crude oil or natural
gas reserves.
Colorado
Properties
In
June
2007 we acquired certain oil and gas interests and properties in northwest
Colorado in an area covering more than 17,000 acres. These oil and gas interests
are non-producing properties. We hold a 100% working interest in the leases
comprising part of the acquired assets. The acquired leases expire in 2016.
We
currently are refining our development plans for the area. The purchase price
for the interests and properties was approximately $1.4 million, together with
an overriding royalty of one to three percent based on the applicable net
revenue interest remaining after the landowner’s royalty and existing burdens
have been deducted. The purchase price was paid in cash (approximately $345,000)
and 1,832,769 shares of our restricted common stock ($1,064,000). In January
2007 we loaned $180,000 to the seller. Repayment of this loan, which bore
interest at an annual rate of 5%, was received in full at the closing of the
acquisition.
Texas
Properties
On
September 19, 2007 our newly formed, wholly owned subsidiary ICF Energy
Corporation (“ICF”) acquired certain oil and gas properties and related assets
(the “Prime Assets”) in Brazoria County, Texas from Prime Natural Resources,
Inc. (“Prime”) for approximately $3.7 million, including closing and other
transaction costs. The purchase price was paid with a combination of cash ($2.4
million), 1,928,375 shares of our restricted common stock valued at
approximately $926,000, and the assumption of certain liabilities totaling
approximately $343,000.
We
financed the purchase of the Prime Assets through the issuance of secured term
notes (the “Secured Notes”) to two purchasers (the “Purchasers”). The aggregate
principal amount of the Secured Notes totaled $3,750,000. As a result of this
transaction, the Purchasers became our and ICF's senior secured lenders. The
Secured Notes, which mature on September 18, 2010 (the “Maturity Date”), provide
for interest payments on the outstanding principal amount at the rate of 13%
per
annum. Amortizing payments of principal and interest are due monthly. In
addition, we issued common stock purchase warrants to the Purchasers for the
purchase of up to 1,953,126 shares of our common stock in connection with the
issuance of the Secured Notes and reimbursed the Purchasers’ transaction related
costs totaling $336,000.
We
will
require additional financing to fund development costs associated with our
existing prospects as well as for any additional lease acquisitions. No
assurance can be given that such additional financing will be available to
us as
and when needed or, if available, the terms on which it will be
available.
We
plan
to spend up to $5 million during the year ending April 30, 2009 on exploration
and development activities such as seismic data acquisition, additional lease
acquisition, technical studies and participating in joint venture development
and exploration drilling. We will require additional capital to finance these
planned expenditures. There can be no assurance that we will be able to secure
such additional financing or that any such financing will available on terms
acceptable to us. We do not anticipate drilling on our Alaska properties during
the next twelve months. Our primary efforts in Alaska will focus on acquiring
additional seismic data, conducting further technical evaluation of our Alaska
leases, and exploring opportunities to sell a portion of our Alaskan working
interests in an effort to reduce our risk and financial exposure.
We
may
require additional financing to meet our working capital and debt service
requirements, including the cost of reviewing and negotiating transactions
and
other ordinary general and administrative costs such as regulatory compliance,
investor relations, consulting and advisory services, Internet/web hosting,
executive compensation, office and general expenses, professional fees, travel
and entertainment, and rent and related expenses. We estimate that the level
of
working capital needed for these general and administrative costs for the next
12 months will approximate $1 million. However, this estimate is subject to
change, depending on the number of transactions in which we ultimately become
involved. In addition, funding will be required for follow-on development of
working interest obligations of any successful exploration
prospects.
Oil
and
gas exploration requires significant outlays of capital and in many situations
may offer a limited probability of success. We hope to enhance our chances
for
success by effectively using available technology, rigorously evaluating
subsurface data, and, to the extent possible, managing dry hole and financial
risks.
We
intend
to rely on synergistic partnering with sophisticated industry partners. Our
ideal partner would tend to be a regionally focused independent oil and gas
company that has a demonstrated understanding of the exploration area and
technology required to exploit the opportunity as well as the financial
resources required therefore. There can be no assurance that we will be able
to
successfully negotiate any such partnering agreement or raise the necessary
financing to invest in such a venture, or that any such venture will yield
us
any revenues or profits.
We
continue to target selected acquisitions of proved on-shore properties in the
United States and Canada. We are biased toward acquisitions of long-lived
reserves and intend to target negotiated acquisitions. By focusing our efforts
on negotiated acquisitions, we seek to avoid competitive bidding situations
that
are the norm for the sale of these assets and typically result in higher sales
prices.
We
face
competition from firms that are more established, successful, better capitalized
and, in many instances, willing to pay more for properties than what we might
consider prudent. Our success will depend on the execution of our business
plan
to
|
|
•
|
identify
available transactions;
|
|
|
•
|
effectively
evaluate which transactions are most promising;
and
|
|
|
•
|
negotiate
creative transaction
structures.
|
Presently
our staff consists of our two executive officers, John Folnovic and Massimiliano
Pozzoni. We do not expect significant changes in our number of employees during
the next twelve months.
We
intend
to outsource certain technical and administrative functions on an as-needed
basis in order to conduct our operating activities. Our management team will
select and hire these contractors and manage and evaluate their work
performance.
Business
Strategy
We
plan
to grow our business onshore in the U.S. through a balance of drilling and
acquisition. We will focus our efforts regionally to achieve economies of scale
with predictable risk and bases of production. Our principal goals are to
provide the Company and our shareholders with opportunity, growth and value.
After
examining the fundamentals of the North American energy market over the last
two
years, we have positioned ourselves to pursue the strategies described above
based on the following beliefs about the energy industry:
|
|
|
production
depletion rates in North America will
accelerate;
|
|
|
·
|
finding,
development and operating costs will continue to increase;
and
|
|
|
·
|
conventional
oil and gas production will soon reach a peak from which there will
be no
recovery, regardless of higher prices or improved
technology.
|
We
believe that these trends are becoming more and more evident each day. The
major oil and gas companies have de-emphasized their search for new conventional
oil and gas reserves in North America. As a result of the increased
depletion rates and reduced discovery efforts, North American
conventional production has declined by one-third of previous levels.
It
is our
belief that emerging oil and gas companies, such as us, can effectively position
themselves to take advantage of this opportunity. To that end, we have adopted
the following objectives:
|
|
·
|
Lease
potentially significant productive acreage in under-explored, neglected,
but still highly productive basins such as the Cook Inlet and Beaufort
Sea
areas in Alaska;
|
|
|
·
|
Lease
as much of the potentially productive natural gas acreage in
unconventional gas plays that we can
identify;
|
|
|
·
|
Focus
exclusively onshore in North America (and away from geopolitical
unrest)
where we can benefit from the highly trained and experienced workforce,
large available seismic and well control database, and readily available
drilling and production
technologies;
|
|
|
·
|
Acquire
all of the existing conventional natural gas and oil production and
reserves we can afford; and
|
|
|
·
|
Engage
in low to medium risk exploration and development of oil and gas
reserves
with sophisticated, industry-leading
partners.
|
We
believe that natural gas demand is likely to steadily increase as the U.S.
economy grows and as natural gas is increasingly seen as the most practical
way
to reduce greenhouse gas emissions and reduce the risk of climate change. We
believe these factors will lead to continuing natural gas price strength in
the
years to come. Better technologies applied to unconventional reservoirs in
a
time of structurally higher natural gas prices will result in the discovery
and
development of significant new natural gas reserves.
As
a
result of these trends, we have expanded our focus beyond just Alaska. During
the past two years we have aggressively pursued new unconventional gas resource
plays with potentially substantial upsides. We believe that this course of
action will allow us to be well positioned for future success. Our June 2007
Colorado acquisition is an example of this strategy. Our tactics to execute
our
strategies and achieve our goals and objectives include:
|
|
•
|
Increasing
development of internally generated prospects and
opportunities;
|
|
|
•
|
Funding
prospects developed by proven
geoscientists;
|
|
|
•
|
Completing
negotiated acquisitions of proved
properties;
|
|
|
•
|
Maintaining
tight control of general and administrative and geological and geophysical
costs by keeping employee levels low and outsourcing as much of our
activities as possible;
|
|
|
•
|
Designing
creative deal structures to access acreage, seismic data, prospects
and
capital;
|
|
|
•
|
Arranging
necessary financing to execute the business plan;
and
|
|
|
•
|
Using
equity ownership incentives to align the interests of our employees
and
management with that of our
shareholders.
|
As
we
pursue these objectives, our business will be subject to the risks typically
associated with a start-up company in the competitive and volatile oil and
gas
resources business.
Going
Concern
In
its
report dated July 29, 2008, our auditors, Malone and Bailey, PC expressed an
opinion that there is substantial doubt about our ability to continue as a
going
concern. Our financial statements do not include any adjustments that may result
from the outcome of this uncertainty. We have generated minimal revenues since
our inception. We have an accumulated deficit of $21,005,787 as of April 30,
2008. Our continuation as a going concern is dependent upon future events,
including our ability to raise additional capital and to generate positive
cash
flows.
|
ITEM 7.
|
FINANCIAL
STATEMENTS
|
The
consolidated financial statements are included beginning immediately following
the signature page to this report. See Item 13 for a list of the consolidated
financial statements included herein.
|
ITEM 8.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING,
AND FINANCIAL DISCLOSURE
|
Williams
and Webster, P.S., was our principal independent accountant for the fiscal
year
ended April 30, 2006. On August 31, 2006, we terminated their engagement and
on
September 1, 2006 we engaged Malone & Bailey, PC, as our principal
independent accountant for the fiscal year ending April 30, 2007. The
termination of Williams and Webster, P.S. and appointment of Malone &
Bailey, PC was approved by our board of directors.
The
report of Williams and Webster, P.S. on our financial statements for the year
ended April 30, 2006 contained no adverse opinion or disclaimer of opinion,
nor
was it qualified or modified as to uncertainty, audit scope or accounting
principle except that such report was modified to include an explanatory
paragraph with respect to our ability, in light of our lack of revenues and
history of losses, to continue as a going concern.
In
connection with the audit for the year ended April 30, 2006 and during the
subsequent interim period through August 31, 2006, there were no disagreements
between us and Williams and Webster, P.S. on any matter of accounting principles
or practices, financial statement disclosure, or auditing scope or procedures,
which disagreements, if not resolved to their satisfaction, would have caused
Williams and Webster, P.S. to make reference to the subject matter of the
disagreement in connection with their reports.
In
connection with the audit of the fiscal year ended April 30, 2006 and during
the
subsequent interim period through August 31, 2006, Williams and Webster, P.S.
did not advise us that:
|
|
·
|
internal
controls necessary for us to develop reliable financial statements
did not
exist;
|
|
|
·
|
information
had come to their attention that led them to no longer be able to
rely on
our management’s representations or made them unwilling to be associated
with the financial statements prepared by our management;
|
|
|
·
|
there
was a need to expand significantly the scope of their audit, or that
information had come to their attention during such time periods
that if
further investigated might materially impact the fairness or reliability
of either a previously issued audit report or the underlying financial
statement; or the financial statements issued or to be issued covering
the
fiscal periods subsequent to the date of the most recent financial
statements covered by an audit report; or
|
|
|
·
|
information
had come to their attention that they had concluded materially impacted
the fairness or reliability of either (i) a previously issued audit
report
or the underlying financial statements, or (ii) the financial statements
issued or to be issued covering the fiscal periods subsequent to
the date
of the most recent financial statements covered by an audit report.
|
Prior
to
the engagement of Malone & Bailey, PC we had no consultations or discussions
with Malone & Bailey, PC regarding the application of accounting principles
to a specific completed or contemplated transaction, or the type of audit
opinion that might be rendered by them on our financial statements. Further,
prior to their engagement, we received no oral or written advice from Malone
& Bailey, PC of any kind.
|
ITEM 8A.
|
CONTROLS
AND PROCEDURES
|
Evaluation
of Our Disclosure Controls and Internal Controls
Under
the
supervision and with the participation of our senior management, including
our
chief executive officer and chief financial officer, we conducted an evaluation
of the effectiveness of the design and operation of our disclosure controls
and
procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the
period covered by this annual report (the “Evaluation Date”). Based on this
evaluation, our chief executive officer and chief financial officer concluded
as
of the Evaluation Date that our disclosure controls and procedures were
effective such that the information relating to us, including our consolidated
subsidiaries, required to be disclosed in our Securities and Exchange Commission
(“SEC”) reports (i) is recorded, processed, summarized and reported within the
time periods specified in SEC rules and forms, and (ii) is accumulated and
communicated to our management, including our chief executive officer and chief
financial officer, as appropriate to allow timely decisions regarding required
disclosure.
Our
internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes of accounting
principles generally accepted in the United States. Because of its inherent
limitations, internal control over financial reporting may not prevent or detect
misstatements. Therefore, even those systems determined to be effective can
provide only reasonable assurance of achieving their control objectives. In
evaluating the effectiveness of our internal control over financial reporting,
our management used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (“COSO”) in Internal Control –
Integrated Framework.
