0001354488-13-001980.txt : 20130415 0001354488-13-001980.hdr.sgml : 20130415 20130415170244 ACCESSION NUMBER: 0001354488-13-001980 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 20130228 FILED AS OF DATE: 20130415 DATE AS OF CHANGE: 20130415 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EFLO ENERGY, INC. CENTRAL INDEX KEY: 0001448806 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 263062721 STATE OF INCORPORATION: NV FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-54328 FILM NUMBER: 13761878 BUSINESS ADDRESS: STREET 1: 112 NORTH CURRY CITY: CARSON CITY STATE: NV ZIP: 89703 BUSINESS PHONE: 775-284-3708 MAIL ADDRESS: STREET 1: 112 NORTH CURRY CITY: CARSON CITY STATE: NV ZIP: 89703 FORMER COMPANY: FORMER CONFORMED NAME: EFL OVERSEAS, INC. DATE OF NAME CHANGE: 20081027 10-Q 1 eflo_10q.htm QUARTERLY REPORT eflo_10q.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended: February 28, 2013
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from _______ to _______
 
Commission file number:  000-54328
 
EFLO ENERGY, INC.
(Exact name of registrant as specified in its charter)

Nevada
 
26-3062721
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)

333 N. Sam Houston Parkway East, Suite 600, Houston, Texas  77060
(Address of principal executive offices)(Zip Code)

Registrant’s telephone number, including area code:  (281) 260-1034

EFL OVERSEAS, INC.
 (Former name or former address if changed since last report)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ  No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ  No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
 
Large accelerated filer
o
Accelerated filer
o
Non-accelerated filer
o
Smaller reporting company
þ
(Do not check if a smaller reporting company)
 
Indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange Act). Yes o  No þ

As of April 10, 2013, the registrant had 19,442,616 outstanding shares of common stock.
 


 
 

 
 
FORWARD LOOKING STATEMENTS
 
The information contained in this Form 10-Q contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve risks and uncertainties. Any statement which does not contain an historical fact may be deemed to be a forward-looking statement. In some cases, you can identify forward-looking statements by terminology such as "may", "will", "should", "expect", "plan", "intend", "anticipate", "believe", "estimate", "predict", "potential" or "continue", the negative of such terms or other comparable terminology. In evaluating forward looking statements, you should consider various factors outlined in our latest Form 10-K filed with U.S. Securities Exchange Commission (“SEC”) on November 29, 2012 and, from time to time, in other reports we file with the SEC. These factors may cause our actual results to differ materially from any forward-looking statement. We disclaim any obligation to publicly update these statements, or disclose any difference between our actual results and those reflected in these statements.
 

 
2

 
 
PART 1 – FINANCIAL INFORMATION
 
ITEM 1.
FINANCIAL STATEMENTS
 
EFLO ENERGY, INC.
(An Exploration Stage Company)
CONSOLIDATED BALANCE SHEETS
 
   
February 28,
   
August 31,
 
   
2013
   
2012
 
   
(Unaudited)
    (As Restated)  
ASSETS
     
             
CURRENT ASSETS
           
Cash
  $ 2,308,601     $ 2,206,347  
Accounts receivable
               
Accrued gas sales
    -       178,225  
Joint interest owners and other
    857,410       122,745  
Prepaids
    92,962       204,892  
Other
    53,248       17,919  
Total current assets
    3,312,221       2,730,128  
                 
OIL AND GAS PROPERTIES, full cost method, unproven
    48,014,553       22,107,381  
                 
OTHER ASSETS - Goodwill
    1,194,365       1,194,365  
Total assets
  $ 52,521,139     $ 26,031,874  
                 
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
       
                 
CURRENT LIABILITIES
               
Accounts payable and accrued liabilities
  $ 2,897,352     $ 1,483,041  
Asset retirement obligation - current
    80,000       80,000  
Total current liabilities
    2,977,352       1,563,041  
                 
NONCURRENT LIABILITIES
               
Asset retirement obligations
    16,754,058       7,057,716  
Deferred income taxes
    3,164,790       -  
Total liabilities
    22,896,200       8,620,757  
                 
STOCKHOLDERS' EQUITY
               
Capital Stock
               
Authorized:
               
75,000,000 common shares, par value $0.001 per share
               
Issued and outstanding:
               
19,442,616 and 17,478,539 common shares at February 28, 2013  and
               
August 31, 2012, respectively
    19,443       17,479  
Additional paid-in capital
    28,832,206       21,830,083  
Accumulated other comprehensive loss
    (35,773 )     (2,959 )
Retained earnings (accumulated deficit) during the exploration stage
    809,063       (4,433,486 )
Total stockholders' equity
    29,624,939       17,411,117  
                 
Total liabilities and stockholders' equity
  $ 52,521,139     $ 26,031,874  
 
The accompanying notes are an integral part of these unaudited consolidated financial statements.

 
3

 
 
EFLO ENERGY, INC.
(An Exploration  Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
                           
Cumulative results
 
   
Three Months Ended
   
Six Months Ended
   
from July 22, 2008 to
 
   
February 28,
2013
   
February 29,
2012
   
February 28,
2013
   
February 29,
2012
   
February 28,
2013
 
EXPENSES                                        
Management and director's fees
    288,853       75,000       562,689       150,000       1,759,073  
Stock-based compensation expense
    355,723       -       1,050,426       -       1,839,703  
Consulting fees
    150,586       46,825       815,975       113,253       1,692,953  
Professional fees
    139,854       45,750       408,999       108,485       789,243  
Office, travel and general
    118,632       9,848       261,645       29,480       578,252  
Accretion of asset retirement obligations
    165,648       -       259,816       -       259,816  
Oil and gas property impairment
    -       -       -       44,335       879,994  
   Total Expenses
    1,219,296       177,423       3,359,550       445,553       7,799,034  
                                         
OPERATING LOSS
    (1,219,296 )     (177,423 )     (3,359,550 )     (445,553 )     (7,799,034 )
                                         
OTHER INCOME
                                       
Gain on acquisition of assets
    -       -       11,766,887       -       11,766,887  
Gain on forgiveness of accounts payable
    -       -       -       -       6,000  
NET INCOME (LOSS) before taxes
    (1,219,296 )     (177,423 )     8,407,337       (445,553 )     3,973,853  
Provision for income tax
    -       -       (3,164,790 )     -       (3,164,790 )
NET INCOME (LOSS)
  $ (1,219,296 )   $ (177,423 )   $ 5,242,547     $ (445,553 )   $ 809,063  
Foreign currency translation
    (42,086 )     -       (32,814 )     -       (35,773 )
COMPREHENSIVE INCOME (LOSS)
  $ (1,261,382 )   $ (177,423 )   $ 5,209,733     $ (445,553 )   $ 773,290  
                                         
EARNINGS (LOSS) PER SHARE
                                       
Basic
  $ (0.06 )   $ (0.02 )   $ 0.28     $ (0.06 )        
Diluted
  $ (0.06 )   $ (0.02 )   $ 0.26     $ (0.06 )        
                                         
WEIGHTED AVERAGE SHARES OUTSTANDING
                                       
Basic
    19,192,249       7,230,066       18,674,988       7,213,468          
Diluted
    19,192,249       7,230,066       19,887,518       7,213,468          
 
The accompanying notes are an integral part of these unaudited consolidated financial statements.
 
 
4

 
 
EFLO ENERGY, INC.
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
               
Cumulative results
 
    Six Months Ended    
from July 22, 2008 to
 
   
February 28,
2013
   
February 29,
2012
   
February 28,
2013
 
                   
CASH FLOWS FROM OPERATING ACTIVITIES
                 
Net income (loss)
  $ 5,242,547     $ (445,553 )   $ 809,063  
Adjustments to reconcile net income (loss) to net cash
                       
used in operating activities:
                       
Stock-based compensation  and fee payments
    1,616,038       -       3,651,846  
Unrealized foreign exchange losses
    (32,814 )     -       (35,773 )
Gain on forgiveness of accounts payable
    -       -       (6,000 )
Gain on acquisition of Nahanni assets
    (11,766,887 )     -       (11,766,887 )
Accretion of asset retirement obligations
    259,816       -       259,816  
Oil and gas property impairment
    -       44,335       879,994  
Deferred income tax provision
    3,164,790       -       3,164,790  
  Changes in working capital items -
                       
Accounts receivable
    (556,440 )     -       (857,410 )
Prepaids and other
    76,601       15,332       (146,210 )
Accounts payable and accrued liabilities
    434,007       87,264       1,013,587  
  Net cash used in operating activities
    (1,562,342 )     (298,622 )     (3,033,184 )
                         
CASH FLOWS FROM INVESTING ACTIVITIES
                       
Expenditures on oil and gas properties
    (380,616     (11,200 )     (1,120,169 )
Acquisition of oil and gas interests
    (132,600 )     -       (421,895 )
 Net cash used in investing activities
    (513,216 )     (11,200 )     (1,542,064 )
                         
CASH FLOWS FROM FINANCING ACTIVITIES
                       
Common stock sold for cash, net of fees
    2,177,812       -       6,779,612  
Common stock redeemed for cash
    -       -       (100 )
Proceeds from notes payable
    -       -       554,500  
Repayments of notes payable
    -       (2,500 )     (484,500 )
Loans from related parties
    -       -       34,337  
  Net cash (used in) provided by financing activities
    2,177,812       (2,500 )     6,883,849  
                         
INCREASE (DECREASE) IN CASH
    102,254       (312,322 )     2,308,601  
                         
CASH, BEGINNING OF PERIOD
    2,206,347       487,017       -  
                         
CASH, END OF PERIOD
  $ 2,308,601     $ 174,695     $ 2,308,601  
                         
SUPPLEMENTAL DISCLOSURE:
                       
Cash paid for interest
  $ -     $ -     $ -  
Cash paid for income taxes
  $ -     $ -     $ -  
Forgiveness of debt
  $ -     $ -     $ 9,337  
NON-CASH INVESTING ACTIVITIES:
                       
Accrued expenditures on oil and gas properties
  $ -     $ 33,135     $ -  
Asset retirement obligation incurred
  $ -     $ -     $ 80,000  
Asset retirement obligation acquired in Devon Acquisition
  $ -     $ -     $ 7,057,716  
Asset retirement obligation acquired in Nahanni acquisition
  $ 9,436,526     $ -     $ 9,436,526  
NON-CASH FINANCING ACTIVITIES
                       
Common stock issued as repayment of note payable
  $ -     $ 70,000     $ 165,000  
Common stock issued for services
  $ 70,000     $ 116,774     $ 1,858,831  
Common stock issued for Devon assets
  $ -     $ -     $ 15,950,000  
Exchangeable shares granted for Nahanni assets
  $ 4,190,643     $ -     $ 4,190,643  
 
The accompanying notes are an integral part of these unaudited consolidated financial statements.
 
 
5

 
EFLO ENERGY, INC.
(An Exploration Stage Company)
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
1.  BASIS OF PRESENTATION
 
Unaudited Interim Consolidated Financial Statements
 
The unaudited interim consolidated financial statements of EFLO Energy, Inc., formally known as EFL Overseas, Inc., (the “Company”) have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) for interim financial information and the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). They do not include all information and footnotes required by GAAP for complete financial statements. However, except as disclosed herein, there have been no material changes in the information disclosed in the notes to the consolidated financial statements for the year ended August 31, 2012 included in the Company’s Annual Report on Form 10-K filed with the SEC. The unaudited interim consolidated financial statements should be read in conjunction with those consolidated financial statements included in the Form 10-K. In the opinion of management, all adjustments considered necessary for fair presentation have been made. Operating results for the six and three month periods ended February 28, 2013 are not necessarily indicative of the results that may be expected for the year ending August 31, 2013.
 
Recent Accounting Pronouncements

The Company has reviewed recently issued accounting pronouncements and plans to adopt those that are applicable to it. It does not expect the adoption of these pronouncements to have a material impact on its financial position, results of operations or cash flows.
 
Restatements

During a reassessment of the oil and gas assets acquired in the Devon and Nahanni acquisitions (see Note 2), the Company determined that an error had been made in the classification of those assets.  Specifically, the Company misclassified certain oil and gas leasehold and infrastructure equipment costs as proved within the full cost pool. The Company acquired the assets in an arms-length transaction.  The assets acquired were non-core to the long-term business plans of the selling companies and, consequently, had not been the focus of their ongoing exploration and production efforts.  However, the Company’s business plan for these acquisitions is strategic in nature, with only marginal consideration for the existing production at the time of acquisition.  Since the dates the acquisitions closed, the Company has begun the process of evaluating the exploitation potential of both the conventional and unconventional hydrocarbons in place, as well as formulating an exploitation and development plan based on its ongoing analyses. The Company intends to utilize modern technology and institutional and strategic knowledge of management to optimize the economics of the assets.

Upon consideration of the economic profile of the assets acquired at the time of acquisition, as compared to the Company’s future plans for the assets, the Company believes all oil and gas assets, including related infrastructure equipment, should have been classified as unproved in the Company’s balance sheet. Consequently, the Company believes classifying the assets as unproved is appropriate until such time as the hydrocarbon potential has been evaluated, the Company has completed development of an exploitation and development plan based on evaluation of the reservoir, raised sufficient capital to begin the operational execution of the exploitation and development plan and proved the economic viability of the assets based on successful drilling.  The Company will begin reclassifying these oil and gas assets from unproved to proved if and when the assets are demonstrably economic concurrently with the execution of the Company’s business plan.

The effect of this restatement on the financial statements included herein is as shown in tabular form below:

   
As previously
         
As
 
Consolidated Balance Sheet for the year ended August 31, 2012
 
reported
   
Adjustments
   
restated
 
Proved properties
    15,232,824       (15,232,824 )     -  
Unproven properties
    6,465,622       15,641,759       22,107,381  
Accumulated other comprehensive loss
    (7,299 )     4,340       (2,959 )
Retained earnings (accumulated deficit) during exploration stage
    (4,838,081 )     404,595       (4,433,486 )
                         
Notes to the Consolidated Financial Statements at August 31, 2012, Note 4. Oil and Gas Properties
                       
  Oil and Gas Acquisition - Kotaneelee Gas Project
                       
Unproved Leasehold Costs
    6,465,622       571,380       7,037,002  
Leasehold Costs
    581,379       (581,379 )     -  
                         
Notes to the Consolidated Financial Statements at November 30, 2012, Note 2. Oil and Gas Properties
                       
   Oil and Gas Acquisition - Kotaneelee Gas Project
                       
Reserves and resources
    11,932,590       (11,932,590 )     -  
Leasehold Costs
    643,074       (643,074 )     -  
Unproved Leasehold Costs
    15,800,124       (12,575,664 )     28,375,788  
 
6

 
2.  OIL AND GAS PROPERTIES
 
Oil and Gas Acquisition – Kotaneelee Gas Project (the “KGP”)

On October 17, 2012, the Company completed a Share Purchase Agreement (the “Purchase Agreement”) with Nahanni Energy Inc., 1700665 Alberta Ltd., Apex Energy (2000), Inc. and Canada Southern Petroleum #1 L.P. (jointly “Nahanni”) for the acquisition of its entire right and interest (generally a working interest of 30.664%) in the KGP (the “Nahanni Assets”).
 
The KGP covers 30,542 gross acres in the Yukon Territory in Canada, and includes; a gas dehydration plant (capacity: 70 million cubic feet per day), one shut in gas well, one water disposal well (capacity: 6,000 barrels per day), and two suspended gas wells. The KGP has a fully developed gas gathering, sales and delivery infrastructure, airstrip, roads, flarestack, storage tanks, barge dock and permanent camp facilities.
 
As consideration for the Nahanni Assets, the Company paid Nahanni approximately $13,761,000. The consideration was comprised of approximately $133,000 in cash ($398,550 offset by $265,950 paid in connection with the acquisition of the Devon Assets in settlement of certain Nahanni indebtedness), 1,614,767 shares of one of the Company’s subsidiaries, which are exchangeable for 1,614,767 shares of the Company’s restricted common stock valued at approximately $4,191,000, and the absorption of approximately $9,437,000 in asset retirement obligations. The number of shares issued by the Company’s subsidiary was calculated by dividing the fair value of the exchangeable shares by the volume weighted average trading price of the Company’s stock for the ten (10) trading days prior to closing the Purchase Agreement. The fair value of the exchangeable shares has been recorded as additional paid in capital in the Company’s equity. The exchangeable shares enjoy no voting or revenue participation rights in the subsidiary. Both the cash paid and stock issued for the Nahanni Assets are subject to certain holdbacks for asset related liabilities or breach of representations and warranties.
 
 
7

 

On July 18, 2012, the Company completed an acquisition of Devon Canada’s (“Devon”) entire right and interest (generally a working interest of 22.989%, with a working interest of 69.337% in one shut in gas well) in the KGP. As consideration for Devon’s working interest in the KGP, (the “Devon Assets”), the Company paid approximately $23,298,000. The consideration was comprised of $290,000 in cash, 7,250,000 shares of the Company’s restricted common stock valued at $15,950,000, and the absorption of approximately $7,058,000 in asset retirement obligations.

As a result of its purchase of the Nahanni Assets and Devon Assets, the Company now generally owns a 53.65% interest in the KGP, including a 100% interest in one shut in gas well.
 
The Company is pursuing the acquisition of additional working interests in the KGP.

The Company records assets acquired and liabilities assumed at their estimated acquisition date fair values, while transaction and integration costs associated with the acquisitions are expensed as incurred. The Company uses relevant market assumptions to determine fair value and allocate purchase price, such as future commodity pricing for purchased hydrocarbons, market multiples for similar transactions and replacement value for certain equipment. Many of the assumptions are unobservable. The Company’s preliminary assessment of the fair value of the Nahanni Assets resulted in a valuation of $25,526,554. As a result of incorporating this information into the purchase price allocation, a gain on bargain purchase of $11,766,887 was recognized in the accompanying consolidated statement of operations. The gain on bargain purchase was primarily attributable to the strategic nature of the divestiture by the motivated seller, coupled with a confluence of certain favorable economic trends in the industry and the geographic region in which the Nahanni Assets are located.
 
The Company allocated the consideration paid for the Nahanni Assets and Devon assets based upon its preliminary assessment of their fair value at the dates of purchase, as follows:
 
   
Fair Value of Assets Acquired (as restated)
 
   
Nahanni Assets
   
Devon Assets
   
Total
 
Asset Description
                 
Unproven Properties
                 
   Unproved leasehold costs
 
$
14,548,787
   
$
13,827,001
   
$
28,375,788
 
   Plant and equipment
   
8,594,362
     
6,484,001
     
15,078,363
 
   Gathering systems
   
2,383,405
     
1,788,001
     
4,171,406
 
   Vehicles
   
     
4,527
     
4,527
 
     
25,526,554
     
22,103,530
     
47,630,084
 
Goodwill
   
     
1,194,365
     
1,194,365
 
      Total Assets Acquired - KGP
 
$
25,526,554
   
$
23,297,895
   
$
48,824,449
 
 
Oil and natural gas revenues and lease operating expenses related to unproved oil and gas properties that are being evaluated for economic viability are offset against the full cost pool until proved reserves are established, or determination is made that the unproved properties are impaired. During the six and three month periods ended February 28, 2013, the Company adjusted $380,616 and $235,522, respectively, of oil and gas revenue, net of lease operating expense, into the full cost pool related to its unproven interests.

3.  ASSET RETIREMENT OBLIGATIONS

In connection with its acquisition of the Nahanni Assets and the Devon Assets, the Company acquired $9,436,526 and $7,057,716 in asset retirement obligations, respectively, relating with its portion of the abandonment, reclamation and environmental liabilities associated with the KGP.

On March 31, 2011, the Company initiated oil and gas operations by entry into a Farmout and Participation Agreement which provided for its acquisition of a net working interest ranging from 21.25% to 42.5%, in a 2,629 acre oil and gas lease, insofar as that lease covers from the surface to the base of the San Miguel formation (the “San Miguel Lease”). The San Miguel Lease, which is located in Zavala County, Texas, is unproven and has no current production. The Company incurred $80,000 in asset retirement obligations related to the future plugging and abandonment of a test well on the San Miguel Lease. At February 28, 2013, the Company’s interest in the San Miguel lease was impaired and expensed to the extent of its carrying value, which included the full amount of the associated asset retirement obligation. The entire asset retirement obligation relating to the San Miguel Lease has been classified as a current liability.
 
 
8

 
 
The following table summarizes amounts comprising the Company’s asset retirement obligations as of February 28, 2013:
 
Asset Retirement Obligations
     
Balance, August 31, 2011
 
$
80,000
 
Liabilities incurred (acquired)
   
7,057,716
 
Accretion expense
   
––
 
Liabilities (settled)
   
––
 
Changes in asset retirement obligations
   
––
 
Balance, August 31, 2012
   
7,137,716
 
Liabilities incurred (acquired)
   
9,436,526
 
Accretion expense
   
259,816
 
Liabilities (settled)
   
––
 
Changes in asset retirement obligations
   
––
 
Total Balance, February 28, 2013
 
$
16,834,058
 
Total Balance, February 28, 2013 – Current
 
$
80,000
 
Total Balance, February 28, 2013 – Long Term
 
$
16,754,058
 

4.  CAPITAL STOCK AND STOCK-BASED COMPENSATION
 
Sales of Common Stock

During October 2012, the Company sold 1,530,666 shares of its common stock to ten (10) accredited investors at a price of $1.20 per share. Gross proceeds from these private placements totaled $1,836,800. The Company paid $64,288 in finder’s fees in connection with the sale of these shares. The sales were made pursuant to the terms of the offering approved by the Company’s Board of Directors on May 29, 2012.