This
annual report does not include an attestation report of our registered public
accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation by our registered public
accounting firm pursuant to temporary rules of the Securities and Exchange
Commission that permit us to provide only management’s report in this annual
report.
Officers’
Certifications
Appearing
as exhibits to this Annual Report are “Certifications” of our Chief Executive
Officer and Chief Financial Officer. The Certifications are required pursuant
to
Section 302 of the Sarbanes-Oxley Act of 2002 (the “Section 302
Certifications”). This section of the Annual Report contains information
concerning the Controls Evaluation referred to in the Section 302 Certification.
This information should be read in conjunction with the Section 302
Certifications for a more complete understanding of the topics
presented.
Changes
in Internal Control Over Financial Reporting
There
have been no changes in our internal control over financial reporting that
occurred during the quarter ended April 30, 2008 that have materially affected
or are reasonably likely to materially affect our internal control over
financial reporting.
|
ITEM 8B.
|
OTHER
INFORMATION
|
Not
applicable.
PART
III
|
ITEM 9.
|
DIRECTORS,
EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS
AND CORPORATE GOVERNANCE; COMPLIANCE WITH
SECTION
16(a) OF THE EXCHANGE ACT
|
Executive
Officers, Directors and Key Employees
Directors
serve until the next annual meeting of the stockholders; until their successors
are elected or appointed and qualified, or until their prior resignation or
removal. Officers serve for such terms as determined by our board of directors.
Each officer holds office until such officer’s successor is elected or appointed
and qualified or until such officer’s earlier resignation or removal. No family
relationships exist between any of our present directors and
officers.
The
following table sets forth certain information, as of July 14, 2008, with
respect to our directors and executive officers.
|
Name
|
|
Positions Held
|
|
Age
|
|
Date of Election
or Appointment
as Director
|
|
|
|
|
|
|
|
|
|
John
I. Folnovic
|
|
Chief
Executive Officer, President and Director
|
|
52
|
|
June 1, 2006
|
|
|
|
|
|
|
|
|
|
Massimiliano
Pozzoni
|
|
Secretary,
Treasurer, Chief Financial and Accounting Officer and
Director
|
|
32
|
|
January 27, 2006
|
Certain
biographical information of our directors and officers is set forth
below.
John
I. Folnovic
Mr.
Folnovic has served as our President, Chief Executive Officer and as a Director
since June 1, 2006. Mr. Folnovic is an engineer and a 26-year petroleum industry
veteran. He formerly served as Vice President and Chief Operating Officer of
Dominion Energy Canada Ltd. and President and Chief Executive Officer of
Sunmatrix Petroleum Corporation. Mr. Folnovic also has held senior leadership
positions in BP Canada and Amoco Canada gas and oil business units. He has
led
multidisciplinary teams of geologists, geophysicists, engineers, operations
and
administration staff in managing oil and gas assets generating $300 million
in
revenue and an annual capital budget of $200 million. He played an instrumental
role in the development of BP Canada’s heavy oil assets that were subsequently
sold to Canadian Natural Resources and Penn West Petroleum for $1.6 billion.
Mr.
Folnovic directed operations and a portfolio of assets that produced 60,000
boepd of oil and gas, including thermal heavy oil assets producing 30,000 bpd
of
bitumen. He was a recipient of the Chairman's Award for his work in implementing
project management, risk analysis systems and portfolio management processes
within Amoco Canada. He has held numerous technical, business, and operational
assignments throughout Northern Canada. From 2003 through May 2006, Mr. Folnovic
was Chief Executive Officer of Petrodell Energy Inc., a private oil and gas
company based in Alberta, Canada. From 2000 to 2003 Mr. Folnovic served as
a
Managing Partner of the business consulting firm Myexecutive Inc. and was an
acting CEO and a Director of Sunmatrix Petroleum Corporation from 2001 to 2003.
From 1998 to 2000, Mr. Folnovic was a Vice President and the Chief Operating
Officer of Dominion Energy Canada Ltd.
Massimiliano
Pozzoni
Mr.
Pozzoni has served as an executive officer and a Director since January 27,
2006. Mr. Pozzoni served as our sole executive officer from January 27, 2006
until June 1, 2006. From June 1, 2006 to the present, Mr. Pozzoni has served
as
our Secretary, Treasurer, and Chief Financial and Accounting Officer. From
March
21, 2008 to the present, Mr. Pozzoni has served as a Director and as the
President and Chief Executive and Financial Officer for Cobra Oil & Gas
Company, a U.S. public company involved in exploration stage oil and gas
activities. From March 2004 until January 18, 2007 Mr. Pozzoni served as an
executive officer and Director of Falcon Natural Gas Corp., a U.S. public
company engaged in oil and gas operations. From November 2003 to June 1, 2005,
Mr. Pozzoni served as the Chief Executive Officer and Director of Gulf Coast
Oil
& Gas Inc., formerly Otish Mountain Diamond Company, a public reporting
company. From September 2001 to July 2003, Mr. Pozzoni attended London Business
School on a full-time basis. From June 2002 to August 2002, Mr. Pozzoni was
employed as a Summer Associate at Lehman Brothers Inc. From June 1998 to June
2001, Mr. Pozzoni worked as an engineer at Schlumberger Oilfield Services.
Mr.
Pozzoni received a Bachelor degree in International Business in 1998 from the
University of Kansas and an MBA degree from the London Business School in 2003.
Employment
Agreements
Effective
June 1, 2006 we entered into an Executive Employment Agreement with John
Folnovic pursuant to which Mr. Folnovic serves as our President and Chief
Executive Officer. The Agreement was extended (the “Amendment”) effective each
of June 1, 2007 and 2008 for an additional one-year term. The Executive
Employment Agreement, as extended, has a one-year term and is renewable for
up
to two additional one year terms upon the mutual written consent of the parties.
In consideration of Mr. Folnovic’s serving as an executive officer, we are
paying or providing him with (i) a base annual salary of $120,000; (ii)
reimbursement of applicable business expenses; (iii) the right to participate
in
all health insurance or other employee benefit plans that we may adopt in the
future; and (iv) the right to participate in any incentive programs, stock
option plans or bonus programs that we may implement in the future.
The
Executive
Employment
Agreement and the employment relationship created thereby, will terminate upon
the death or disability of Mr. Folnovic, and may be terminated by us with or
without cause or by Mr. Folnovic for good reason. In the event the Executive
Employment Agreement is terminated by us without cause or by Mr. Folnovic for
good reason, Mr. Folnovic will be entitled to receive, in addition to any
accrued salary, an amount equal to the greater of (i) three months salary or
(ii) the remaining salary for the then current term.
On
May
28, 2007 John Folnovic entered into a Stock Purchase Agreement with Massimiliano
Pozzoni, our principal shareholder, pursuant to which Mr. Pozzoni sold
15,500,000 shares of our common stock to Mr. Folnovic at a price of $0.015
per
share or an aggregate of $232,500. Although Mr. Folnovic was given good and
marketable title to such shares free and clear of any and all liens, claims,
encumbrances and adverse interest of any kind, Mr. Folnovic is not required
to
pay for the shares until 30 days following the occurrence of a “Liquidity
Event”. For purposes of the Stock Purchase Agreement, a Liquidity Event is
defined as (i) a Qualified IPO, (ii) a sale of any or all of the shares by
Mr.
Folnovic resulting in proceeds to Mr. Folnovic with a value of at least $1
million, (iii) receipt by Mr. Folnovic of cash or readily marketable property
as
dividends from us with respect to the shares (other than stock dividends) in
an
aggregate amount of at least $1 million or (iv) merger or consolidation of
us
resulting in cash proceeds or readily marketable proceeds to Mr. Folnovic with
respect to the shares of at least $1 million. The term “Qualified IPO” means our
first underwritten public offering pursuant to an effective registration
statement under the Securities Act of 1933, as amended, provided that (a) such
registration covers the offer and sale of common stock with aggregate proceeds
to us of at least $20 million, (b) such common stock is listed for trading
either on the New York Stock Exchange, American Stock Exchange or the NASDAQ
National Market, and (c) the per share public offering price for such common
stock net of underwriter discounts and commissions exceeds $2.50 per share
(adjusted appropriately for stock splits, stock dividends, recapitalizations
and
the like). In the event a Liquidity Event does not occur prior to June 30,
2017,
Mr. Folnovic has the right to rescind his acquisition of the shares. In such
event, Mr. Folnovic will be entitled to retain all dividends, distributions,
or
other rights or profits received by him as a result of his ownership of the
shares.
The
Executive Employment Agreement originally provided Mr. Folnovic with the right
to receive one million shares of our common stock at the end of every year
of
service under the Executive Employment Agreement up to a maximum aggregate
of
five million shares. In consideration of the Stock Purchase Agreement, Mr.
Folnovic agreed to waive this right as set forth in the
Amendment.
Massimiliano
Pozzoni works for us pursuant to a verbal arrangement under which we currently
pay Mr. Pozzoni $5,000 per month and reimburse his reasonable business expenses.
Prior to February 1, 2008 we were paying Mr. Pozzoni $10,000 per
month.
Term
of Office
Our
directors are appointed for a period of one year or until such time as their
replacements have been elected by our shareholders. The officers of the Company
are appointed by our board of directors and hold office until their resignation
or removal.
Audit
Committee
We
do not
have a standing audit committee, an audit committee financial expert, or any
committee or person performing a similar function. We currently have limited
working capital and revenues. Management does not believe that it would be
in
our best interests at this time to retain independent directors to sit on an
audit committee. If we are able to raise sufficient financing in the future,
then we will likely seek out and retain independent directors and form audit,
compensation, and other applicable committees.
Board
of Directors
Our
only
directors are our two executive officers, neither of which is independent.
We do
not pay them for attending board meetings. They are reimbursed, however, for
their expenses, if any, for attendance at meetings of the Board of Directors.
Our Board of Directors may designate from among its members an executive
committee and one or more other committees but has not done so to date. We
do
not have a nominating committee or a nominating committee charter. Further,
we
do not have a policy with regard to the consideration of any director candidates
recommended by security holders. To date this has not been a problem as no
security holders have made any such recommendations. Our two directors perform
all functions that would otherwise be performed by committees. Given the present
size of our board it is not practical for us to have committees. If we are
able
to grow our business and increase our operations we intend to expand the size
of
our board and allocate responsibilities accordingly.
Compliance
with Section 16(a) of the Exchange Act
Section
16(a) of the Exchange Act, as amended, requires that our directors, executive
officers and persons who own more than 10% of a class of our equity securities
that are registered under the Exchange Act to file with the Commission initial
reports of ownership and reports of changes of ownership of such registered
securities.
To
our
knowledge, based solely on a review of copies of such reports, no person
required to file such a report failed to file a required report with respect
to
the fiscal year covered by this report.
Code
of Ethics
On
August
1, 2006 we adopted a Code of Ethics that applies to our principal executive
officer, principal financial officer, principal accounting officer or
controller, persons performing similar functions as well as to our directors
and
employees. A copy of our Code of Ethics will be provided to any person
requesting same without charge. To request a copy of our Code of Ethics please
make written request to our President c/o True North Energy Corporation at
2
Allen Center, 1200 Smith Street, 16
th
Floor,
Houston, TC 77002.
|
ITEM 10.
|
EXECUTIVE
COMPENSATION
|
The
following table sets forth information concerning the total compensation paid
or
accrued by us during the two fiscal years ended April 30, 2008 and 2007 to
(i)
all individuals that served as our principal executive officer or acted in
a
similar capacity for us at any time during the fiscal year ended April 30,
2008;
(ii) all individuals that serve as our principal financial officer or acted
in a
similar capacity for us at any time during the fiscal year ended April 30,
2008;
and (iii) all individuals that served as executive officers of ours at any
time
during the fiscal year ended April 30, 2008 that received annual compensation
during the fiscal year ended April 30, 2008 in excess of
$100,000.
Summary
Compensation Table
|
Name and
Principal Position
|
|
Year
|
|
Salary
($)
|
|
Bonus
($)
|
|
Stock
Awards
($)
|
|
Option
Awards
($)
|
|
Non-
Equity
Incentive
Plan
Compensation
($)
|
|
Change in
Pension
Value
and
Non-
qualified
Deferred
Compensation
Earnings
($)
|
|
All
Other
Compensation
($)
|
|
Total
($)
|
|
|
(a)
|
|
(b)
|
|
(c)
|
|
(d)
|
|
(e)
|
|
(f)
|
|
(g)
|
|
(h)
|
|
(i)
|
|
(j)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John Folnovic,
(1)
Chief Executive
Officer
|
|
|
2008
2007
|
|
|
120,000
117,828
|
|
|
0
0
|
|
|
0
0
|
|
|
0
0
|
|
|
0
0
|
|
|
0
0
|
|
|
0
0
|
|
|
0
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Massimiliano
Pozzoni, Chief
Financial Officer
|
|
|
2008
2007
|
|
|
105,000
130,000
|
|
|
0
0
|
|
|
0
0
|
|
|
0
0
|
|
|
0
0
|
|
|
0
0
|
|
|
0
0
|
|
|
0
0
|
|
|
(1)
|
John
Folnovic has served as our Chief Executive Officer and as a Director
since
June 1, 2006.
|
|
(2)
|
Massimiliano
Pozzoni served as our sole executive officer and as a Director from
January 27, 2006 until June 1, 2006. From June 1, 2006 to the present,
Mr.