During January and February 2013, the Company sold 350,000 shares of its common stock to two (2) accredited investors at a price of $1.20 per share. Gross proceeds from these private placements totaled $420,000. The Company paid $14,700 in finder’s fees in connection with the sale of these shares. The sales were made pursuant to the terms of the offering approved by the Company’s Board of Directors on May 29, 2012.

Stock-Based Compensation

On January 15, 2013, the Company granted its new Chief Operating Officer 400,000 stock options in accordance with its 2012 Non-Qualified Stock Option Plan under the terms shown below:

Option Holder
 
No. of Shares
Issuable Upon Exercise
   
Exercise
Price
 
First Date
Exercisable
 
Expiration  Date
                   
H. Wayne Hamal
                 
  Stock Option A
   
100,000
   
$
2.30
 
1/15/2013
 
1/15/2015
  Stock Option B
   
100,000
   
$
2.50
 
1/14/2014
 
1/15/2016
  Stock Option C
   
100,000
   
$
2.75
 
1/14/2015
 
1/15/2017
  Stock Option D
   
100,000
   
$
3.00
 
7/14/2015
 
7/15/2017
     
400,000
               

The Company applied the Black-Scholes option pricing model to determine the fair market value of the options granted. In applying the model, the Company used the following parameters: contractual lives of 2 to 4.5 years, historical stock price volatility of 65% a risk-free rate of 4.5% and an annual dividend rate of 0%. As a result, the Company determined that the total fair market value of the options granted was $313,646 and the weighted-average grant-date fair value per option granted was $0.78.

On January 15, 2013, the Company also authorized the issuance of 50,000 bonus shares of its common stock to its new Chief Operating Officer pursuant to the 2012 Stock Bonus Plan. The fair market value of these bonus shares is the market price of the shares at the date of grant. The 50,000 bonus shares had an aggregate value of $97,000, or $1.94 per share at that date.
 
9

 

During the six and three months ended February 28, 2013, the Company recognized $468,632 and $193,947, respectively, of non-cash expense related to stock-based compensation under its 2012 Non-Qualified Stock Option Plan (the “Option Plan”). As of February 28, 2013, $729,938 of total unrecognized compensation cost remains under the Option Plan. Of this amount, $246,033, $437,107 and $46,798 are expected to be recognized during fiscal 2013, fiscal 2014, and fiscal 2015, respectively. The Company had no option plan in place during the six and three month periods ended February 29, 2012.

During the six and three months ended February 28, 2013, fees totaling $70,000 and $37,500 were paid using 33,411 and 20,596 shares of the Company’s restricted common stock at a weighted average price of $2.10 and $1.82 per share, respectively. For the six and three months ended February 29, 2012, $116,774 in fees incurred under this arrangement were paid using 33,785 shares of the Company’s restricted common stock at a weighted average price of $3.46.

5.   RELATED PARTY TRANSACTIONS
 
Effective January 20, 2011, a company controlled by the Company’s Chief Executive Officer, its Chief Financial Officer, and an unrelated consultant (the “Finders”) entered into an agreement with the Company providing for the payment of finder’s compensation ranging from 5% (on transaction values greater than $1,000,000) to 10% (on transactions valued up to $300,000) on transactions introduced to the Company by or through the Finders for a period of two years (the “Finder’s Fee Agreement”). Under the Finder’s Fee Agreement, compensation is divided between the Finders and the Finders may elect whether the finder’s compensation is payable in cash, or shares of the Company’s restricted common stock. If the Finders elect to receive payment in stock, the shares into which finder’s compensation will be converted will be calculated using the average closing price of the Company’s common stock for the ten trading days preceding the closing date of the transaction to which the compensation relates. The Finder’s Fee Agreement specifically recognizes that the KGP has been presented to the Company by the Finders. During the six months ended February 28, 2013, finder’s compensation of $775,399 has been accrued under the Finder’s Fee Agreement in connection with the Company’s acquisition of the Nahanni Assets. No such fees were incurred during three months ended February 28, 2013 or during the six or three months ended February 29, 2012.
 
Of the fees paid in stock during the six month periods ended February 28, 2013 and February 29, 2012 (see Note 4), fees totaling $60,000 and $116,774 were paid using 33,411 and 33,785 shares of the Company’s restricted common stock, respectively, to the Company's Chief Executive Officer under the terms of a management consulting agreement.
 
6.  SUBSEQUENT EVENTS

The Company held a special meeting of its shareholders on March 1, 2013. At the meeting, the following proposals were ratified:
 
 
(1) 
an amendment to the Company’s Articles of Incorporation to change the name of the Company from EFL Overseas, Inc. to EFLO Energy, Inc., and
 
 
(2)
an amendment to the Company’s Articles of Incorporation such that the Company is authorized to issue up to 150,000,000 shares of common stock, up to 10,000,000 shares of preferred stock, and to make certain technical amendments to our Articles of Incorporation.

These amendments to the Company’s Articles of Incorporation were made effective as of April 4, 2013.

 
10

 
 
ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General
 
EFLO Energy, Inc. (formerly, EFL Overseas, Inc.) is a development stage company incorporated in the State of Nevada on July 22, 2008. We are engaged in the acquisition, exploration and development of oil and gas properties in the United States and Canada.

During the period from July 18, 2012 through October 17, 2012, we acquired working interests totaling 53.65% (including a 100% working interest in one shut in gas well) in the Kotaneelee Gas Project (“KGP”) located on 30,542 gross acres in the Yukon Territory in Canada. We believe the KGP has significant conventional and shale gas potential and is supported by an environment of growing investment in gas processing and export in the Pacific Northwest.

Our acquisition of an initial working interest of 22.989% (including a 69.337% working interest in one shut in gas well) in the KGP was completed on July 18, 2012, with an effective date of July 1, 2012. Since that date, we have been responsible for the operations of the KGP and have recognized our portion of its related net revenues and costs as an increase to the full cost pool related to our unproven interests while economic viability is being evaluated.

During March 2011, we initiated oil and gas operations by entry into the Eagleford Agreement which provided for our acquisition of a net working interest, ranging from 21.25% to 42.5%, in a 2,629 acre oil and gas lease, insofar as that lease covers from the surface to the base of the San Miguel formation (the “San Miguel Lease”). The San Miguel Lease is located in Zavala County, Texas, and has no current production or proven reserves.

Prior to our initial working interest acquisition in the KGP, we had generated no revenues and had no proven reserves. Limited revenue generated to date has been recognized as a reduction of the full cost pool related to our unproven interests while economic viability is being evaluated.

The Kotaneelee Gas Project (“KGP”) – Yukon Territory, Canada

Working Interest Acquisitions

On October 17, 2012, we completed a Share Purchase Agreement (the “Purchase Agreement”) with Nahanni Energy Inc., 1700665 Alberta Ltd., Apex Energy (2000), Inc. and Canada Southern Petroleum #1 L.P. (jointly “Nahanni”) for the acquisition of its entire right and interest (generally a working interest of 30.664%) in the KGP (the “Nahanni Assets”).

The KGP covers 30,542 gross acres in the Yukon Territory in Canada, and includes; a gas dehydration plant (capacity: 70 million cubic feet per day), one shut in gas well, one water disposal well (capacity: 6,000 barrels per day), and two suspended gas wells. The KGP has a fully developed gas gathering, sales and delivery infrastructure, airstrip, roads, flarestack, storage tanks, barge dock and permanent camp facilities.

As consideration for the Nahanni Assets, we paid Nahanni approximately $13,761,000. The consideration was comprised of approximately $133,000 in cash ($398,550 offset by $265,950 paid in connection with the acquisition of the Devon Assets in settlement of certain Nahanni indebtedness), 1,614,767 shares of one of our subsidiaries, which are exchangeable, under certain terms and circumstances, for 1,614,767 shares of our restricted common stock valued at approximately $4,191,000, and the absorption of approximately $9,437,000 in asset retirement obligations. The number of shares issued by our subsidiary was calculated by dividing the fair value of the exchangeable shares by the volume weighted average trading price of our stock for the ten (10) trading days prior to closing the Purchase Agreement.  Both the cash paid and stock issued for the Nahanni Assets are subject to certain holdbacks for asset related liabilities or breach of representations and warranties.
 
On July 18, 2012, we completed an acquisition of Devon Canada’s (“Devon”) entire right and interest (generally a working interest of 22.989%, with a working interest of 69.337% in one shut in gas well) in the KGP. As consideration for Devon’s working interest in the KGP, (the “Devon Assets”), we paid approximately $23,298,000. The consideration was comprised of $290,000 in cash, 7,250,000 shares of our restricted common stock valued at $15,950,000, and the absorption of approximately $7,058,000 in asset retirement obligations.
 
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As a result of our purchase of the Nahanni Assets and Devon Assets, we now generally own a 53.65% interest in the KGP, including a 100% interest in one shut in gas well.

We are also pursuing the acquisition of additional working interests in the KGP.

We record assets acquired and liabilities assumed at their estimated acquisition date fair values, while transaction and integration costs associated with the acquisitions are expensed as incurred.  We use relevant market assumptions to determine fair value and allocate purchase price, such as future commodity pricing for purchased hydrocarbons, market multiples for similar transactions and replacement value for certain equipment.  Many of the assumptions are unobservable. Our preliminary assessment of the fair value of the Nahanni Assets and the Devon Assets resulted in a valuation of $25,526,554 and $22,103,530, respectively. As a result of our purchase price allocation, a gain on bargain purchase of $11,766,887 was recognized on the Nahanni Assets. The gain on bargain purchase was primarily attributable to the strategic nature of the divestiture by the motivated seller, coupled with a confluence of certain favorable economic trends in the industry and the geographic region in which the Nahanni Assets are located. The excess of the consideration paid over the estimated fair value of the Devon Assets was $1,194,365. This amount has been recognized as goodwill.
 
    
Fair Value of Assets Acquired (as restated)
 
   
Nahanni Assets
   
Devon Assets
   
Total
 
Asset Description
                 
Unproven Properties
                 
   Unproved leasehold costs
 
$
14,548,787
   
$
13,827,001
   
$
28,375,788
 
   Plant and equipment
   
8,594,362
     
6,484,001
     
15,078,363
 
   Gathering systems
   
2,383,405
     
1,788,001
     
4,171,406
 
   Vehicles
   
     
4,527
     
4,527
 
     
25,526,554
     
22,103,530
     
47,630,084
 
Goodwill
   
     
1,194,365
     
1,194,365
 
      Total Assets Acquired - KGP
 
$
25,526,554
   
$
23,297,895
   
$
48,824,449
 
 
Our proven oil and gas properties have been reclassified as unproven. See Note 1 to the accompanying consolidated financial statements.
 
Future Development and Exploration

Our long term exploration plan for the KGP involves the exploitation of both conventional and unconventional (shale) gas resources. Phase one of that plan includes the rework or recompletion of up to three wells, and the drilling, completion and equipping of two new wells. These efforts will focus on previously identified or tested conventional gas zones. During phase one, we intend to target lower cost development and exploration targets with the potential to create positive cash flows and long term sustainability for the KGP. Early estimates indicate the cost of phase one may range from $35,000,000 to $50,000,000 on a gross basis.
 
Phases two and three of our exploration plan anticipates further development of conventional reservoirs and testing and development of shale reservoirs.

Financial Condition and Results of Operations

KGP

Oil and natural gas revenues and lease operating expenses related to unproved oil and gas properties that are being evaluated for commercial viability are offset against the full cost pool until proved reserves are established, or determination is made that the unproved properties are impaired. During the six and three month periods ended February 28, 2013, we capitalized $380,616 and $235,522, respectively, of oil and gas revenue, net of lease operating expense, into the full cost pool related to our unproven interests. 
 
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The San Miguel Lease

Under the Eagleford Agreement, to earn our initial 21.25% working interest (net revenue interest 15.94%), we were obligated to drill and complete a vertical Test Well in the San Miguel shale formation. We were also obligated to perform an injection operation on the Test Well. If the Test Well was prospective for production in commercial quantities, we were required to equip the Test Well and place it on production. If we determine that the Test Well is not prospective for production in commercial quantities, we are responsible for the abandonment of the Test Well.

During April and May 2011, we drilled and completed the Test Well, performed injection operations and earned our initial interest in the San Miguel Lease. The Test Well was drilled into the San Miguel heavy oil zone to a depth of 3,168 feet. The well encountered oil and was completed as a producer. After completion, it was determined that the oil was subject to significant viscosity changes related to temperature reductions from formation to recovery at surface. The Test Well was stimulated with nitrified hydrochloric acid and placed on production. To date, however, oil viscosity has prohibited economic operation. Although we continue to investigate various methods to improve production from the Test Well, we cannot estimate what cost, if any, will be associated with future production efforts on the San Miguel Lease. We have no current plans to spend the funds necessary to earn an additional interest in the San Miguel Lease. In the event we are unable to substantially improve production, we intend to abandon the Test Well, or actively pursue the sale of our interest in the San Miguel Lease.
 
As a result of the application of the full cost pool "ceiling test", we determined that the book value of the San Miguel Lease was impaired to the extent of its carrying value. Accordingly, during the years ended August 31, 2012 and 2011, we recognized losses on the impairment of oil and gas assets of $44,335 and $835,659, respectively. The carrying value of oil and gas properties was likewise reduced to reflect the impairment of the Lease. We have made no additional expenditures on the San Miguel Lease since November 30, 2011.
 
Other

The excess of the estimated fair value of the Nahanni Assets over the consideration paid was $11,766,887. This amount has been recognized as a gain on the acquisition of assets. The excess of the consideration paid over the estimated fair value of the Devon Assets was $1,194,365. This amount has been recognized as goodwill.

Our operating loss for the six and three month period ended February 28, 2013, increased by approximately $3,914,000 or 654% (from $445,553 to $3,359,550) and approximately $1,042,000 or 587% (from $177,423 to $1,219,296) respectively,  when compared to the same periods during the prior year. These increased losses resulted from higher costs incurred in almost every category to support our expanded operations, including:
 
1.
Increases of approximately $260,000 and $166,000, respectively, in accretion of asset retirement obligations incurred in connection with our working interests in the KGP acquired during July and October 2012;

2.
Increases of approximately $413,000 or 275% (from $150,000 to $562,689) and $214,000 or 285% (from $75,000 to $288,853), respectively, in management and directors fees relating to an increase in the size of our board of directors from four (4) to six (6) members, the addition of two new officers, and the accrual of  newly established directors fees;
 
 
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3.
Increases of approximately $1,050,000 (from $0.00 to $1,050,426) and $356,000 (from $0.00 to $355,723), respectively, in stock based compensation expense for the six month period consisting primarily of; $436,000, recognized in fair value of options granted under the 2012 Stock Option Plan, $259,000 (100,583 shares) payable to our Chief Executive Officer, and $259,000 (100,553 shares) payable to our Chief Financial Officer as finder’s fees in connection with our acquisition of the KGP (six months) , and $97,000 in the value of stock granted to our incoming Chief Operating Officer under our 2012 Stock Bonus Plan, and for the three month period consisting primarily of: $258,000 recognized in fair value of options granted under the 2012 Stock Option Plan, and $97,000 in the value of stock granted to our incoming Chief Operating Officer under our 2012 Stock Bonus Plan (both six and three months).
 
4.
An increase of approximately $703,000 or 620% (from $113,253 to $815,975) during the six month period ended February 28, 2013 in consulting fees consisting in largest part of; $230,100 payable for investor relations services (payable to a consultant in 90,000 shares of our restricted common stock), and $258,000 in finder’s fees incurred in connection with the acquisition of the KGP (payable to a consultant in 100,553 shares of our restricted common stock) and increased fees for engineering services incurred in connection with the KGP.

5.
Increases of approximately $301,000 or 277% (from $108,485 to $408,999), and $94,104 or 206% (from $45,470 to $139,854), respectively, in professional fees, incurred in connection with regulatory compliance and our acquisition of the KGP.

6.
Increases of approximately $232,000 or 787% (from $29,480 to $261,645), and $109,000 or 1,104% (from $9,848 to $118,632), respectively, in office, travel and general expense,  relating primarily to travel costs and insurance expense incurred in connection with our acquisition of the KGP.

We expect our expenses will continue to increase as we expand operations. We are actively seeking additional capital to fund those expenditures. 
 
Liquidity and Capital Resources
 
The oil and gas industry is cyclical in nature and tends to reflect general economic conditions. The pattern of historic fluctuations in gas prices has resulted in additional uncertainty in capital markets. Our access to capital, as well as that of our partners and contractors, has been limited due to tightened credit markets. These limitations may inhibit the size and timing of formation of exploration ventures.

We plan to generate profits by drilling productive gas wells or improving the production of existing wells. We will, however, need to raise the funds we require through the sale of our securities, from loans from third parties or by joint venturing operations with third parties which will pay a portion of the costs required to explore for oil and gas in the area covered by our leases. Any wells which we may drill may not produce oil or gas in commercial quantities. We plan to report losses from our operations until such time, if ever, we begin to generate significant revenue from oil and gas sales.
 
To secure our indemnity of the asset retirement obligations associated with the Devon Assets, we provided Devon a corporate guarantee (the “Guarantee”) in the amount of CAD$10,000,000 (USD$10,050,000) and delivered a letter of credit in the amount of CAD$4,380,000 (USD$4,410,000) to Devon (the “Devon LOC”). We also agreed to deliver a letter of credit in the amount of CAD$625,000 (USD$629,000) to the government of the Yukon Territory as soon as practicable (the “Yukon LOC”). The amounts of the Devon LOC and Yukon LOC reduce the amount of the Guarantee on a dollar-for-dollar basis. We intend to actively develop and explore the KGP lands which will defer potential abandonment and reclamation liabilities into the longer term.

The Guarantee was provided to Devon by our largest shareholder, Holloman Corporation, in exchange for 3,250,000 shares of our restricted common stock. The Devon LOC was provided to Devon by Pacific LNG Operations Ltd. (“PLNG”). PLNG is also committed to provide the Yukon LOC. In exchange for the Devon LOC and Yukon LOC we issued PLNG 4,000,000 shares of our restricted common stock. Our directors, James Ebeling and Eric Prim are officers of Holloman Corporation, and Henry Aldorf, the Chairman of our Board of Directors, is a director of PLNG.
 
 
14

 

In addition to providing the Yukon LOC, we committed to certain post closing undertakings which include, but are not limited to; the completion of assignments of service, transportation and handling agreements, and the registration of all conveyances and transfers.
 
We anticipate that our acquisition of the KGP will generate significant capital requirements.  During the twelve month period ending March 31, 2014, early estimates indicate that investment in the KGP, including operating costs, the acquisition of additional working interests, and Phase One exploration costs may range from $40,000,000 to $42,000,000. We are attempting to raise the capital needed to implement our business plan.
 
Effective January 20, 2011, a company controlled by our Chief Executive Officer, our Chief Financial Officer, and an unrelated consultant (the “Finders”) entered into an agreement with us providing for the payment of finder’s compensation ranging from 5% (on transaction values greater than $1,000,000) to 10% (on transactions valued up to $300,000) on transactions introduced to us by or through the Finders for a period of two years (the “Finder’s Fee Agreement”). Under the Finder’s Fee Agreement, compensation is divided between the Finders and the Finders may elect whether the finder’s compensation is payable in cash, or shares of our restricted common stock. If the Finders elect to receive payment in stock, the shares into which finder’s compensation will be converted will be calculated using the average closing price of our common stock for the ten trading days preceding the closing date of the transaction to which the compensation relates. The Finder’s Fee Agreement specifically recognizes that the KGP has been presented to us by the Finders. As of February 28, 2013, finder’s compensation of $1,599,682 has been accrued under the Finder’s Fee Agreement in connection with our acquisition of the Devon Asset and the Nahanni Assets.
 
Other than the obligations associated with the acquisition and exploration of our oil and gas leases disclosed elsewhere in this report, we have no material future contractual obligations as of February 28, 2013.

During the period from June 2012, through February 2013, we sold 4,405,667 shares of our common stock to twenty eight accredited investors at a price of $1.20 per share. Gross proceeds from these private placements totaled $5,286,800. We paid $164,038 in finder’s fees in connection with the sale of these shares.
 
During December 2011, we retired $70,000 in non-interest bearing notes payable to an unrelated party. In exchange for the notes, we issued 23,334 investment units to the noteholder. The investment units were priced at $3.00 each and consisted of one share of our common stock, and one stock purchase warrant. Each stock purchase warrant entitles the holder to purchase one share of our common stock at a price of $4.50 per share until November 5, 2013.