Pozzoni has continued to serve as our Secretary, Treasurer, Chief
Financial and Accounting Officer and as a Director.
|
We
have
not issued any stock options or maintained any stock option or other incentive
plans since our inception. We have no plans in place and have never maintained
any plans that provide for the payment of retirement benefits or benefits that
will be paid primarily following retirement including, but not limited to,
tax
qualified deferred benefit plans, supplemental executive retirement plans,
tax-qualified deferred contribution plans and nonqualified deferred contribution
plans. Similarly, except as provided herein with respect to our Executive
Employment Agreement with John Folnovic, we have no contracts, agreements,
plans
or arrangements, whether written or unwritten, that provide for payments to
the
named executive officers or any other persons following, or in connection with
the resignation, retirement or other termination of a named executive officer,
or a change in control of us or a change in a named executive officer’s
responsibilities following a change in control.
Compensation
of Directors
None
of
our directors receive any compensation for serving as such, for serving on
committees of the board of directors or for special assignments. During the
fiscal year ended April 30, 2008 there were no other arrangements between us
and
our directors that resulted in our making payments to any of our directors
for
any services provided to us by them as directors.
|
ITEM 11.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
AND RELATED STOCKHOLDER
MATTERS
|
The
following table sets forth information with respect to the beneficial ownership
of our common stock known by us as of July 23, 2008 by:
|
|
·
|
each
person or entity known by us to be the beneficial owner of more
than 5% of
our common stock;
|
|
|
·
|
each
of our executive officers; and
|
|
|
·
|
all
of our directors and executive officers as a group.
|
The
percentages in the table have been calculated on the basis of treating as
outstanding for a particular person, all shares of our common stock outstanding
on such date and all shares of our common stock issuable to such holder in
the
event of exercise of outstanding options, warrants, rights or conversion
privileges owned by such person at said date which are exercisable within 60
days of July 23, 2008. Except as otherwise indicated, the persons listed below
have sole voting and investment power with respect to all shares of our common
stock owned by them, except to the extent such power may be shared with a
spouse.
|
Name and Address of
Beneficial Owner
|
|
Title of Class
|
|
Amount and
Nature
of Beneficial
Ownership(1)
|
|
Percentage
of
Class(2)
|
|
|
|
|
|
|
|
|
|
|
|
Massimiliano
Pozzoni
2
Allen Center
1200
Smith Street
16
th
Floor
Houston,
TX 77002
|
|
Common
Stock, par value $0.0001 per share
|
|
19,250,000
Shares (Direct)
|
|
27.49
|
%
|
|
|
|
|
|
|
|
|
|
|
John
Folnovic
2
Allen Center
1200
Smith Street
16
th
Floor
Houston,
TX 77002
|
|
Common
Stock, par value $0.0001 per share
|
|
15,500,000
Shares
|
|
22.14
|
%
|
|
|
|
|
|
|
|
|
|
|
All
officers and directors as a group (2 persons)
|
|
Common
Stock, par value $0.0001 per share
|
|
34,750,000
Shares
|
|
49.63
|
%
|
|
|
(1)
|
As
used herein, the term beneficial ownership with respect to a security
is
defined by Rule 13d-3 under the Securities Exchange Act of 1934 as
consisting of sole or shared voting power (including the power to
vote or
direct the vote) and/or sole or shared investment power (including
the
power to dispose or direct the disposition of) with respect to the
security through any contract, arrangement, understanding, relationship
or
otherwise, including a right to acquire such power(s) during the
next 60
days. Unless otherwise noted, beneficial ownership consists of sole
ownership, voting and investment
rights.
|
|
|
(2)
|
There
were 71,016,758 shares of common stock issued and outstanding on
July23,
2008.
|
Changes
in Control
Not
Applicable.
|
ITEM 12.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTOR
INDEPENDENCE
|
Effective
June 1, 2006 we entered into an Executive Employment Agreement with John
Folnovic pursuant to which Mr. Folnovic serves as our President and Chief
Executive Officer. See Item 9. Employment Agreements.
Massimiliano
Pozzoni serves as our Secretary, Treasurer and Chief Financial and Accounting
Officer under a verbal month-to-month agreement. See Item 9. Employment
Agreements.
Effective
January 27, 2006 we issued ten million shares of our restricted common stock
to
Massimiliano Pozzoni in consideration of our acquisition of certain State of
Alaska oil and gas leases from Mr. Pozzoni. See Item 5, Recent Sales of
Registered Securities and Item 1, Description of Business.
We
believe that all related party transactions have been entered into upon terms
no
less favorable to us than those that could be obtained from unaffiliated third
parties. Our reasonable belief of fair value is based upon proximate similar
transactions with third parties or attempts to obtain the consideration from
third parties.
ITEM
13.
EXHIBITS
|
Financial
Statements
|
|
Page
|
|
|
|
|
|
Report
of Independent Registered Public Accounting Firm
|
|
F-2
|
|
|
|
|
|
Consolidated
Balance Sheets as of April 30, 2008 and 2007
|
|
F-3
|
|
|
|
|
|
Consolidated
Statements of Operations for the years ended April 30, 2008 and
2007
|
|
F-4
|
|
|
|
|
|
Consolidated
Statements of Cash Flows for the years ended April 30, 2008 and
2007
|
|
F-5
|
|
|
|
|
|
Consolidated
Statements of Changes in Stockholders’ Equity for the
years
|
|
|
|
ended
April 30, 2007 and 2008
|
|
F-6
|
|
|
|
|
|
Notes
to Consolidated Financial Statements
|
|
F-7
|
Financial
Statement Schedules
All
financial statement schedules are omitted because they are not applicable or
the
required information is shown in the financial statements or notes
thereto.
Exhibits
The
following exhibits are included as part of this report:
|
Exhibit
No.
|
|
SEC Report
Reference No.
|
|
Description
|
|
|
|
|
|
|
|
3.1
|
|
3.1
|
|
Articles
of Incorporation (1)
|
|
|
|
|
|
|
|
3.2
|
|
3.2
|
|
By-Laws
(1)
|
|
|
|
|
|
|
|
3.3
|
|
Appendix A
|
|
Form
of Certificate of Amendment to Articles of Incorporation
(2)
|
|
|
|
|
|
|
|
3.4
|
|
Appendix A
|
|
Form
of Certificate of Amendment to Articles of Incorporation
(3)
|
|
|
|
|
|
|
|
3.5
|
|
3.1
|
|
Certificate
of Amendment to Articles of Incorporation as filed with the Nevada
Secretary of State on October 9, 2007 (20)
|
|
|
|
|
|
|
|
4.1
|
|
4.1
|
|
$500,000
Convertible Promissory Note of Registrant dated March 30, 2007
(4)
|
|
|
|
|
|
|
|
4.2
|
|
4.1
|
|
Secured
$125,000 Promissory Note of Registrant dated August 20, 2007 issued
to T.
Swanson, Inc. (16)
|
|
|
|
|
|
|
|
4.3
|
|
4.2
|
|
Secured
$125,000 Promissory Note of Registrant dated August 20, 2007 issued
to
Uphill Limited Liability Company, Steven J. Revenig, Trustee
(16)
|
|
|
|
|
|
|
|
4.4
|
|
4.1
|
|
Convertible
$250,000 Promissory Note of Registrant dated April 10, 2007 issued
to
EH&P Investments AG (18)
|
|
|
|
|
|
|
|
4.5
|
|
4.2
|
|
Convertible
$250,000 Promissory Note of Registrant dated May 15, 2007 issued
to
EH&P Investments AG (18)
|
|
|
|
|
|
|
|
4.6
|
|
4.3
|
|
Warrant
of Registrant dated August 30, 2007 issued to EH&P Investments AG for
the exercise of 182,249 shares (18)
|
|
|
|
|
|
|
|
4.7
|
|
4.4
|
|
Warrant
of Registrant dated August 30, 2007 issued to EH&P Investments AG for
the exercise of 298,330 shares (18)
|
|
|
|
|
|
|
|
4.8
|
|
4.1
|
|
$1,874,596
Secured Term Note of Registrant and ICF Energy Corp. dated September
18,
2007 issued to Valens Offshore SPV II, Corp.
(19)
|
|
4.9
|
|
4.2
|
|
$1,875,404
Secured Term Note of Registrant and ICF Energy Corp. dated September
18,
2007 issued to Valens Offshore SPV I, LLC (19)
|
|
|
|
|
|
|
|
4.10
|
|
4.3
|
|
Warrant
of Registrant dated September 18, 2007 issued to Valens Offshore
SPV II,
Corp. for the exercise of 976,353 shares (19)
|
|
|
|
|
|
|
|
4.11
|
|
4.4
|
|
Warrant
of Registrant dated September 18, 2007 issued to Valens U.S. SPV
I, LLC
for the exercise of 976,773 shares (19)
|
|
|
|
|
|
|
|
4.12
|
|
4.5
|
|
Warrant
of ICF Energy Corporation dated September 18, 2007 issued to Valens
Offshore SPV II, Corp. for the exercise of 499 shares
(19)
|
|
|
|
|
|
|
|
4.13
|
|
4.6
|
|
Warrant
of ICF Energy Corporation dated September 18, 2007 issued to Valens
U.S.
SPV I, LLC for the exercise of 501 shares (19)
|
|
|
|
|
|
|
|
4.14
|
|
4.1
|
|
Warrant
of Registrant dated September 19, 2007 issued to Energy Capital Solutions,
LP for the exercise of 300,000 shares (20)
|
|
|
|
|
|
|
|
4.15
|
|
4.1
|
|
$1,964.195.80
Amended and Restated Secured Term Note of Registrant and ICF Energy
Corp.
dated March 31, 2008 issued to Valens Offshore SPV II, Corp.
(22)
|
|
|
|
|
|
|
|
4.16
|
|
4.2
|
|
$1,967,687.04
Amended and Restated Secured Term Note of Registrant and ICF Energy
Corp.
dated March 31, 2008 issued to Valens U.S. SPV I, LLC
(22)
|
|
|
|
|
|
|
|
10.1
|
|
10.1
|
|
Asset
Purchase Agreement, dated January 23, 2006 among Registrant, Massimiliano
Pozzoni and Kevin Moe (5)
|
|
|
|
|
|
|
|
10.2
|
|
10.2
|
|
Purchase
Agreement dated as of May 9, 2006 between Registrant and Daniel K.
Donkel
and Samuel H. Cade (6)
|
|
|
|
|
|
|
|
10.3
|
|
10.1
|
|
Employment
Agreement dated as of June 1, 2006 between Registrant and John Folnovic
(7)
|
|
|
|
|
|
|
|
10.4
|
|
10.1
|
|
Participation
Agreement effective as of June 7, 2006 between Registrant and Bayou
City
Exploration Inc. regarding the Frost National Bank Deep Prospect
(8)
|
|
10.5
|
|
10.2
|
|
Participation
Agreement effective as of June 7, 2006 between Registrant and Bayou
City
Exploration Inc. regarding the Windfall Prospect (8)
|
|
|
|
|
|
|
|
10.6
|
|
10.3
|
|
Participation
Agreement effective as of June 7, 2006 between Registrant and Bayou
City
Exploration Inc. regarding the Zodiac II Prospect (8)
|
|
|
|
|
|
|
|
10.7
|
|
10.1
|
|
Participation
Agreement effective as of July 28, 2006 between Registrant and Whitmar
Exploration Company regarding the Deweyville Prospect
(9)
|
|
|
|
|
|
|
|
10.8
|
|
10.2
|
|
Amendment
to Purchase Agreement dated July 31, 2006 between Registrant and
Daniel K.