During May 2011, we sold 120,000 investment units. The investment units were priced at $3.00 each and consisted of one share of our common stock and one stock purchase warrant. Each stock purchase warrant entitled the holder to purchase one share of our common stock at a price of $4.50 per share until April 15, 2013. Proceeds from the private placement totaled $360,000, all of which were paid in cash. We paid $2,400 in finder’s fees in connection with the sale of the units. Our Chief Executive Officer acquired 50,000 investment units in this private placement.
 
During April 2011, we sold 390,000 investment units at a price of $3.00 per unit. Each unit consisted of one share of our common stock and one warrant. Each warrant entitled the holder to purchase one share of our common stock at a price of $4.50 per share until April 1, 2013. Proceeds from the private placement totaled $1,170,000, all of which was paid in cash. We paid $46,800 in finder's fees in connection with the sale of the units.
 
During December 2010, we sold 86,870 investment units at a price of $2.30 per unit. Each unit consisted of one share of our common stock and one warrant. Each warrant entitled the holder to purchase one share of our common stock at a price of $3.50 per share until December 29, 2012. Proceeds from the private placement totaled $191,100 (net of $8,700 in fees) of which $166,100 was paid in cash and $25,000 was a repayment of a loan.

In connection with the San Miguel Farmout Agreement, we obtained $400,000 in temporary financing from our largest shareholder. This financing was subject to a non-interest bearing demand note payable. The entire $400,000 note balance was repaid from proceeds of a private placement of investment units during April 2011.
 
 
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We believe our plan of operations, exclusive of costs associated with the KGP or other acquired assets, will require from $1,500,000 to $2,000,000 in financing over the twelve-month period ending March 2014 to cover general, administrative, and other costs.
 
If we are unable to raise the financing we need, our business plan may fail and our stockholders could lose their investment. There can be no assurance that we will be successful in raising the capital we require, or that if the capital is offered, it will be subject to terms we consider acceptable. Investors should be aware that even if we are able to raise the funds we require, there can be no assurance that we will succeed in our acquisition, exploration or production plans and we may never be profitable.
 
As of April 15, 2013 we did not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, results of operations, liquidity or capital resources.

Critical Accounting Policies and Estimates
 
Measurement Uncertainty
 
The preparation of consolidated financial statements in conformity with US GAAP requires us 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. We regularly evaluate estimates and assumptions. We base our estimates and assumptions on current facts, historical experience and various other factors we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by us may differ materially and adversely from our estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected. The most significant estimates with regard to our consolidated financial statements relate to carrying values of oil and gas properties, the estimate of proved oil and gas reserves and related present value estimates of future net cash flows, asset retirement obligations, the valuation of goodwill, determination of fair values of stock-based transactions, deferred income tax rates, and environmental risks and exposures.
 
Petroleum and Natural Gas Properties
 
We utilize the full cost method to account for our investment in oil and gas properties. Accordingly, all costs associated with acquisition, exploration and development of oil and gas reserves, including such costs as leasehold acquisition costs relating to unproved properties, geological expenditures, tangible and intangible development costs including direct internal costs are capitalized to the full cost pool. When we commence production from established proven oil and gas reserves, capitalized costs, including estimated future costs to develop the reserves and estimated abandonment costs, net of salvage, will be depleted on the units-of-production method using estimates of proved reserves. Costs of unproved properties are not amortized until the proved reserves associated with the projects can be determined or until impairment occurs. If an assessment of such properties indicates that properties are impaired, the amount of impairment is added to the capitalized cost base to be amortized.
 
Depletion, depreciation and amortization (DD&A) of proven and producing oil and gas properties will be calculated quarterly, using the Units of Production Method (UOP). The UOP calculation, in simplest terms, matches the percentage of estimated proved reserves produced each quarter with the costs of those reserves. The result is to recognize expense at the same pace that the reservoirs are actually depleting. The amortization base in the UOP calculation includes the sum of proved property costs net of accumulated DD&A, estimated future development costs (future costs to access and develop reserves) and asset retirement costs which are not already included in oil and gas property, less related salvage value.
 
The capitalized costs included in the full cost pool are subject to a "ceiling test" (based on the average of the first-day-of-the-month prices during the preceding twelve-month period  pursuant to the SEC’s “Modernization of Oil and Gas Reporting” rule), which limits such costs to the aggregate of the (i) estimated present value, using a ten percent discount rate, of the future net revenues from proved reserves, based on current economic and operating conditions, (ii) the lower of cost or estimated fair value of unproven properties included in the costs being amortized, (iii) the cost of properties not being amortized, less (iv) income tax effects related to differences between the book and tax basis of the cost of properties not being amortized and the cost or estimated fair value of unproved properties included in the costs being amortized. If net capitalized costs exceed this limit, the excess is charged to expense in the current period.
 
 
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Sales of proved and unproved properties are accounted for as adjustments of capitalized costs with no gain or loss recognized, unless such adjustments would significantly alter the relationship between capitalized costs and proved reserves of oil and gas, in which case the gain or loss is recognized in the statement of operations.
 
Oil and Gas Acquisitions

We account for all property acquisitions that include working interests in oil and gas wells, both operated and non-operated, that would generate more than an immaterial balance of goodwill as business combinations. We do not apply acquisition accounting to the purchase of oil and gas properties entirely comprised of unproved leaseholds. In accordance with this guidance, we have recognized the fair value of all the assets acquired and liabilities assumed in connection with our KGP working interest acquisition from Devon and Nahanni effective July 18, 2012 and October 17, 2012, respectively.
 
On an ongoing basis, we conduct assessments of net assets acquired to determine if acquisition accounting is appropriate. When we determine a "business" has been acquired under the requirements of ASC Topic 805, we record assets acquired and liabilities assumed at their estimated acquisition date fair values, while transaction and integration costs associated with the acquisitions are expensed as incurred. We use relevant market assumptions to determine fair value and allocate purchase price, such as future commodity pricing for purchased hydrocarbons, market multiples for similar transactions and replacement value for certain equipment. Many of the assumptions are unobservable.

Asset Retirement Obligations
 
We record asset retirement obligations based on guidance set forth in ASC Topic 410, as a liability in the period in which we incur an obligation associated with the retirement of tangible long-lived assets that result from the acquisition, construction, development and/or normal use of the assets. The estimated balance of the asset retirement obligation is based on the current cost escalated at an inflation rate and discounted at a credit adjusted risk-free rate. The associated asset retirement asset is capitalized as part of the cost of the related asset and amortized over its useful life. The associated asset retirement obligation liability is subject to periodic accretion based on our credit-adjusted discount. Accretion expense is offset with an increase to the asset retirement obligation liability account, and, at the end of the asset’s life, the liability account will have a balance equal to the amount needed to settle the retirement obligation.

Fair Value Measurements
 
Our valuation techniques are generally classified into three categories: the market approach; the income approach; and the cost approach. The selection and application of one or more of these techniques requires significant judgment and is primarily dependent upon the characteristics of the asset or liability, the principal (or most advantageous) market in which participants would transact for the asset or liability and the quality and availability of inputs. Inputs to valuation techniques are classified as either observable or unobservable within the following hierarchy:

 
Level 1 — quoted prices in active markets for identical assets or liabilities.
 
 
Level 2 — inputs other than quoted prices that are observable for an asset or liability. These include: quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability; and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market-corroborated inputs).
 
 
Level 3 — unobservable inputs that reflect our own expectations about the assumptions that market participants would use in measuring the fair value of an asset or liability.
  
We consider all highly liquid instruments with an original maturity of three months or less at the time of issuance to be cash equivalents. Cash and cash equivalents totaled $2,308,601 and $2,206,347 at February 28, 2013 and August 31, 2012, respectively. We are exposed to a concentration of credit risk with respect to our cash deposits. We place cash deposits with highly rated financial institutions in the United States and Canada. At times, cash balances held in financial institutions may be in excess of insured limits. We believe the financial institutions are financially strong and the risk of loss is minimal. We have not experienced any losses with respect to the related risks and do not believe our exposure to such risks is more than normal.
 
 
17

 

The estimated fair values for financial instruments are determined at discrete points in time based on relevant market information. These estimates involve uncertainties and cannot be determined with precision. The estimated fair value of cash, other receivables, accounts payable, accrued liabilities and demand notes payable approximates their carrying value due to their short-term nature.
 
Revenue Recognition

We recognize natural gas revenue under the sales method of accounting for our interests in producing wells as natural gas is produced and sold from those wells. We recognize revenue upon transfer of ownership of the product to the customer which occurs when (i) the product is physically received by the customer, (ii) an invoice is generated which evidences an arrangement between the customer and us, (iii) a fixed sales price has been included in such invoice and (iv) collection from such customer is reasonably assured. Gas sales are reported net of applicable production taxes.
 
Oil and natural gas revenues and lease operating expenses related to unproved oil and gas properties that are being evaluated for commercial viability are offset against the full cost pool until proved reserves are established, or determination is made that the unproved properties are impaired. During the six and three month periods ended February 28, 2013, we adjusted $380,616 and $235,522, respectively, of oil and gas revenue, net of lease operating expense, into the full cost pool related to our unproven interests.

Stock-Based Compensation
 
We record compensation expense in the consolidated financial statements for stock-based payments using the fair value method. The fair value of stock options granted to directors and employees is determined using the Black-Scholes option valuation model at the time of grant. Fair value for common shares issued for goods or services rendered by non-employees is measured based on the fair value of the goods and services received. Stock-based compensation is expensed as earned with a corresponding increase to share capital.
 
Foreign Currency Gains and Losses
 
Our functional and reporting currency is the United States dollar. The functional currency of our Canadian subsidiaries is the Canadian dollar. Financial statements of our Canadian subsidiaries are translated to United States dollars using period-end rates of exchange for assets and liabilities, and average rates of exchange for the period for revenues and expenses. Translation gains (losses) are recorded in accumulated other comprehensive income as a component of stockholders’ equity. Transaction gains and losses are included in the determination of income or loss. Foreign currency transactions are primarily undertaken in Canadian dollars. As of February 28, 2013, we have not entered into derivative instruments to offset the impact of foreign currency fluctuations.
 
Income Taxes
 
We follow the asset and liability method of accounting for future income taxes. Under this method, future income tax assets and liabilities are recorded based on temporary differences between the carrying amount of balance sheet items and their corresponding tax bases. In addition, the future benefits of income tax assets, including unused tax losses, are recognized, subject to a valuation allowance, to the extent that it is more likely than not that such future benefits will ultimately be realized. Future income tax assets and liabilities are measured using enacted tax rates and laws expected to apply when the tax liabilities or assets are to be either settled or realized.
 
Earnings per share
 
We present both basic and diluted earnings (loss) per share (EPS) on the face of the statements of operations. Basic EPS is computed by dividing net earnings (loss) available to common shareholders by the weighted average number of shares outstanding during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period including convertible debt, stock options, and warrants, using the treasury stock method. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive. Our Diluted EPS amounts differ from Basic EPS for the six month period ended February 28, 2013, as we have adjusted the weighted average number of shares outstanding during the period by a) 1,614,767 shares of one of our subsidiaries issued in connection with our acquisition of the Nahanni Assets, which are exchangeable for 1,614,767 shares of the our restricted common stock, and b) 8,145 shares recognized using the treasury stock method in connection with certain “in the money” stock options.
 
 
18

 

Our Diluted EPS amounts did not differ from Basic EPS during the prior year periods and for the three month period ended February 28, 2013, as we generated net losses during those periods.

ITEM 4.
CONTROLS AND PROCEDURES

An evaluation was carried out under the supervision and with the participation of our management, including our Principal Executive Officer and Principal Financial Officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report on Form 10-Q. Disclosure controls and procedures are procedures designed with the objective of ensuring that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, such as this Form 10-Q, is recorded, processed, summarized and reported, within the time period specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and is communicated to our management, including our Principal Executive Officer and Principal Financial Officer, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Based on that evaluation, our management concluded that, as of February 28, 2013, our disclosure controls and procedures were effective.
 
Change in Internal Control over Financial Reporting
 
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 in accordance with generally accepted accounting principles 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.
 
There were no changes in our internal control over financial reporting that occurred during the fiscal quarter covered by this report that materially affected or are reasonably likely to materially affect, our internal control over financial reporting.

 
19

 
 
PART II - OTHER INFORMATION

ITEM 2.
UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS.

During January and February 2013, we sold 350,000 shares of our common stock to two (2) accredited investors at a price of $1.20 per share. Gross proceeds from these sales totaled $420,000. We paid $14,700 in finder’s fees in connection with these transactions. The sales were made pursuant to the terms of the offering approved by the Company’s Board of Directors on May 29, 2012.

During the three months ended February 28, 2013, we accrued fees payable in stock totaling $37,500 under the terms of two consulting agreements. One of these agreements, for fees in the amount of $30,000, is with an entity controlled by our Chief Executive Officer. Effective February 28, 2013, we issued 20,596 shares of our common stock, at a weighted average price of $1.82 per share, in satisfaction of these liabilities.

We relied upon the exemption provided by Section 4(2) of the Securities Act of 1933 in connection with the issuance of these shares. The certificates representing the shares of common stock bear a restricted legend providing that they cannot be sold unless pursuant to an effective registration statement or an exemption from registration.  We did not pay any underwriting discounts or sales commissions in connection with the issuance of these shares.
 
ITEM 5.
OTHER INFORMATION

A special meeting of our shareholders was held on March 1, 2013. At the meeting, the following proposals were ratified by our shareholders.
 
 
(1) 
an amendment to our Articles of Incorporation to change our name to EFLO Energy, Inc., and
 
 
(2)
an amendment to our Articles of Incorporation such that we are authorized to issue up to 150,000,000 shares of common stock, up to 10,000,000 shares of preferred stock, and to make certain technical amendments to our Articles of Incorporation.

These amendments to the Company’s Articles of Incorporation were made effective as of April 4, 2013.
 
 
20

 

ITEM 6.
EXHIBITS
   
(a)  
Consolidated Financial Statements
 
 
Consolidated Balance Sheets
       
         
Consolidated Statements of Operations
       
         
Consolidated Statements of Cash Flows
       
         
Notes to the Consolidated Financial Statements
       
 
(b)
Exhibits

3.1.1
Articles of Incorporation(1)
   
3.1.2
Amendment to Articles of Incorporation(2)
   
Amendment to Articles of Incorporation
   
3.2
Bylaws(1)
   
10.1
Agreement of Purchase and Sale between Devon Canada and EFL Overseas, Inc.(4)
   
10.2
Share Purchase Agreement between Nahanni Energy et.al and EFL Overseas, Inc. (4)
   
10.3
Kotaneelee Closing Agreement between Devon Canada and EFL Overseas, Inc. (4)
   
14.1
Code of Ethics for Principal Executive and Senior Financial Officers(4))
   
21.1
As of February 28, 2012, we had four consolidated subsidiaries; EFLO Energy Yukon Ltd., a Canadian Corporation (100% owned) 1693730 Alberta Ltd, a Canadian Corporation (voting stock 100% owned) 1693731 Alberta Ltd, a Canadian Corporation (100% owned) 1700665 Alberta Ltd, a Canadian Corporation (100% owned by 1693730 Alberta Ltd)
   
Rule 13a-14(a) Certifications
   
Rule 13a-14(a) Certifications
   
Section 1350 Certifications
   
99.1
EFL Overseas Inc. – Audit Committee Charter(4)
 
101.INS
- XBRL Instance Document
   
101.SCH
- XBRL Taxonomy Extension Schema Document
   
101.CAL
- XBRL Taxonomy Extension Calculation Linkbase Document
   
101.DEF
- XBRL Taxonomy Extension Definition Linkbase Document
   
101.LAB
- XBRL Taxonomy Extension Label Linkbase Document
   
101.PRE
- XBRL Taxonomy Extension Presentation Linkbase Document
__________________________
(1)
Incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-1 dated November 12, 2008.
(2)
Incorporated by reference to Exhibit 3.1 to the Company’s 10-Q report dated May 31, 2010.
(3)
Incorporated by reference to Exhibit 3.2 to the Company’s 10-Q report dated May 31, 2010.
(4)
Incorporated by reference to the Company’s 10-K report for the year ended August 31, 2102, filed November 29, 2012.

 
21

 
 
SIGNATURES
 
Pursuant to the requirements of the Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
EFLO ENERGY, INC.
 
       
Dated:  April 15, 2013
BY:
/s/ Keith Macdonald
 
   
Keith Macdonald,
 
   
Principal Executive Officer
 
       
       
 
BY:
/s/ Robert Wesolek
 
   
Robert Wesolek,
 
   
Principal Financial and Accounting Officer
 
 
 

 22

EX-3.1.3 2 eflo_ex313.htm AMENDMENT TO ARTICLES OF INCORPORATION eflo_ex313.htm
Exhibit 3.1.3
 
 
 
1

 
2

EX-31.1 3 eflo_ex311.htm CERTIFICATION Unassociated Document
EXHIBIT 31.1
 
CERTIFICATIONS
 
I, Keith Macdonald, certify that:
 
 
1.
I have reviewed this Quarterly Report on Form 10-Q of EFLO Energy, Inc.;
 
 
2.
Based on my knowledge, this report, does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by the report;
 
 
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
 
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
 
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
 
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
 
c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
 
d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
 
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
 
 
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
 
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
 
April 15, 2013
 
/s/ Keith Macdonald
                                                             
Keith Macdonald,
 
Principal Executive Officer

EX-31.2 4 eflo_ex312.htm CERTIFICATION Unassociated Document
EXHIBIT 31.2
 
CERTIFICATIONS
 
I, Robert Wesolek, certify that:
 
 
1.
I have reviewed this Quarterly Report on Form 10-Q of EFLO Energy, Inc.;
 
 
2.
Based on my knowledge, this report, does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by the report;
 
 
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
 
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
 
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
 
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
 
c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
 
d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
 
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
 
 
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
 
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
 
April 15, 2013
 
/s/ Robert Wesolek
 
Robert Wesolek,
 
Principal Financial Officer

EX-32 5 eflo_ex32.htm CERTIFICATION Unassociated Document
EXHIBIT 32
 
In connection with the quarterly report of EFLO Energy, Inc., (the “Company”) on Form 10-Q for the six and three months ended February 28, 2013 as filed with the Securities Exchange Commission on the date hereof (the “Report”), we, Keith Macdonald, Principal Executive Officer and Robert Wesolek, Principal Financial Officer of the Company, certify pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
 
(1)  
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
 
(2)  
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company.
 
 
Date: April 15, 2013
                                        
EFL OVERSEAS, INC.
     
     
   
/s/ Keith Macdonald
   
Keith Macdonald,
   
Principal Executive Officer
 
Date:  April 15, 2013
                                        
 
     
   
/s/ Robert Wesolek
   
Robert Wesolek,
   
Principal Financial Officer
     

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They do not include all information and footnotes required by GAAP for complete financial statements. However, except as disclosed herein, there have been no material changes in the information disclosed in the notes to the consolidated financial statements for the year ended August 31, 2012 included in the Company&#146;s Annual Report on Form 10-K filed with the SEC. The unaudited interim consolidated financial statements should be read in conjunction with those consolidated financial statements included in the Form 10-K. In the opinion of management, all adjustments considered necessary for fair presentation have been made. Operating results for the six and three month periods ended February 28, 2013 are not necessarily indicative of the results that may be expected for the year ending August 31, 2013.</font> </p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"><font style="font: 8pt Times New Roman, Times, Serif">&#160;</font></p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0"><font style="font: 8pt Times New Roman, Times, Serif"><u>Recent Accounting Pronouncements</u></font></p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0"><font style="font: 8pt Times New Roman, Times, Serif">&#160;</font></p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0"><font style="font: 8pt Times New Roman, Times, Serif; background-color: white">The Company has reviewed recently issued accounting pronouncements and plans to adopt those that are applicable to it. It does not expect the adoption of these pronouncements to have a material impact on its financial position, results of operations or cash flows.</font></p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"><font style="font: 8pt Times New Roman, Times, Serif">&#160;</font></p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0"><font style="font: 8pt Times New Roman, Times, Serif"><u>Restatements</u></font></p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0"><font style="font: 8pt Times New Roman, Times, Serif">&#160;</font></p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0"><font style="font: 8pt Times New Roman, Times, Serif">During a reassessment of the oil and gas assets acquired in the Devon and Nahanni acquisitions (see Note 2), the Company determined that an error had been made in the classification of those assets.&#160;&#160;Specifically, the Company misclassified certain oil and gas leasehold and infrastructure equipment costs as proved within the full cost pool. The Company acquired the assets in an arms-length transaction.&#160;&#160;The assets acquired were non-core to the long-term business plans of the selling companies and, consequently, had not been the focus of their ongoing exploration and production efforts.&#160;&#160;However, the Company&#146;s business plan for these acquisitions is strategic in nature, with only marginal consideration for the existing production at the time of acquisition.&#160;&#160;Since the dates the acquisitions closed, the Company has begun the process of evaluating the exploitation potential of both the conventional and unconventional hydrocarbons in place, as well as formulating an exploitation and development plan based on its ongoing analyses. 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Is Entity a Voluntary Filer? Is Entity's Reporting Status Current? Entity Filer Category Entity Public Float Entity Common Stock, Shares Outstanding Document Fiscal Period Focus Document Fiscal Year Focus Statement of Financial Position [Abstract] ASSETS Cash Accounts receivable Accrued gas sales Joint interest owners and other Prepaids Other Total current assets Proved properties, net of accumulated depletion and depreciation of $405,082 at August 31, 2012. 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    4. CAPITAL STOCK AND STOCK BASED COMPENSATION
    6 Months Ended
    Feb. 28, 2013
    Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
    4. CAPITAL STOCK AND STOCK BASED COMPENSATION

    4.  CAPITAL STOCK AND STOCK-BASED COMPENSATION

     

    Sales of Common Stock

     

    During October 2012, the Company sold 1,530,666 shares of its common stock to ten (10) accredited investors at a price of $1.20 per share. Gross proceeds from these private placements totaled $1,836,800. The Company paid $64,289 in finder’s fees in connection with the sale of these shares. The sales were made pursuant to the terms of the offering approved by the Company’s Board of Directors on May 29, 2012.