Donkel and Samuel H. Cade (9)
|
|
|
|
|
|
|
|
10.9
|
|
10.1
|
|
Development
Agreement effective as of October 1, 2006 between Registrant and
BP
America Production Company (10)
|
|
|
|
|
|
|
|
10.10
|
|
10.1
|
|
Form
of Engagement Letter Agreement with Advisory Board Members dated
October
5, 2006 (11)
|
|
|
|
|
|
|
|
10.11
|
|
10.2
|
|
Letter
Agreement dated November 13,2 006 (executed November 22, 2006) with
Savant
Alaska LLC regarding Kupcake Prospect (11)
|
|
|
|
|
|
|
|
10.12
|
|
10.3
|
|
Letter
Agreement dated December 1, 2006 with BP America Production Company
(11)
|
|
|
|
|
|
|
|
10.13
|
|
10.1
|
|
Development
Agreement effective as of January 1, 2007 between Registrant and
BP
America Production Company (12)
|
|
|
|
|
|
|
|
10.14
|
|
10.1
|
|
Letter
Agreement dated March 20, 2007 between Registrant and BP America
Production Company (13)
|
|
|
|
|
|
|
|
10.15
|
|
10.2
|
|
Letter
Agreement dated March 27, 2007 between Registrant and BP America
Production Company (13)
|
|
|
|
|
|
|
|
10.16
|
|
10.1
|
|
Letter
of Intent dated March 20, 2007 between Registrant and each of Angel
LLC,
CN Energy LLC, Swanson Energy Company, LLC, Fuel Exploration, LLC,
MHBL
Energy, LLC and Rocky Mountain Rig, LLC (4)
|
|
|
|
|
|
|
|
10.17
|
|
10.1
|
|
Purchase
and Sale Agreement dated June 21, 2007 between Registrant and Constance
Knight (14)
|
|
10.18
|
|
10.18
|
|
Amendment
to Executive Employment Agreement between Registrant and John Folnovic
made as of May 28, 2007 (15)
|
|
|
|
|
|
|
|
10.19
|
|
10.1
|
|
Purchase
and Sale Agreement made as of August 31, 2007 by and between Prime
Natural
Resources, Inc. and ICF Energy Corporation (17)
|
|
|
|
|
|
|
|
10.20
|
|
10.01
|
|
Securities
Purchase Agreement dated as of September 18, 2007 among Registrant,
ICF
Energy Corporation, Valens U.S. SPV I, LLC as Agent and Valens U.S.
SPV I,
LLC and Valens Offshore SPV II, Corp. as Purchasers
(19)
|
|
|
|
|
|
|
|
10.21
|
|
10.02
|
|
Registration
Rights Agreement dated as of September 18, 2007 between Registrant
and
Valens Offshore SPV II, Corp. (19)
|
|
|
|
|
|
|
|
10.22
|
|
10.03
|
|
Registration
Rights Agreement dated as of September 18, 2007 between Registrant
and
Valens U.S. SPV I, LLC. (19)
|
|
|
|
|
|
|
|
10.23
|
|
10.04
|
|
Registration
Rights Agreement dated as of September 18, 2007 between ICF Energy
Corp.
and Valens Offshore SPV II, Corp. (19)
|
|
|
|
|
|
|
|
10.24
|
|
10.05
|
|
Registration
Rights Agreement dated as of September 18, 2007 between ICF Energy
Corp.
and Valens U.S. SPV I, LLC. (19)
|
|
|
|
|
|
|
|
10.25
|
|
10.06
|
|
Stock
Pledge Agreement dated as of September 18, 2007 between Valens U.S.
SPV I,
LLC, as Agent, and Registrant. (19)
|
|
|
|
|
|
|
|
10.26
|
|
10.07
|
|
Subordination
Agreement dated as of September 18, 2007 among EH&P Investments AG,
Valens U.S. SPV I, LLC, as Agent, Registrant, and ICF Energy Corporation.
(19)
|
|
|
|
|
|
|
|
10.27
|
|
10.08
|
|
Assignment,
Bill of Sale and Conveyance dated September 18, 2007 between Prime
Natural
Resources, Inc. and ICF Energy Corporation. (19)
|
|
|
|
|
|
|
|
10.28
|
|
10.09
|
|
Collateral
Assignment dated as of September 18, 2007 among Registrant, ICF Energy
Corporation and Valens U.S. SPV I, LLC, as Agent.
(19)
|
|
10.29
|
|
10.10
|
|
Master
Security Agreement dated as of September 18, 2007 among Registrant,
ICF
Energy Corporation and Valens U.S. SPV I, LLC, as Agent.
(19)
|
|
|
|
|
|
|
|
10.30
|
|
10.11
|
|
Funds
Escrow Agreement dated as of September 18, 2007 among Registrant,
ICF
Energy Corporation, Valens U.S. SPV I, LLC, as Agent, Valens Offshore
SPV
II, Corp. and Loeb & Loeb, LLP. (19)
|
|
|
|
|
|
|
|
10.31
|
|
10.12
|
|
Agreement
to Execute Shareholders’ Agreement dated as of September 18, 2007 among
Registrant, ICF Energy Corporation and Valens U.S. SPV I, LLC and
Valens
Offshore SPV II, Corp. (19)
|
|
|
|
|
|
|
|
10.32
|
|
10.13
|
|
Post
Closing Letter Agreement dated as of September 18, 2007 between Registrant
and Valens U.S. SPV I, LLC. (19)
|
|
|
|
|
|
|
|
10.33
|
|
10.14
|
|
Piggyback
Registration Rights Agreement dated as of September 18, 2007 between
Registrant and Prime Natural Resources, Inc. (19)
|
|
|
|
|
|
|
|
10.34
|
|
10.1
|
|
Notes
Amendment Agreement dated as of December 7, 2007 by and among Registrant,
ICF Energy Corporation, Valens U.S. SPV I, LLC and Valens Offshore
SPV II,
Corp. (20)
|
|
|
|
|
|
|
|
10.35
|
|
10.2
|
|
Pooling
Agreement effective as of July 1, 2007 between Savant Alaska, LLC
and
Registrant (20)
|
|
|
|
|
|
|
|
10.36
|
|
10.36
|
|
Consulting
Agreement dated December 21, 2007 between Prime Natural Resources,
Inc.
and Registrant (21)
|
|
|
|
|
|
|
|
10.37
|
|
10.37
|
|
Acreage
Contribution Contract effective as of January 23, 2008 between Savant
Alaska, LLC and Registrant (21)
|
|
|
|
|
|
|
|
10.38
|
|
*
|
|
Consulting
Agreement dated June 30, 2008 between Prime Natural Resources, Inc.
and
Registrant
|
|
|
|
|
|
|
|
10.39
|
|
10.1
|
|
Registration
Rights Agreement dated as of March 31, 2008 among Registrant, Valens
Offshore SPV II, Corp. and Valens U.S. SPV I, LLC (22)
|
|
|
|
|
|
|
|
10.40
|
|
10.2
|
|
Funds
Escrow Agreement dated as of March 31, 2008 among Registrant, ICF
Energy
Corporation, Valens U.S. SPV I, LLC, Valens Offshore SPV II, Corp.
and
Loeb & Loeb, LLP. (22)
|
|
|
|
|
|
|
|
21
|
|
*
|
|
List
of Subsidiaries of Registrant
|
|
23.1
|
|
*
|
|
Consent
of Netherland, Sewell & Associates, Inc.
|
|
|
|
|
|
|
|
31.1
|
|
*
|
|
Rule
13(a) – 14(a) / 15(d) – 14(a) Certification of Principal
Executive Officer
|
|
|
|
|
|
|
|
31.2
|
|
*
|
|
Rule
13(a) – 14(a) / 15(d) – 14(a) Certification of Principal Financial
Officer
|
|
|
|
|
|
|
|
32.1
|
|
*
|
|
Rule
1350 Certificate of Chief Executive Officer
|
|
|
|
|
|
|
|
32.2
|
|
*
|
|
Rule
1350 Certificate of Chief Financial Officer
|
|
|
|
|
|
|
|
99.1
|
|
*
|
|
Estimated
Reserves and Future Net Revenue Report prepared by Netherland, Sewell
& Associates, Inc.
|
(1)
Filed
with the Securities and Exchange Commission on June 4, 2004 as an exhibit,
numbered as indicated above, to the Registrant’s Registration Statement on Form
SB-2 (Registration No. 333-116169), which exhibits are incorporated herein
by
reference.
(2)
Filed
with the Securities and Exchange Commission on February 24, 2006 as an exhibit,
numbered as indicated above, to the Registrant’s Definitive Information
Statement dated February 23, 2006, which exhibit is incorporated herein by
reference.
(3)
Filed
with the Securities and Exchange Commission on May 29, 2007 as an exhibit,
numbered as indicated above, to the Registrant’s Definitive Information
Statement dated May 29, 2007, which exhibit is incorporated herein by
reference.
(4)
Filed
with the Securities and Exchange Commission on April 5, 2007 as an exhibit,
numbered as indicated above, to the Registrant’s Current Report on Form 8-K
dated March 20, 2007, which exhibit is incorporated herein by
reference.
(5)
Filed
with the Securities and Exchange Commission on January 27, 2006 as an exhibit,
numbered as indicated above, to the Registrant’s Current Report on Form 8-K
dated January 23, 2006, which exhibit is incorporated herein by
reference.
(6)
Filed
with the Securities and Exchange Commission on May 17, 2006 as an exhibit,
numbered as indicated above, to the Registrant’s Current Report on Form 8-K
dated May 9, 2006, which exhibit is incorporated herein by
reference.
(7)
Filed
with the Securities and Exchange Commission on June 6, 2006 as an exhibit,
numbered as indicated above, to the Registrant’s Current Report on Form 8-K
dated June 1, 2006, which exhibit is incorporated herein by
reference.
(8)
Filed
with the Securities and Exchange Commission on June 12, 2006 as an exhibit,
numbered as indicated above, to the Registrant’s Current Report on Form 8-K
dated June 7, 2006, which exhibit is incorporated herein by
reference.
(9)
Filed
with the Securities and Exchange Commission on August 1, 2006 as an exhibit,
numbered as indicated above, to the Registrant’s Current Report on Form 8-K
dated July 27, 2006, which exhibit is incorporated herein by
reference.
(10)
Filed
with the Securities and Exchange Commission on October 10, 2006 as an exhibit,
numbered as indicated above, to the Registrant’s Current Report on Form 8-K
dated October 6, 2006, which exhibit is incorporated herein by
reference.
(11)
Filed
with the Securities and Exchange Commission on December 15, 2006 as an exhibit
numbered as indicated above, to the Registrant’s Quarterly Report on Form 10-QSB
for the quarter ended October 31, 2006, which exhibit is incorporated herein
by
reference.
(12)
Filed
with the Securities and Exchange Commission on February 8, 2007 as an exhibit,
numbered as indicated above, to the Registrant’s Current Report on Form 8-K
dated February 7, 2007, which exhibit is incorporated herein by
reference.
(13)
Filed
with the Securities and Exchange Commission on April 2, 2007 as an exhibit,
numbered as indicated above, to the Registrant’s Current Report on Form 8-K
dated March 26, 2007, which exhibit is incorporated herein by
reference.
(14)
Filed
with the Securities and Exchange Commission on June 29, 2007 as an exhibit,
numbered as indicated above, to the Registrant’s Current Report on Form 8-K
dated June 21, 2007, which exhibit is incorporated herein by
reference.
(15)
Filed
with the Securities and Exchange Commission on July 30, 2007 as an exhibit,
numbered as indicated above, to the Registrant’s Annual Report on Form 10-KSB
dated April 30, 2007, which exhibit is incorporated herein by
reference.
(16)
Filed
with the Securities and Exchange Commission on August 28, 2007 as an exhibit,
numbered as indicated above, to the Registrant’s Current Report on Form 8-K
dated August 23, 2007, which exhibit is incorporated herein by
reference.
(17)
Filed
with the Securities and Exchange Commission on September 7, 2007 as an exhibit,
numbered as indicated above, to the Registrant’s Current Report on Form 8-K
dated August 31, 2007, which exhibit is incorporated herein by
reference.
(18)
Filed
with the Securities and Exchange Commission on September 19, 2007 as an exhibit,
numbered as indicated above, to the Registrant’s Quarterly Report on Form 10-QSB
dated July 31, 2007, which exhibit is incorporated herein by
reference.
(19)
Filed
with the Securities and Exchange Commission on September 24, 2007 as an exhibit,
numbered as indicated above, to the Registrant’s Current Report on Form 8-K
dated September 18, 2007, which exhibit is incorporated herein by
reference.
(20)
Filed
with the Securities and Exchange Commission on December 17, 2007 as an exhibit,
numbered as indicated above, to the Registrant’s Quarterly Report on Form 10-QSB
dated October 31, 2007, which exhibit is incorporated herein by
reference.
(21)
Filed
with the Securities and Exchange Commission on January 31, 2008 as an exhibit,
numbered as indicated above, to the Registrant’s Registration Statement on Form
SB-2, which exhibit is incorporated herein by reference.
(22)
Filed
with the Securities and Exchange Commission on April 4, 2008 as an exhibit,
numbered as indicated above, to the Registrant’s Current Report on Form 8-K
dated March 31, 2008, which exhibit is incorporated herein by
reference.
*
Filed
herewith.
ITEM
14.
PRINCIPAL
ACCOUNTANT FEES AND SERVICES
Audit
Fees
.
The
aggregate fees billed to us by our principal accountant for services rendered
during the fiscal years ended April 30, 2007 and 2006 are set forth in the
table
below:
|
Fee Category
|
|
Fiscal year ended
April 30, 2008
|
|
Fiscal year ended
April 30, 2007
|
|
|
|
|
|
|
|
|
|
Audit
fees (1)
|
|
$
|
90,516
|
|
$
|
53,800
|
|
|
|
|
|
|
|
|
|
|
|
Audit-related
fees (2)
|
|
|
0
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
Tax
fees (3)
|
|
|
0
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
All
other fees (4)
|
|
|
0
|
|
|
1,200
|
|
|
|
|
|
|
|
|
|
|
|
Total
fees
|
|
$
|
|
|
$
|
55,000
|
|
(1)
Audit
fees consist of fees incurred for professional services rendered for the audit
of consolidated financial statements, for reviews of our interim consolidated
financial statements included in our quarterly reports on Form 10-QSB and for
services that are normally provided in connection with statutory or regulatory
filings or engagements.
(2)
Audit-related fees consist of fees billed for professional services that are
reasonably related to the performance of the audit or review of our consolidated
financial statements, but are not reported under “Audit fees.”
(3)
Tax
fees consist of fees billed for professional services relating to tax
compliance, tax planning, and tax advice.
(4)
All
other fees consist of fees billed for all other services.
Audit
Committee’s Pre-Approval Practice
.
We
do not
have an audit committee. Our board of directors performs the function of an
audit committee. Section 10A(i) of the Securities Exchange Act of 1934, as
amended, prohibits our auditors from performing audit services for us as well
as
any services not considered to be audit services unless such services are
pre-approved by our audit committee or, in cases where no such committee exists,
by our board of directors (in lieu of an audit committee) or unless the services
meet certain de minimis standards.
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended, the Registrant has duly caused this report to be signed on
its
behalf by the undersigned, thereunto duly authorized.
|
|
TRUE NORTH ENERGY CORPORATION
|
|
|
|
|
|
Dated: July 29, 2008
|
By:
|
/a/ John Folnovic
|
|
|
|
|
John I. Folnovic, President and
|
|
|
|
Chief Executive Officer
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on this 29
th
day of
July, 2008.
|
|
/s/
John Folnovic
|
|
|
|
John
I. Folnovic, President, Chief Executive Officer and
Director
|
|
|
|
|
|
|
|
|
/s/
Massimiliano Pozzoni
|
|
|
|
Massimiliano
Pozzoni, Secretary, Treasurer, Chief Financial and Accounting Officer
and
Director
|
PART
II – FINANCIAL INFORMATION
ITEM
7. FINANCIAL STATEMENTS
|
|
PAGE
|
|
|
|
|
Report
of Independent Registered Public Accounting Firm
|
F-2
|
|
|
|
|
Consolidated
Balance Sheets as of April 30, 2008 and 2007
|
F-3
|
|
|
|
|
Consolidated
Statements of Operations for the years ended April 30, 2008 and
2007
|
F-4
|
|
|
|
|
Consolidated
Statements of Cash Flows for the years ended April 30, 2008 and
2007
|
F-5
|
|
|
|
|
Consolidated
Statements of Changes in Stockholders’ Equity for the years ended April
30, 2007 and 2008
|
F-6
|
|
|
|
|
Notes
to Consolidated Financial Statements
|
F-7
|
Report
of Independent Registered Public Accounting Firm
To
the
Board of Directors
True
North Energy Corporation
Houston,
Texas
We
have
audited the accompanying consolidated balance sheets of True North Energy
Corporation (the “Company”) as of April 30, 2008 and 2007 and the related
consolidated statements of operations, stockholders’ equity, and cash flows for
the years ended April 30, 2008 and 2007. 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 audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform an audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for purposes of expressing an opinion
on the effectiveness of the Company's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining,
on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In
our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of the Company as of April 30, 2008
and 2007 and the results of operations and cash flows for the years ended April
30, 2008 and 2007, in conformity with accounting principles generally accepted
in the United States of America.
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 had minimal revenues and has accumulated losses
since its inception, which raises substantial doubt about its ability to
continue as a going concern. Management’s plans regarding those matters also are
described in Note 1. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
Malone
& Bailey PC
www.malone-bailey.com
Houston,
Texas
July
29,
2008
TRUE
NORTH ENERGY CORPORATION
Consolidated
Balance Sheets
|
|
|
April 30,
|
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
228,094
|
|
$
|
267,845
|
|
|
Accounts
receivable
|
|
|
274,669
|
|
|
-
|
|
|
Prepaid
expenses and other current assets
|
|
|
231,888
|
|
|
385,009
|
|
|
Note
receivable
|
|
|
-
|
|
|
180,000
|
|
|
Total
current assets
|
|
|
734,651
|
|
|
832,854
|
|
|
Website
development, net of accumulated amortization of $17,150 and $9,172,
respectively
|
|
|
6,776
|
|
|
14,754
|
|
|
Property
and equipment, net of accumulated depreciation of $4,611 and
$
1,875, respectively
|
|
|
6,613
|
|
|
9,349
|
|
|
Oil
and gas properties, using successful efforts accounting
method,
including unproven properties of $2,152,068 and $685,400, respectively
(net of accumulated amortization of $756,879 and $-0-,
respectively)
|
|
|
4,927,747
|
|
|
685,400
|
|
|
Deferred
financing costs, net
|
|
|
554,055
|
|
|
-
|
|
|
Total
assets
|
|
$
|
6,229,842
|
|
$
|
1,542,357
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders’ Equity
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
105,680
|
|
$
|
43,912
|
|
|
Accrued
liabilities
|
|
|
1,157,511
|
|
|
98,546
|
|
|
Stock
compensation payable
|
|
|
52,117
|
|
|
161,171
|
|
|
Current
portion of notes payable
|
|
|
711,121
|
|
|
196,656
|
|
|
Total
current liabilities
|
|
|
2,026,429
|
|
|
500,285
|
|
|
Notes
payable
|
|
|
2,707,834
|
|
|
250,000
|
|
|
Asset
retirement obligation
|
|
|
54,622
|
|
|
-
|
|
|
Total
liabilities
|
|
|
4,788,885
|
|
|
750,285
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
Equity:
|
|
|
|
|
|
|
|
|
Preferred
Stock, $0.0001 par value; 20,000,000 shares authorized, no shares
issued
or outstanding
|
|
|
-
|
|
|
-
|
|
|
Common
Stock, par value $.0001; 250,000,000 shares authorized; 71,016,758
and
64,662,700 shares issued and outstanding, respectively
|
|
|
7,102
|
|
|
6,466
|
|
|
Additional
paid-in capital
|
|
|
22,439,642
|
|
|
10,007,662
|
|
|
Accumulated
deficit
|
|
|
(21,005,787
|
)
|
|
(9,222,056
|
)
|
|
Total
stockholders’ equity
|
|
|
1,440,957
|
|
|
792,072
|
|
|
Total
liabilities and stockholders’ equity
|
|
$
|
6,229,842
|
|
$
|
1,542,357
|
|
See
notes to consolidated financial statements.
TRUE
NORTH ENERGY CORPORATION
Consolidated
Statements of Operations
|
|
|
Year Ended April 30,
|
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
1,225,735
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Costs
and expenses:
|
|
|
|
|
|
|
|
|
Lease
operating expenses
|
|
|
533,427
|
|
|
107,616
|
|
|
Exploration
costs
|
|
|
314,598
|
|
|
6,473,608
|
|
|
Accretion
expense
|
|
|
4,622
|
|
|
-
|
|
|
General
and administrative:
|
|
|
|
|
|
|
|
|
Compensation
and benefits
|
|
|
9,270,008
|
|
|
1,650,439
|
|
|
Legal
and accounting
|
|
|
433,847
|
|
|
274,920
|
|
|
Advisory
board fees
|
|
|
81,444
|
|
|
210,636
|
|
|
Investor
relations
|
|
|
59,221
|
|
|
152,240
|
|
|
Other
G&A expenses
|
|
|
259,170
|
|
|
197,903
|
|
|
Unsuccessful
merger and acquisition costs
|
|
|
402,258
|
|
|
-
|
|
|
Depreciation,
depletion and amortization
|
|
|
767,593
|
|
|
8,638
|
|
|
Total
costs and expenses
|
|
|
12,126,188
|
|
|
9,076,000
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(10,900,453
|
)
|
|
(9,076,000
|
)
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
Interest
and other income
|
|
|
4,089
|
|
|
10,876
|
|
|
Interest
expense
|
|
|
(887,367
|
)
|
|
(3,986
|
)
|
|
|
|
|
|
|
|
|
|
|
Loss
before income taxes
|
|
|
(11,783,731
|
)
|
|
(9,069,110
|
)
|
|
Income
taxes
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(11,783,731
|
)
|
$
|
(9,069,110
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted loss per common share
|
|
$
|
(0.17
|
)
|
$
|
(0.14
|
)
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
common shares outstanding
|
|
|
67,839,554
|
|
|
63,111,430
|
|
See
notes to consolidated financial statements.
TRUE
NORTH ENERGY CORPORATION
Consolidated
Statements of Cash Flows
|
|
|
Year Ended April 30,
|
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
Cash
Flows From Operating Activities
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(11,783,731
|
)
|
$
|
(9,069,110
|
)
|
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation,
depletion and
amortization
|
|
|
767,593
|
|
|
8,638
|
|
|
Stock-based
compensation
|
|
|
9,096,776
|
|
|
1,637,636
|
|
|
Amortization
of deferred financing costs and debt discount
|
|
|
516,156
|
|
|
-
|
|
|
Unsuccessful
merger and acquisition costs
|
|
|
402,258
|
|
|
-
|
|
|
Dry
hole costs
|
|
|
287,468
|
|
|
6,196,019
|
|
|
Accretion
expense
|
|
|
4,622
|
|
|
-
|
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(274,669
|
)
|
|
-
|
|
|
Prepaid
expenses and other
|
|
|
85,138
|
|
|
(133,673
|
)
|
|
Accounts
payable
|
|
|
61,768
|
|
|
45,834
|
|
|
Accrued
liabilities
|
|
|
352,183
|
|
|
65,525
|
|
|
Net
cash used in operating activities
|
|
|
(484,438
|
)
|
|
(1,249,131
|
)
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows From Investing Activities
|
|
|
|
|
|
|
|
|
Additions
to oil and gas properties
|
|
|
(2,930,361
|
)
|
|
(6,507,644
|
)
|
|
Advances
to seller in connection with acquisition of oil and gas
properties
|
|
|
-
|
|
|
(180,000
|
)
|
|
Purchases
of property and equipment
|
|
|
-
|
|
|
(11,224
|
)
|
|
Website
development
|
|
|
-
|
|
|
(16,700
|
)
|
|
Net
cash used in investing activities
|
|
|
(2,930,361
|
)
|
|
(6,715,568
|
)
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows From Financing Activities
|
|
|
|
|
|
|
|
|
Proceeds
from issuance of notes payable
|
|
|
4,675,000
|
|
|
250,000
|
|
|
Payments
on notes payable
|
|
|
(708,573
|
)
|
|
(54,679
|
)
|
|
Increase
in deferred financing costs
|
|
|
(591,379
|
)
|
|
-
|
|
|
Proceeds
from issuance of common stock
|
|
|
-
|
|
|
8,000,000
|
|
|
Net
cash provided by financing activities
|
|
|
3,375,048
|
|
|
8,195,321
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
(39,751
|
)
|
|
230,622
|
|
|
Cash
and cash equivalents, beginning of period
|
|
|
267,845
|
|
|
37,223
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, end of period
|
|
$
|
228,094
|
|
$
|
267,845
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Disclosure of Cash Flow Information
|
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$
|
256,275
|
|
$
|
3,986
|
|
|
Income
taxes
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Non-Cash
Investing and Financing Activities
|
|
|
|
|
|
|
|
|
Common
stock issued for oil and gas leases
|
|
$
|
1,988,626
|
|
$
|
-
|
|
|
Discount
on notes for relative fair value
|
|
|
909,508
|
|
|
-
|
|
|
Common
stock issued to lenders
|
|
|
328,652
|
|
|
|
|
|
Discount
on notes for overriding royalty interest granted to
lenders
|
|
|
200,000
|
|
|
-
|
|
|
Asset
retirement obligation
|
|
|
50,000
|
|
|
-
|
|
|
Assumed
liabilities
|
|
|
343,000
|
|
|
-
|
|
|
Common
stock issued for deposit on common stock
|
|
|
-
|
|
|
50,000
|
|
See
notes to consolidated financial statements.