     

    During January and February 2013, the Company sold 350,000 shares of its common stock to two (2) accredited investors at a price of $1.20 per share. Gross proceeds from these private placements totaled $420,000. The Company paid $14,700 in finder’s fees in connection with the sale of these shares. The sales were made pursuant to the terms of the offering approved by the Company’s Board of Directors on May 29, 2012.

     

    Stock-Based Compensation

     

    On January 15, 2013, the Company granted its new Chief Operating Officer 400,000 stock optionsin accordance with its 2012 Non-Qualified Stock Option Plan under the terms shown below:

     

    Option Holder   No. of Shares
    Issuable Upon Exercise
        Exercise
    Price
      First Date
    Exercisable
      Expiration  Date
                       
    H. Wayne Hamal                  
      Stock Option A     100,000     $ 2.30   1/15/2013   1/15/2015
      Stock Option B     100,000     $ 2.50   1/14/2014   1/15/2016
      Stock Option C     100,000     $ 2.75   1/14/2015   1/15/2017
      Stock Option D     100,000     $ 3.00   7/14/2015   7/15/2017
          400,000                

     

    The Company applied the Black-Scholes option pricing model to determine the fair market value of the options granted. In applying the model, the Company used the following parameters: contractual lives of 2 to 4.5 years, historical stock price volatility of 65% a risk-free rate of 4.5% and an annual dividend rate of 0%. As a result, the Company determined that the total fair market value of the options granted was $313,646 and the weighted-average grant-date fair value per option granted was $0.78.

     

    On January 15, 2013, the Company also authorized the issuance of 50,000 bonus shares of its common stock to its new  Chief  Operating Officer pursuant to the 2012 Stock Bonus Plan. The fair market value of these bonus shares is the market price of the shares at the date of grant. The 50,000 bonus shares had an aggregate value of $97,000, or $1.94 per share at that date.

     

    During the six and three months ended February 28, 2013 the Company recognized $468,632 and $193,947, respectively, of non-cash expense related to stock-based compensation under its 2012 Non-Qualified Stock Option Plan (the “Option Plan”). As of February 28, 2013, $729,938 of total unrecognized compensation cost remains under the Option Plan. Of this amount, $246,033, $437,107 and $46,798 are expected to be recognized during fiscal 2013, fiscal 2014, and fiscal 2015, respectively. The Company had no option plan in place during the six and three month periods ended February 29, 2012.

     

    During the six and three months ended February 28, 2013, fees totaling $70,000 and $37,500 were paid using 33,411and 20,596 shares of the Company’s restricted common stock at a weighted average price of $2.10 and $1.82 per share, respectively. For the six and three months ended February 29, 2012, $116,774 in fees incurred under this arrangement were paid using 33,785shares of the Company’s restricted common stock at a weighted average price of $3.46.

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    3. ASSET RETIRMENT OBLIGATIONS
    6 Months Ended
    Feb. 28, 2013
    Notes to Financial Statements  
    3. ASSET RETIRMENT OBLIGATIONS

    3.  ASSET RETIREMENT OBLIGATIONS

     

    In connection with its acquisition of the Nahanni Assets and the Devon Assets, the Company acquired $9,436,526 and $7,057,716 in asset retirement obligations, respectively, relating with its portion of the abandonment, reclamation and environmental liabilities associated with the KGP.

     

    On March 31, 2011, the Company initiated oil and gas operations by entry into a Farmout and Participation Agreement which provided for its acquisition of a net working interest ranging from 21.25% to 42.5%, in a 2,629 acre oil and gas lease, insofar as that lease covers from the surface to the base of the San Miguel formation (the “San Miguel Lease”). The San Miguel Lease, which is located in Zavala County, Texas, is unproven and has no current production. The Company incurred $80,000 in asset retirement obligations related to the future plugging and abandonment of a test well on the San Miguel Lease. At February 28, 2013, the Company’s interest in the San Miguel lease was impaired and expensed to the extent of its carrying value, which included the full amount of the associated asset retirement obligation. The entire asset retirement obligation relating to the San Miguel Lease has been classified as a current liability.

     

     

    The following table summarizes amounts comprising the Company’s asset retirement obligations as of February 28, 2013:

     

    Asset Retirement Obligations      
    Balance, August 31, 2011   $ 80,000  
    Liabilities incurred (acquired)     7,057,716  
    Accretion expense     ––  
    Liabilities (settled)     ––  
    Changes in asset retirement obligations     ––  
    Balance, August 31, 2012     7,137,716  
    Liabilities incurred (acquired)     9,436,526  
    Accretion expense     259,816  
    Liabilities (settled)     ––  
    Changes in asset retirement obligations     ––  
    Total Balance, February 28, 2013   $ 16,834,058  
    Total Balance, February 28, 2013 – Current   $ 80,000  
    Total Balance, February 28, 2013 – Long Term   $ 16,754,058  

     

    XML 18 R2.htm IDEA: XBRL DOCUMENT v2.4.0.6
    CONSOLIDATED BALANCE SHEETS (Unaudited) (USD $)
    Feb. 28, 2013
    Aug. 31, 2012
    ASSETS    
    Cash $ 2,308,601 $ 2,206,347
    Accounts receivable      
    Accrued gas sales 0 178,225
    Joint interest owners and other 857,410 122,745
    Prepaids 92,962 204,892
    Other 53,248 17,919
    Total current assets 3,312,221 2,730,128
    OIL AND GAS PROPERTIES, full cost method, unproven 48,014,553 22,107,381
    OTHER ASSETS-Goodwill 1,194,365 1,194,365
    Total assets 52,521,139 26,031,874
    CURRENT LIABILITIES    
    Accounts payable and accrued liabilities 2,897,352 1,483,041
    Asset retirement obligation-current 80,000 80,000
    Total current liabilities 2,977,352 1,563,041
    NONCURRECT LIABILITIES    
    Asset retirement obligations 16,754,058 7,057,716
    Deferred income taxes 3,164,790 0
    Total liabilities 22,896,200 8,620,757
    STOCKHOLDERS' EQUITY    
    Capital Stock Authorized: 75,000,000 common shares, par value $0.001 per share Issued and outstanding:19,442,616 and 17,478,539 common shares at February 28, 2013 and August 31, 2012, respectively 19,443 17,479
    Additional paid-in capital 28,832,206 21,830,083
    Accumulated other comprehensive loss (35,773) (2,959)
    Retained earnings (accumulated defict) during the exploration stage 809,063 (4,433,486)
    Total stockholders' equity 29,624,939 17,411,117
    Total liabilities and stockholders' equity $ 52,521,139 $ 26,031,874
    XML 19 R6.htm IDEA: XBRL DOCUMENT v2.4.0.6
    1. BASIS OF PRESENTATION
    6 Months Ended
    Feb. 28, 2013
    Accounting Policies [Abstract]  
    1. BASIS OF PRESENTATION

    1.  BASIS OF PRESENTATION

     

    Unaudited Interim Consolidated Financial Statements

     

    The unaudited interim consolidated financial statements of EFLO Energy, Inc., formally known as EFL Overseas, Inc., (the “Company”) have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) for interim financial information and the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). They do not include all information and footnotes required by GAAP for complete financial statements. However, except as disclosed herein, there have been no material changes in the information disclosed in the notes to the consolidated financial statements for the year ended August 31, 2012 included in the Company’s Annual Report on Form 10-K filed with the SEC. The unaudited interim consolidated financial statements should be read in conjunction with those consolidated financial statements included in the Form 10-K. In the opinion of management, all adjustments considered necessary for fair presentation have been made. Operating results for the six and three month periods ended February 28, 2013 are not necessarily indicative of the results that may be expected for the year ending August 31, 2013.

     

    Recent Accounting Pronouncements

     

    The Company has reviewed recently issued accounting pronouncements and plans to adopt those that are applicable to it. It does not expect the adoption of these pronouncements to have a material impact on its financial position, results of operations or cash flows.

     

    Restatements

     

    During a reassessment of the oil and gas assets acquired in the Devon and Nahanni acquisitions (see Note 2), the Company determined that an error had been made in the classification of those assets.  Specifically, the Company misclassified certain oil and gas leasehold and infrastructure equipment costs as proved within the full cost pool. The Company acquired the assets in an arms-length transaction.  The assets acquired were non-core to the long-term business plans of the selling companies and, consequently, had not been the focus of their ongoing exploration and production efforts.  However, the Company’s business plan for these acquisitions is strategic in nature, with only marginal consideration for the existing production at the time of acquisition.  Since the dates the acquisitions closed, the Company has begun the process of evaluating the exploitation potential of both the conventional and unconventional hydrocarbons in place, as well as formulating an exploitation and development plan based on its ongoing analyses. The Company intends to utilize modern technology and institutional and strategic knowledge of management to optimize the economics of the assets.

     

    Upon consideration of the economic profile of the assets acquired at the time of acquisition, as compared to the Company’s future plans for the assets, the Company believes all oil and gas assets, including related infrastructure equipment, should have been classified as unproved in the Company’s balance sheet. Consequently, the Company believes classifying the assets as unproved is appropriate until such time as the hydrocarbon potential has been evaluated, the Company has completed development of an exploitation and development plan based on evaluation of the reservoir, raised sufficient capital to begin the operational execution of the exploitation and development plan and proved the economic viability of the assets based on successful drilling.  The Company will begin reclassifying these oil and gas assets from unproved to proved if and when the assets are demonstrably economic concurrently with the execution of the Company’s business plan.