TRUE
NORTH ENERGY CORPORATION
Statements
of Changes in Stockholders’ Equity
|
|
|
Common Stock
|
|
Additional
Paid-in
|
|
Accumulated
|
|
Total
Stockholders’
|
|
|
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Deficit
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
April 30, 2006
|
|
|
60,100,000
|
|
$
|
6,010
|
|
$
|
481,654
|
|
$
|
(152,946
|
)
|
$
|
334,718
|
|
|
Issuance
of common stock from deposit on stock purchase
|
|
|
100,000
|
|
|
10
|
|
|
49,990
|
|
|
-
|
|
|
50,000
|
|
|
Issuance
of units consisting of one share of common stock and one
warrant
|
|
|
4,405,555
|
|
|
441
|
|
|
7,999,559
|
|
|
-
|
|
|
8,000,000
|
|
|
Issuance
of common stock at prices ranging from $0.77 to $3.11 per share in
exchange for advisory board services
|
|
|
57,145
|
|
|
5
|
|
|
101,459
|
|
|
-
|
|
|
101,464
|
|
|
Restricted
stock grants
|
|
|
-
|
|
|
-
|
|
|
1,375,000
|
|
|
-
|
|
|
1,375,000
|
|
|
Net
loss for the year ended
April
30, 2007
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(9,069,110
|
)
|
|
(9,069,110
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
April 30, 2007
|
|
|
64,662,700
|
|
|
6,466
|
|
|
10,007,662
|
|
|
(9,222,056
|
)
|
|
792,072
|
|
|
Issuance
of common stock for oil and gas properties
|
|
|
3,761,144
|
|
|
376
|
|
|
1,988,250
|
|
|
-
|
|
|
1,988,626
|
|
|
Issuance
of common stock to lenders
|
|
|
1,839,130
|
|
|
184
|
|
|
328,468
|
|
|
-
|
|
|
328,652
|
|
|
Issuance
of common stock warrants to lenders and others
|
|
|
-
|
|
|
-
|
|
|
909,508
|
|
|
-
|
|
|
909,508
|
|
|
Issuance
of common stock at prices ranging from $0.26 to $0.47 per share in
exchange for advisory board services
|
|
|
350,000
|
|
|
35
|
|
|
153,463
|
|
|
-
|
|
|
153,498
|
|
|
Restricted
stock grants
|
|
|
403,784
|
|
|
41
|
|
|
119,791
|
|
|
-
|
|
|
119,832
|
|
|
Stock
compensation
|
|
|
-
|
|
|
-
|
|
|
8,932,500
|
|
|
-
|
|
|
8,932,500
|
|
|
Net
loss for the year ended
April
30, 2008
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(11,783,731
|
)
|
|
(11,783,731
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
April 30, 2008
|
|
|
71,016,758
|
|
$
|
7,102
|
|
$
|
22,439,642
|
|
$
|
(21,005,787
|
)
|
$
|
1,440,957
|
|
See
notes to consolidated financial statements.
TRUE
NORTH ENERGY CORPORATION
Notes
to Consolidated Financial Statements
NOTE
1 - NATURE AND CONTINUANCE OF OPERATIONS
Organization
True
North Energy Corporation (the “Company” or “True North”), formerly Ameriprint
International, Ltd. (“Ameriprint”), was incorporated in the state of Nevada in
April 2004. True North is engaged in the acquisition, exploration, development
and production of oil and gas properties in the United States.
Ameriprint
provided printing, advertising and graphic design services to commercial
customers. During January 2006 Ameriprint underwent a change of control and
operation of its prior business activities was discontinued. Immediately
thereafter, Ameriprint was renamed True North and commenced operation as an
independent oil and gas entity.
Going
Concern
The
accompanying financial statements have been prepared on a going concern basis,
which implies that True North will continue to realize its assets and discharge
its liabilities in the normal course of business. The continuation of True
North
as a going concern is dependent upon many factors including, but not limited
to,
continued financial support from its shareholders, receipt of additional
financing when and as needed to finance its ongoing business, and the attainment
of profitable operations.
True
North has had minimal revenues and has accumulated losses since February 1,
2006
(inception). The Company will require additional financing in order to execute
its business plan. There can be no assurance that such financing will be
available to the Company as and when needed or, if available, the reasonableness
of the terms of such financing. These factors raise substantial doubt regarding
the Company’s ability to continue as a going concern. The accompanying financial
statements do not include any adjustments relative to the recoverability or
classification of recorded assets or liabilities that might be necessary should
the Company be unable to continue as a going concern.
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These
financial statements have been prepared on a consistent basis in accordance
with
accounting principles generally accepted in the United States of America and
the
rules of the Securities and Exchange Commission. These consolidated financial
statements include the accounts of the Company and its recently formed, wholly
owned subsidiary, ICF Energy Corporation (“ICF”). All material intercompany
accounts and transactions have been eliminated in consolidation.
TRUE
NORTH ENERGY CORPORATION
Notes
to Consolidated Financial Statements – Continued
Use
of Estimates
The
preparation of these financial statements 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 amount of revenues and expenses during the reporting
period. Actual results could vary from those estimates.
Cash
and Cash Equivalents
The
Company considers all highly liquid instruments with maturities of three months
or less at the time of issuance to be cash equivalents.
Accounts
Receivable
Accounts
receivable primarily consist of accrued revenues from oil and gas production
and
joint interest expenditures due from joint interest owners in oil and gas
properties.
Financial
Instruments
The
fair
values of cash and cash equivalents, accounts receivable, notes receivable,
accounts payable and accrued liabilities approximate their carrying values
due to the short-term nature of these financial instruments.
Concentrations
of Credit Risk
Financial
instruments that potentially subject True North to concentration of credit
risk
consist of cash and cash equivalents. As of April 30, 2008, the Company had
cash
balances approximating $128,000 in excess of federally insured limits. True
North’s cash balances are maintained in bank accounts at large, high-quality
financial institutions. Accordingly, management believes that the credit risk
associated with its bank deposits is minimal.
Oil
and Gas Properties
True
North uses the successful efforts method of accounting for its oil and gas
activities. Costs to acquire mineral interests in oil and gas properties, to
drill and equip exploratory wells that find proved reserves, and to drill and
equip development wells and related asset retirement costs are capitalized.
Exploration costs, including geological and geophysical expenses, exploratory
dry holes and delay rentals, are charged to expense as incurred.
Unproved
oil and gas properties that are individually significant are periodically
assessed for impairment of value, and a loss is recognized at the time of the
impairment by providing an allowance. Capitalized costs associated with oil
and
gas properties, after consideration of estimated residual values, are
depreciated and depleted on a unit-of-production basis over the remaining life
of proved developed reserves on a field basis.
TRUE
NORTH ENERGY CORPORATION
Notes
to Consolidated Financial Statements – Continued
Asset
Retirement Obligations
Asset
retirement obligations are recorded in the period in which they are incurred
and
reasonably estimatable. The Company recognized asset retirement obligations
totaling $50,000 associated with the Texas oil and gas properties it acquired
in
September 2007 (see Note 3). The Company routinely reviews and reassesses its
estimates to determine if an adjustment to the value of the asset retirement
obligation is required.
Property
and Equipment
Property
and equipment are valued at cost. Additions are capitalized and depreciated
using the straight-line method over estimated useful lives ranging from three
to
five years. Maintenance and repairs are charged to expense as
incurred.
Long-Lived
Assets
The
carrying value of long-lived and intangible assets is reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount
may not be recoverable. Impairment is recognized if the sum of 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.
Revenue
Recognition
Revenues
are recognized for oil and natural gas sales when production is sold to a
purchaser at a fixed or determinable price. The Company accounts for its gas
imbalances, if any, that result from its normal operations using the sales
method, under which the Company recognizes its revenues on all production
delivered to the purchaser. There were no gas imbalances as of April 30,
2008.
Stock-Based
Compensation
The
Company accounts for stock-based compensation in accordance with Statement
of
Financial Accounting Standards No. 123(R), “Share-Based Payment.” In accordance
with SFAS 123(R), stock-based compensation includes compensation expense for
all
share-based payments based on the grant date fair value. Such compensation
expense is recognized over the related service period or immediately if
the instruments vest immediately.
The
Company accounts for stock-based compensation issued to non-employees in
accordance with the provisions of SFAS 123(R) and EITF No. 96-18, “Accounting
for Equity Investments That Are Issued to Non-Employees for Acquiring, or in
Conjunction with Selling Goods or Services.” For expense purposes, the value of
common stock issued to non-employees is determined based on the fair value
of
the services received or the fair value of the equity instruments issued,
whichever value is more reliably measurable.
Income
Taxes
The
Company records a provision for income taxes using the “liability” method as
prescribed by FAS No. 109, “Accounting for Income Taxes.” Deferred tax assets
and liabilities are included in the financial statements at currently enacted
income tax rates applicable to the period in which the deferred tax assets
and
liabilities are expected to be realized or settled. As changes in tax laws
or
rates are enacted, deferred tax assets and liabilities are adjusted through
the
provision for income taxes. A valuation allowance is established when necessary
to reduce deferred tax assets to the amount expected to be
realized.
TRUE
NORTH ENERGY CORPORATION
Notes
to Consolidated Financial Statements – Continued
Loss
per Share
Loss
per
share is computed in accordance with FAS No. 128, “Earnings per Share.” FAS 128
requires presentation of both basic and diluted earnings per share (“EPS”) on
the face of the income statement. Basic EPS is computed by dividing net loss
available to common shareholders (numerator) by the weighted-average number
of
shares outstanding during the period (denominator).
Diluted
EPS gives effect to all dilutive potential common shares outstanding during
the
period using the treasury stock method and convertible preferred stock using
the
if-converted method. In computing diluted EPS, the average stock price for
the
period is used in determining the number of shares assumed to be purchased
from
the exercise of stock options or warrants.
Diluted
EPS excludes all dilutive potential shares if their effect is anti-dilutive.
Common stock warrants were not included in the calculation of diluted EPS as
the
effect was antidilutive.
Reclassifications
Certain
reclassifications have been made to the prior year financial statements to
conform to the current presentation.
New
Accounting Pronouncements
True
North does not expect the adoption of recently issued accounting pronouncements
to have a significant impact on its results of operations, financial position
or
cash flows.
NOTE
3 – OIL AND GAS PROPERTIES
The
Company is engaged in oil and gas exploration activities in Alaska, Colorado
and
Texas. During the year ended April 30, 2007, True North expended approximately
$6.5 million for property acquisitions and drilling costs of which approximately
$6.2 million was expensed as dry hole costs.
Colorado
Leases
In
June
2007 the Company acquired certain oil and gas leases covering more than 17,000
acres in Colorado. The purchase price for these leases approximated $1.4 million
and was paid with a combination of cash (approximately $345,000 of which
approximately $107,000 remains payable) and 1,832,769 shares of the Company’s
common stock valued at approximately $1,064,000. The Company advanced the
proposed seller $180,000 of the cash consideration during January 2007 in the
form of a note receivable. The note bore interest at the rate of 5%
per
annum
and
was repaid upon the closing of the Company’s acquisition of the Colorado oil and
gas leases.
TRUE
NORTH ENERGY CORPORATION
Notes
to Consolidated Financial Statements – Continued
Prime
Transaction
On
September 19, 2007, the Company acquired certain oil and gas properties and
related assets (the “Prime Assets”) in Brazoria County, Texas from Prime Natural
Resources, Inc. (“Prime”) for approximately $3.7 million, including closing and
other transaction-related costs. The purchase price was paid with a combination
of cash ($2.4 million), 1,928,375 shares of the Company’s restricted common
stock valued at approximately $926,000, and the assumption of certain assumed
liabilities totaling approximately $343,000. The Company’s consolidated
statements of operations include the revenues and expenses associated with
the
acquired assets from the date of acquisition.
The
following unaudited pro forma consolidated results of operations have been
prepared as if the acquisition of the Prime Assets had occurred as of May 1,
2006. The pro forma information is presented for information purposes only
and
is not necessarily indicative of the results of operations that actually would
have been achieved had the acquisition of the Prime Assets been consummated
as
of that time, nor is it intended to be a projection of future
results.
|
|
|
Years Ended April 30,
|
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
2,484,041
|
|
$
|
3,011,670
|
|
|
Net
loss
|
|
$
|
(11,087,665
|
)
|
$
|
(8,937,948
|
)
|
|
Loss
per share – basic and diluted
|
|
$
|
(0.16
|
)
|
$
|
(0.14
|
)
|
Savant
Agreement
On
November 6, 2007 the Company entered into a pooling agreement (the “Pooling
Agreement”) with Savant Alaska, LLC (“Savant“) which was given effect as of July
1, 2007. Savant holds leases for the exploration and production of oil and
natural gas in an area of Alaska that is contiguous to certain of the
Company's North Slope Alaskan interests. Under the Pooling Agreement, True
North
and Savant agreed to pool certain leasehold interests, on a net acreage basis,
and further agreed to jointly drill a test well within the Savant Kupcake
Prospect. The test well was planned to be drilled to a depth of 11,000 feet
in
order to test the Kemik formation. True North was unable to raise its share
of
the test well drilling costs in time, which would have resulted in it earning
a
working interest within the pooled area of approximately 8.5%, and in January
2008 the Pooling Agreement was terminated by mutual agreement. Effective January
23, 2008 however, True North entered into an Acreage Contribution Contract
(the
“Contract”) with Savant, pursuant to which it agreed to conditionally assign to
Savant the part of our leasehold interest that was to be the subject of the
Pooling Agreement (the “Lease Acreage”) in exchange for Savant’s drilling a test
well within the Kupcake Prospect and allowing True North to potentially earn
a
working interest of up to 2% in the future production unit if the test well
was
successful. Savant and its partners commenced drilling the test well in March
2008 and completed drilling in April 2008 upon reaching a depth of 10,686 feet.
At such time, Savant decided to plug and abandon the test well as it did not
result in a commercial discovery of crude oil or natural gas reserves. The
entire cost, expense, risk of drilling, production testing, plugging and
abandoning of the test well was borne by Savant and its drilling partners.
Savant has met all of the requirements under the Contract. Accordingly, the
Company is in the process of assigning part of one of its North Slope leases
(approximately 90 acres) as contribution acreage to Savant. True North
anticipates that the assignment will be completed by the end of 2008. The
Company continues to hold a 100% working interest in its remaining North Slope
acreage (approximately 9,910 acres).
TRUE
NORTH ENERGY CORPORATION
Notes
to Consolidated Financial Statements – Continued
Failed
Acquisition
During
the year ended April 30, 2008, the Company entered into an agreement to acquire
certain oil and gas properties located in Wyoming. True North was unable to
raise the financing required to close the contemplated transaction and the
agreement expired under its own terms. Direct acquisition costs totaling
approximately $402,000 related to this potential acquisition were written off
upon expiration of the related agreement.
NOTE
4 – NOTES PAYABLE
Convertible
Notes
On
March
30, 2007 True North executed an agreement with an off-shore investor pursuant
to
which it agreed to issue $500,000 of notes payable (the “ Convertible Notes”).
Proceeds of the Convertible Notes, which bear interest at the rate of 8% per
annum, were received in two equal installments during April and May 2007.
Subject to prior conversion or acceleration, the principal balance of the notes
is due in a single payment on the third anniversary of the date of each note.
Interest on the Convertible Notes originally was payable semi-annually beginning
the first day of the first month following 180 days from the respective dates
of
the Convertible Notes.
On
September 18, 2007, the Company and the Convertible Notes lender entered into
a
subordination agreement. Pursuant to that agreement, the lender agreed to
subordinate, in right of payment and priority, the Convertible Notes to the
Secured Notes issued in September 2007 (see below). Payment of interest on
the
Convertible Notes also was postponed until repayment in full of the Secured
Notes as a result of the Subordination Agreement.
In
connection with the issuance of the Convertible Notes, the Company issued
warrants for the purchase of up to 182,249 shares of the Company’s common stock
at an exercise price of $1.92 per share as well as warrants for the purchase
of
up to an additional 298,330 shares of the
Company’s
common stock at an exercise price of $1.17 per share. These warrants are
exercisable for a period of three years from the date of issuance (August 30,
2007).
The
fair
value of the warrants was estimated using the Black Scholes option-pricing
model, which resulted in a total fair value of approximately $126,000 and a
relative fair value of approximately $100,000. A discount on the notes payable
was recognized in an amount equal to
the
relative fair value of the warrants. The debt discount is being accreted to
interest expense using the effective interest method over the remaining term
of
the notes. Interest expense
resulting
from the accretion of the debt discount approximated $26,000 during the year
ended April 30, 2008.
TRUE
NORTH ENERGY CORPORATION
Notes
to Consolidated Financial Statements – Continued
The
conversion option and warrant issuance features of the Convertible Notes were
evaluated under FAS 133 and EITF 00-19 for derivative accounting. As neither
the
conversion option or the warrants were deemed to be liabilities, derivative
accounting was determined to not be applicable. The Company also evaluated
the
conversion option under EITF 98-5 and EITF 00-27 and determined that the
conversion option was contingent and ultimately did not result in a beneficial
conversion feature.
Bridge
Notes
On
August
23, 2007 True North received an aggregate of $250,000 in loan proceeds from
two
persons (the “Lenders”) and issued to each of the Lenders a secured promissory
note in the principal amount of $125,000 (the “Bridge Notes”). The Bridge Notes
bore interest at the rate of
12%
per
annum. Subject to earlier payment, at the Company’s option, interest on the
unpaid principal amount of the Bridge Notes was payable in monthly installments
commencing September 1, 2007 and principal was due and payable on the earlier
of
November 19, 2007 or 15 days following the closing of the acquisition of the
Prime Assets. As more fully described below, the Bridge Notes were repaid in
September 2007 upon consummation of the acquisition of the Prime Assets and
related financing.
The
Company issued 100,000 shares of its restricted common stock to the Lenders
in
connection with the Bridge Notes. Each Bridge Note was secured by 1,250,000
shares of restricted common stock (the “Stock”) standing in the name of
Massimiliano Pozzoni and/or John Folnovic, both of who are officers and
significant shareholders of the Company. True North paid each Lender a cash
fee
of $3,750 to reimburse them for the costs and expenses incurred by them in
connection with the loan transaction and further agreed to pay the reasonable
fees and disbursements of the Lenders’ respective legal counsels in connection
with the enforcement of their rights under the Bridge Notes.
Secured
Notes
The
Company financed the purchase of the Prime Assets and the repayment of the
Bridge Notes through the issuance of senior secured term notes (the “Secured
Notes”) to two purchasers (the “Purchasers”). The aggregate principal amount of
the Secured Notes totaled $3,750,000. The Secured Notes, which mature on
September 18, 2010, bear interest at the rate of 13% per annum.
Amortizing
payments of principal and interest are due monthly. During the twelve-month
period ending September 18, 2008, the amount of such monthly principal payments
is equal to the greater of $100,000 or sixty percent (60%) of the net revenue
relating to all oil and gas properties of ICF for the immediately preceding
calendar month. Thereafter, the monthly
principal
payment shall be equal to the greater of $100,000 or eighty percent (80%)
of the net revenue relating to all oil and gas properties of ICF for the
immediately preceding calendar month, provided,
however,
such percentage will increase to one hundred percent (100%) upon the occurrence
and during the continuance of an event of default.
TRUE
NORTH ENERGY CORPORATION
Notes
to Consolidated Financial Statements – Continued
The
Purchasers also were granted warrants for the purchase of up to 1,953,126 shares
of the Company’s common stock in connection with the issuance of the Secured
Notes. These warrants bear an exercise price of $0.48 per share and expire
September 18, 2012. The fair value of the warrants was estimated using the
Black
Scholes option-pricing model, which resulted in a total fair value of
approximately $833,000 and a relative fair value of approximately $681,000.
A
discount on the notes payable was recognized in an amount equal to the relative
fair value of the warrants.
In
addition to the above, the Company issued an aggregate 5% overriding royalty
interest in the oil and gas properties of ICF to the Purchasers. The amount
of
the overriding royalty interest will reduce to an aggregate 3% rate upon the
payment in full of the Secured Notes. The fair value of the overriding royalty
interests of $200,000 was estimated using the discounted cash flow method
and
recorded as a discount to the Secured Notes. The Company’s basis in the Prime
Assets was reduced by a like amount.
On
March
31, 2008 the Purchasers made an additional advance to us in the aggregate amount
of $425,000. The September 18, 2007 and March 31, 2008 advances are now
evidenced by amended notes in the aggregate principal amount of $3,931,883.
In
consideration of the March 31, 2008 advance we paid certain fees and expenses
approximating $34,000 to the Purchasers and affiliated parties and issued an
aggregate of 1,739,130 shares of our restricted common stock to the Purchasers.
The
aggregate debt discount resulting from the issuance of the warrants, common
stock and the overriding royalty interest is being accreted to interest expense
using the effective interest method over the remaining term of the notes.
Interest expense resulting from the accretion of the debt discount associated
with the Secured Notes approximated $257,000 during the year ended April 30,
2008.
The
Company incurred aggregate transaction costs of approximately $754,000 in
connection with the September and March issuances of the Secured Notes. Such
costs include $128,000 representing the estimated fair value associated with
warrants awarded to a financial advisor for the purchase of up to 300,000 shares
of the Company’s common stock. These warrants have an exercise price of $0.48
per share and expire September 18, 2012. The fair value of the warrants was
estimated using the Black Scholes option-pricing model. The deferred financing
costs are being amortized using the effective interest method over the remaining
term of the Secured Notes.
TRUE
NORTH ENERGY CORPORATION
Notes
to Consolidated Financial Statements – Continued
The
Company’s borrowing activity is summarized below:
|
|
|
Balance
as of
April 30, 2007
|
|
Increases
|
|
Decreases
|
|
Balance
as of
April 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance
notes payable
|
|
$
|
196,656
|
|
$
|
-
|
|
$
|
(196,656
|
)
|
$
|
-
|
|
|
Convertible
Notes
|
|
|
250,000
|
|
|
250,000
|
|
|
-
|
|
|
500,000
|
|
|
Bridge
Notes
|
|
|
-
|
|
|
250,000
|
|
|
(250,000
|
)
|
|
-
|
|
|
Secured
Notes
|
|
|
-
|
|
|
4,175,000
|
|
|
(261,917
|
)
|
|
3,913,083
|
|
|
|
|
|
446,656
|
|
|
4,675,000
|
|
|
(708,573
|
)
|
|
4,413,083
|
|
|
Debt
discount
|
|
|
-
|
|
|
(1,277,276
|
)
|
|
283,148
|
|
|
(994,128
|
)
|
|
Carrying
value of debt
|
|
$
|
446,656
|
|
$
|
3,397,724
|
|
$
|
(425,425
|
)
|
$
|
3,418,955
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
notes payable
|
|
|
|
|
|
|
|
|
|
|
$
|
3,418,955
|
|
|
Less
current portion
|
|
|
|
|
|
|
|
|
|
|
|
(711,121
|
)
|
|
Long-term
notes payable
|
|
|
|
|
|
|
|
|
|
|
$
|
2,707,834
|
|
Future
maturities of long-term debt are as of follows as of April 30,
2008:
|
Year
Ending April 30:
|
|
|
|
|
2009
|
|
$
|
1,200,000
|
|
|
2010
|
|
|
1,510,000
|
|
|
2011
|
|
|
2,839,467
|
|
|
2012
and thereafter
|
|
|
-
|
|
|
|
|
|
5,549,467
|
|
|
Less:
interest
|
|
|
(1,136,384
|
)
|
|
|
|
$
|
4,413,083
|
|
NOTE
5 – STOCK-BASED COMPENSATION
During
the year ended April 30, 2007 True North entered into an employment agreement
with its chief executive officer. Pursuant thereto, that individual was granted
five million shares of the Company’s restricted stock issuable ratably at the
end of each annual service period. Stock-based compensation expense related
to
this restricted stock grant included in compensation and benefits in the
accompanying statement of operations totaled $1.4 million during the year ended
April 30, 2007.
The
employment agreement was amended in May 2007 to, among other things, reflect
the
voluntary revocation of the restricted stock grant. Contemporaneously therewith,
True North’s chief executive officer purchased 15.5 million shares of the
Company’s common stock from True North’s principal shareholder. True North
recognized stock-based compensation expense of approximately $8.9 million during
May 2007 in connection with this purchase, which was calculated as the
difference between the purchase and market prices of the 15.5 million shares
less the previously recognized stock-based compensation expense associated
with
the original restricted stock grant.
TRUE
NORTH ENERGY CORPORATION
Notes
to Consolidated Financial Statements – Continued
True
North also recognized stock-based compensation expenses approximating $164,000
and $263,000 during the years ended April 30, 2008 and 2007 related to services
provided by members of the Company’s advisory board and other third parties.
Stock compensation payable as of April 30, 2008 includes stock compensation
expenses associated with 142,760 shares earned through April 30, 2008 that
are
not issuable by the Company until October 2008.
NOTE
6 – COMMON STOCK
During
the year ended April 30, 2007, the Company sold a total of 4,405,555 units
to
several purchasers in reliance on Regulation S of the Securities Act of 1933,
as
amended. Each unit consisted of one share of the Company’s common stock and one
common stock purchase warrant exercisable for the purchase of an additional
share of common stock. Each common stock purchase warrant is exercisable for
a
period of three years.
The
following table summarizes the Company’s sales of units during the year ended
April 30, 2007:
|
|
|
|
|
|
|
|
|
Warrant
|
|
Relative Fair Value
|
|
|
Date
|
|
Number
Of Units
|
|
Price
Per Unit
|
|
Total Proceeds
|
|
Exercise
Price
|
|
Common
Stock
|
|
C/S Purchase
Warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May
9, 2006
|
|
|
1,250,000
|
|
$
|
.80
|
|
$
|
1,000,000
|
|
$
|
1.60
|
|
$
|
618,000
|
|
$
|
382,000
|
|
|
July
27, 2006
|
|
|
650,000
|
|
|
1.00
|
|
|
650,000
|
|
|
1.70
|
|
|
381,000
|
|
|
269,000
|
|
|
August
11, 2006
|
|
|
350,000
|
|
|
1.00
|
|
|
350,000
|
|
|
1.70
|
|
|
198,000
|
|
|
152,000
|
|
|
August
28, 2006
|
|
|
555,555
|
|
|
3.60
|
|
|
2,000,000
|
|
|
5.00
|
|
|
1,198,000
|
|
|
802,000
|
|
|
October
2, 2006
|
|
|
400,000
|
|
|
2.50
|
|
|
1,000,000
|
|
|
3.50
|
|
|
580,000
|
|
|
420,000
|
|
|
November
13, 2006
|
|
|
400,000
|
|
|
2.50
|
|
|
1,000,000
|
|
|
3.50
|
|
|
580,000
|
|
|
420,000
|
|
|
January
24, 2007
|
|
|
800,000
|
|
|
2.50
|
|
|
2,000,000
|
|
|
3.50
|
|
|
1,179,000
|
|
|
821,000
|
|
|
Total
|
|
|
4,405,555
|
|
|
|
|
$
|
8,000,000
|
|
|
|
|
$
|
4,734,000
|
|
$
|
3,266,000
|
|
The
Company also issued 100,000 shares of its common stock during the year ended
April 30, 2007 related to a fiscal year 2006 deposit of $50,000 to purchase
the
Company’s common stock.
NOTE
7 – COMMON STOCK WARRANTS
The
Company accounts for stock warrants issued to third parties in accordance with
the provisions of EITF Issue No. 96-18,
Accounting
for Equity Instruments That Are Issued to Other Than Employees for Acquiring,
or
in Conjunction with Selling, Goods or Services
,
and
EITF 01-9,
Accounting
for Consideration Given by a Vendor to a Customer (Including a Reseller of
the
Vender’s Products
.
Under
the provisions of EITF 96-18, because none of the Company’s agreements have a
disincentive for nonperformance, the Company records a charge for the fair
value
of the portion of the warrants earned from the point in time when vesting of
the
warrant becomes probable. Final determination of fair value of the warrants
occurs upon actual vesting.
TRUE
NORTH ENERGY CORPORATION
Notes
to Consolidated Financial Statements – Continued
During
the year ended April 30, 2008, the Company issued warrants to purchase an
aggregate of 2,733,705 shares of the Company’s common stock, respectively. Such
warrants are exercisable at prices ranging from $0.48 to $1.92 per share and
expire at various times through September 2012. All of the warrants granted
to
date were fully vested on the date of grant. No warrants have been exercised
to
date. A summary of warrant activity is as follows:
|
|
|
Number of
Warrants
|
|
Weighted-
Average
Exercise
Price
|
|
|
|
|
|
|
|
|
|
Outstanding
at April 30, 2007
|
|
|
4,405,555
|
|
$
|
2.74
|
|
|
Granted
|
|
|
2,733,705
|
|
|
0.65
|
|
|
Exercised
|
|
|
-
|
|
|
-
|
|
|
Outstanding
at April 30, 2008
|
|
|
7,139,260
|
|
$
|
1.94
|
|
The
range
of warrant prices for shares under warrants and the weighted-average remaining
contractual life as of April 30, 2008 is as follows:
|
Warrants Outstanding and Exercisable
|
|
|
Range of Warrant Exercise Price
|
|
Number of
Warrants
|
|
Weighted-
Average
Exercise
Price
|
|
Weighted-
Average
Remaining
Life
|
|
|
|
|
|
|
|
|
|
|
|
Less
than $1.00
|
|
|
2,253,126
|
|
$
|
0.48
|
|
|
4.4
|
|
|
$1.00
to $2.00
|
|
|
2,730,579
|
|
|
1.61
|
|
|
1.3
|
|
|
More
than $2.00
|
|
|
2,155,555
|
|
|
3.89
|
|
|
1.5
|
|
|
Outstanding
at April 30, 2008
|
|
|
7,139,260
|
|
|
|
|
|
|
|
NOTE
8 – INCOME TAXES
True
North incurred net losses during each of the years ended April 30, 2008 and
2007. As a result, the Company has no current tax liability. The Company’s net
deferred tax assets, which consist principally of tax loss carryforwards, have
been fully reserved as of April 30, 2008. The Company’s net operating loss
carryforward approximated $12.0 million and $9.2 million as of April 30, 2008
and 2007, respectively, and will expire in the years 2024 through
2028.
TRUE
NORTH ENERGY CORPORATION
Notes
to Consolidated Financial Statements – Continued
True
North’s deferred tax assets consisted of the following as of April 30,
2008:
|
Deferred
Tax Assets
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
Net
operating loss carryforwards
|
|
$
|
4,093,859
|
|
$
|
3,130,623
|
|
|
Oil
and gas properties
|
|
|
6,215
|
|
|
-
|
|
|
Property
and equipment
|
|
|
(22
|
)
|
|
68
|
|
|
Gross
deferred tax assets
|
|
|
4,100,052
|
|
|
3,130,691
|
|
|
Valuation
allowance
|
|
|
(4,100,052
|
)
|
|
(3,130,691
|
)
|
|
Net
deferred tax assets
|
|
$
|
-
|
|
$
|
-
|
|
NOTE
9 – COMMITMENTS
True
North pays $300 per month associated with the month-to-month lease of virtual
office space in Houston, Texas. True North also subleases office space at a
monthly cost of $850 in The Woodlands, Texas. This space is utilized for the
Company’s administrative needs including, but not limited to, its banking, oil
and gas operations, and public company filing requirements. This sublease
expires on July 31, 2008 and is renewable thereafter for additional six-month
terms. True North also subleases office space in Golden, Colorado pursuant
to a lease that expires December 31, 2008. The rental charge associated with
this lease, which is used in conjunction with True North’s recently acquired
Colorado leases, is $2,500 per month.
NOTE
10 – RELATED PARTY TRANSACTIONS
During
the year ended April 30, 2008, the Company retained the services of a law firm
for which a partner is a member of the Company’s advisory board. Legal fees paid
to that firm totaled approximately $256,000, substantially all of which related
to costs incurred in connection with the acquisition of the Prime Assets.
Additionally, during each of the years ended April 30, 2008 and 2007, the
Company retained the services of a firm that provides technical consulting
services to the oil and gas industry. A partner of that firm serves as a member
of the Company’s advisory board. Fees for the technical and advisory services
provided by the aforementioned firm approximated $8,000 and $30,000 during
the
years ended April 30, 2008 and 2007, respectively.
TRUE
NORTH ENERGY CORPORATION
Notes
to Consolidated Financial Statements – Continued
NOTE
11 – Supplemental Oil and Gas Information (
Unaudited
)
The
following disclosures provide unaudited information required by SFAS No. 69,
“
Disclosures
about Oil and Gas Producing Activities.”
Costs
Incurred
Costs
incurred in oil and gas property acquisition, exploration and development
activities are summarized below for the year-ended April 30, 2008 and
2007:
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
Property
acquisition costs:
|
|
|
|
|
|
|
|
|
Proved
|
|
$
|
3,482,558
|
|
$
|
-
|
|
|
Unproved
|
|
|
1,868,926
|
|
|
311,626
|
|
|
Exploration
costs
|
|
|
314,598
|
|
|
6,473,608
|
|
|
Development
costs (asset retirement obligations)
|
|
|
50,000
|
|
|
-
|
|
|
Total
costs incurred
|
|
$
|
5,716,082
|
|
$
|
6,785,234
|
|
Estimated
Quantities of Oil and Natural Gas Reserves
The
following estimates of net proved oil and natural gas reserves of the Properties
located entirely within the United States of America are based on evaluations
prepared by third-party reservoir engineers. Reserves were estimated in
accordance with guidelines established by the SEC and the Financial Accounting
Standards Board (“FASB”), which require that reserve estimates be prepared under
existing economic and operating conditions with no provisions for price and
cost
changes except by contractual arrangements. Reserve estimates are inherently
imprecise and estimates of new discoveries are more imprecise than those of
producing oil and gas properties. Accordingly, reserve estimates are expected
to
change as additional performance data becomes available. All of the Company's
oil and natural gas producing activities are located in the United States of
America.
A
determination of proven reserves as of September 19, 2007 was not prepared.
The
information presented below for the purchase of reserves in place was determined
by adjusting the April 30, 2007 proved reserves for the actual production
activity to determine what the proved reserves would have been as of September
19, 2007.
TRUE
NORTH ENERGY CORPORATION
Notes
to Consolidated Financial Statements – Continued
Estimated
quantities of proved domestic oil and gas reserves and changes in quantities
of
proved developed reserves for each of the years were as follows:
|
|
|
Oil (Bbls)
|
|
Gas (Mcf)
|
|
|
|
|
|
|
|
|
|
Total
proved reserves – April 30, 2006
|
|
|
-
|
|
|
-
|
|
|
Purchases
of reserves in-place
|
|
|
-
|
|
|
-
|
|
|
Production
|
|
|
-
|
|
|
-
|
|
|
Extensions
and discoveries
|
|
|
-
|
|
|
-
|
|
|
Sales
of reserves in place
|
|
|
-
|
|
|
-
|
|
|
Revisions
of previous estimates
|
|
|
-
|
|
|
-
|
|
|
Total
proved reserves – April 30, 2007
|
|
|
-
|
|
|
-
|
|
|
Purchases
of reserves in-place
|
|
|
9,251
|
|
|
646,266
|
|
|
Production
|
|
|
(1,649
|
)
|
|
(133,147
|
)
|
|
Extensions
and discoveries
|
|
|
-
|
|
|
-
|
|
|
Sales
of reserves in place
|
|
|
-
|
|
|
-
|
|
|
Revisions
of previous estimates
|
|
|
805
|
|
|
(12,120
|
)
|
|
Total
proved reserves – April 30, 2008
|
|
|
8,407
|
|
|
500,999
|
|
|
|
|
|
|
|
|
|
|
|
Proved
developed reserves
|
|
|
|
|
|
|
|
|
April
30, 2007
|
|
|
-
|
|
|
-
|
|
|
April
30, 2008
|
|
|
8,407
|
|
|
500,999
|
|
Standardized
Measure of Discounted Future Net Cash Flows
The
standardized measure is the estimated excess future cash flows from proved
reserves less estimated future production and development costs, estimated
plugging and abandonment costs, and a discount factor. Future cash inflows
represent expected revenues from production of period-end quantities of proved
reserves based on April 30, or year-end prices, and any fixed and determinable
future price changes provided by contractual arrangements in existence at year
end. Price changes based on inflation, federal regulatory changes and supply
and
demand are not considered. Average prices used in computing year-end April
30,
2008 future cash flows were $113.14 per barrel for oil and $11.51 per Mcf for
natural gas. Estimated future production costs related to period-end reserves
are based on April 30 (year-end) costs. Such costs include, but are not limited
to, production taxes and direct operating costs. Inflation and other
anticipatory costs are not considered until the actual cost change takes effect.
A discount rate of 10% is applied to the annual future net cash
flows.
TRUE
NORTH ENERGY CORPORATION
Notes
to Consolidated Financial Statements – Continued
The
standardized measure of discounted future net cash flows relating to the
Properties' proved oil and gas reserves for the years ended April 30 are shown
below:
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
Future
cash inflows
|
|
$
|
6,748,200
|
|
$
|
-
|
|
|
Future
operating expenses
|
|
|
(1,741,700
|
)
|
|
-
|
|
|
Future
development costs
|
|
|
(54,622
|
)
|
|
-
|
|
|
Future
income tax expense
|
|
|
-
|
|
|
-
|
|
|
10%
annual discount for estimating timing of cash flow
|
|
|
(877,900
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Standardized
measure of discounted future net cash flows
|
|
$
|
4,073,978
|
|
$
|
-
|
|
Changes
in Standardized Measure
Changes
in the standardized measure of discounted future net cash flows relating to
proved oil and gas reserve for the years ended April 30 are summarized
below:
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
Changes
due to current-year operations:
|
|
|
|
|
|
|
|
|
Sale
of oil and gas, net of operating expenses
|
|
$
|
(692,308
|
)
|
$
|
-
|
|
|
Extensions
and discoveries
|
|
|
-
|
|
|
-
|
|
|
Development
costs incurred
|
|
|
-
|
|
|
-
|
|
|
Purchase
of oil and gas properties
|
|
|
2,992,517
|
|
|
-
|
|
|
Changes
due to revisions in standardized variables
|
|
|
|
|
|
|
|
|
Prices
and operating expenses
|
|
|
1,998,337
|
|
|
-
|
|
|
Income
taxes
|
|
|
-
|
|
|
-
|
|
|
Estimated
future development costs
|
|
|
-
|
|
|
-
|
|
|
Revision
of quantities
|
|
|
(13,703
|
)
|
|
-
|
|
|
Sales
of reserves in place
|
|
|
-
|
|
|
-
|
|
|
Accretion
of discount
|
|
|
187,032
|
|
|
-
|
|
|
Production
rates, timing and other
|
|
|
(397,897
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Net
changes
|
|
|
4,073,978
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
of year
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
End
of year
|
|
$
|
4,073,978
|
|
$
|
-
|
|
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