     

    The effect of this restatement on the financial statements included herein is as shown in tabular form below:

     

        As previously           As  
    Consolidated Balance Sheet for the year ended August 31, 2012   reported     Adjustments     restated  
    Proved properties     15,232,824       (15,232,824 )     -  
    Unproven properties     6,465,622       15,641,759       22,107,381  
    Accumulated other comprehensive loss     (7,299 )     4,340       (2,959 )
    Retained earnings (accumulated deficit) during exploration stage     (4,838,081 )     404,595       (4,433,486 )
                             
    Notes to the Consolidated Financial Statements at August 31, 2012, Note 4. Oil and Gas Properties                        
      Oil and Gas Acquisition - Kotaneelee Gas Project                        
    Unproved Leasehold Costs     6,465,622       571,380       7,037,002  
    Leasehold Costs     581,379       (581,379 )     -  
                             
    Notes to the Consolidated Financial Statements at November 30, 2012, Note 2. Oil and Gas Properties                        
       Oil and Gas Acquisition - Kotaneelee Gas Project                        
    Reserves and resources     11,932,590       (11,932,590 )     -  
    Leasehold Costs     643,074       (643,074 )     -  
    Unproved Leasehold Costs     15,800,124       (12,575,664 )     28,375,788  

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    XML 22 R7.htm IDEA: XBRL DOCUMENT v2.4.0.6
    2. OIL AND GAS PROPERTIES
    6 Months Ended
    Feb. 28, 2013
    Extractive Industries [Abstract]  
    2. OIL AND GAS PROPERTIES

    2.  OIL AND GAS PROPERTIES

     

    Oil and Gas Acquisition – Kotaneelee Gas Project (the “KGP”)

     

    On October 17, 2012, the Company completed a Share Purchase Agreement (the “Purchase Agreement”) with Nahanni Energy Inc., 1700665 Alberta Ltd., Apex Energy (2000), Inc. and Canada Southern Petroleum #1 L.P. (jointly “Nahanni”) for the acquisition of its entire right and interest (generally a working interest of 30.664%) in the KGP (the “Nahanni Assets”).

     

    The KGP covers 30,542 gross acres in the Yukon Territory in Canada, and includes; a gas dehydration plant (capacity: 70 million cubic feet per day), one shut in gas well, one water disposal well (capacity: 6,000 barrels per day), and two suspended gas wells. The KGP has a fully developed gas gathering, sales and delivery infrastructure, airstrip, roads, flarestack, storage tanks, barge dock and permanent camp facilities.

     

    As consideration for the Nahanni Assets, the Company paid Nahanni approximately $13,761,000. The consideration was comprised of approximately $133,000 in cash ($398,550 offset by $265,950 paid in connection with the acquisition of the Devon Assets in settlement of certain Nahanni indebtedness), 1,614,767 shares of one of the Company’s subsidiaries, which are exchangeable for 1,614,767 shares of the Company’s restricted common stock valued at approximately $4,191,000, and the absorption of approximately $9,437,000 in asset retirement obligations. The number of shares issued by the Company’s subsidiary was calculated by dividing the fair value of the exchangeable shares by the volume weighted average trading price of the Company’s stock for the ten (10) trading days prior to closing the Purchase Agreement.  The fair value of the exchangeable shares has been recorded as additional paid in capital in the Company’s equity. The exchangeable shares enjoy no voting or revenue participation rights in the subsidiary. Both the cash paid and stock issued for the Nahanni Assets are subject to certain holdbacks for asset related liabilities or breach of representations and warranties.

     

    On July 18, 2012, the Company completed an acquisition of Devon Canada’s (“Devon”) entire right and interest (generally a working interest of 22.989%, with a working interest of 69.337% in one shut in gas well) in the KGP. As consideration for Devon’s working interest in the KGP, (the “Devon Assets”), the Company paid approximately $23,298,000. The consideration was comprised of $290,000 in cash, 7,250,000 shares of the Company’s restricted common stock valued at $15,950,000, and the absorption of  approximately $7,058,000 in asset retirement obligations.

     

    As a result of its purchase of the Nahanni Assets and Devon Assets, the Company now generally owns a 53.65% interest in the KGP, including a 100% interest in one shut in gas well.

     

    The Company is pursuing the acquisition of additional working interests in the KGP.

     

    The Company records assets acquired and liabilities assumed at their estimated acquisition date fair values, while transaction and integration costs associated with the acquisitions are expensed as incurred.  The Company uses relevant market assumptions to determine fair value and allocate purchase price, such as future commodity pricing for purchased hydrocarbons, market multiples for similar transactions and replacement value for certain equipment.  Many of the assumptions are unobservable. The Company’s preliminary assessment of the fair value of the Nahanni Assets resulted in a valuation of $25,526,554. As a result of incorporating this information into the purchase price allocation, a gain on bargain purchase of $11,766,887 was recognized in the accompanying consolidated statement of operations. The gain on bargain purchase was primarily attributable to the strategic nature of the divestiture by the motivated seller, coupled with a confluence of certain favorable economic trends in the industry and the geographic region in which the Nahanni Assets are located.

     

    The Company allocated the consideration paid for the Nahanni Assets and Devon assets based upon its preliminary assessment of their fair value at the dates of purchase, as follows:

     

        Fair Value of Assets Acquired (as restated)  
        Nahanni Assets     Devon Assets     Total  
    Asset Description                  
    Unproven Properties                  
       Unproved leasehold costs   $ 14,548,787     $ 13,827,001     $ 28,375,788  
       Plant and equipment     8,594,362       6,484,001       15,078,363  
       Gathering systems     2,383,405       1,788,001       4,171,406  
       Vehicles           4,527       4,527  
          25,526,554       22,103,530       47,630,084  
    Goodwill           1,194,365       1,194,365  
          Total Assets Acquired - KGP   $ 25,526,554     $ 23,297,895     $ 48,824,449  

      

    Oil and natural gas revenues and lease operating expenses related to unproved oil and gas properties that are being evaluated for economic viability are offset against the full cost pool until proved reserves are established, or determination is made that the unproved properties are impaired. During the six and three month periods ended February 28, 2013, the Company adjusted $380,616 and $235,522, respectively, of oil and gas revenue, net of lease operating expense, into the full cost pool related to its unproven interests.

    XML 23 R3.htm IDEA: XBRL DOCUMENT v2.4.0.6
    CONSOLIDATED BALANCE SHEETS (Paranthetical) (USD $)
    Feb. 28, 2013
    Feb. 28, 2012
    Stockholders Equity    
    Common Stock Shares Par value $ 0.001 $ 0.001
    Common Stock Shares Authorized 75,000,000 75,000,000
    Common Stock Shares Issued 19,442,616 17,478,539
    Common Stock Shares Outstanding 19,442,616 17,478,539
    XML 24 R17.htm IDEA: XBRL DOCUMENT v2.4.0.6
    3. ASSET RETIREMENT OBLIGATIONS (Details) (USD $)
    6 Months Ended 12 Months Ended
    Feb. 28, 2013
    Aug. 31, 2012
    Asset Retirement Obligations    
    Balance, Beginning $ 7,137,716 $ 80,000
    Liabilities incurred (acquired) 9,436,526 7,057,716
    Accretion expense 259,816 0
    Liabilities (settled) 0 0
    Changes in asset retirement obligations 0 0
    Balance, Ending 16,834,058 7,137,716
    Total Balance, February 28, 2013 16,834,058  
    Total Balance, February 28, 2013 - Current 80,000  
    Total Balance, February 28, 2013 – Long Term $ 16,754,058  
    XML 25 R1.htm IDEA: XBRL DOCUMENT v2.4.0.6
    Document and Entity Information
    6 Months Ended
    Feb. 28, 2013
    Apr. 10, 2013
    Document And Entity Information    
    Entity Registrant Name EFLO ENERGY, INC.  
    Entity Central Index Key 0001448806  
    Document Type 10-Q  
    Document Period End Date Feb. 28, 2013  
    Amendment Flag false  
    Current Fiscal Year End Date --08-31  
    Is Entity a Well-known Seasoned Issuer? No  
    Is Entity a Voluntary Filer? No  
    Is Entity's Reporting Status Current? Yes  
    Entity Filer Category Smaller Reporting Company  
    Entity Common Stock, Shares Outstanding   19,442,616
    Document Fiscal Period Focus Q2  
    Document Fiscal Year Focus 2013  
    XML 26 R18.htm IDEA: XBRL DOCUMENT v2.4.0.6
    4. CAPITAL STOCK AND STOCK-BASED COMPENSATION (Details) (USD $)
    3 Months Ended
    Feb. 28, 2013
    Stock Option A
     
    No. of Shares Issuable Upon Exercise 100,000
    Exercise Price $ 2.30
    First Date Exercisable 1/15/2013
    Expiration Date 1/15/2015
    Stock Option B
     
    No. of Shares Issuable Upon Exercise 100,000
    Exercise Price $ 2.50
    First Date Exercisable 1/15/2014
    Expiration Date 1/15/2016
    Stock Option C
     
    No. of Shares Issuable Upon Exercise 100,000
    Exercise Price $ 2.75
    First Date Exercisable 1/15/2015
    Expiration Date 1/15/2017
    Stock Option D
     
    No. of Shares Issuable Upon Exercise 100,000
    Exercise Price $ 3.00
    First Date Exercisable 7/15/2015
    Expiration Date 7/15/2017
    Chief Operating Officer Total
     
    No. of Shares Issuable Upon Exercise 400,000
    XML 27 R4.htm IDEA: XBRL DOCUMENT v2.4.0.6
    CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (USD $)
    3 Months Ended 6 Months Ended 52 Months Ended
    Feb. 28, 2013
    Feb. 29, 2012
    Feb. 28, 2013
    Feb. 29, 2012
    Feb. 28, 2013
    EXPENSES          
    Management and director's fees $ 288,853 $ 75,000 $ 562,689 $ 150,000 $ 1,759,073
    Stock-based compensation expense 355,723 0 1,050,426 0 1,839,703
    Consulting fees 150,586 46,825 815,975 113,253 1,692,953
    Professional fees 139,854 45,750 408,999 108,485 789,243
    Office, travel and general 118,632 9,848 261,645 29,480 578,252
    Accretion of asset retirement obligations 165,648 0 259,816 0 259,816
    Oil and gas property impairment 0 0 0 44,335 879,994
    Total Expenses 1,219,296 177,423 3,359,550 445,553 7,799,034
    OPERATING LOSS (1,219,296) (177,423) (3,359,550) (445,553) (7,799,034)
    OTHER INCOME          
    Gain on acquisition of assets 0 0 11,766,887 0 11,766,887
    Gain on forgiveness of accounts payable 0 0 0 0 6,000
    NET INCOME (LOSS) before taxes (1,219,296) (177,423) 8,407,337 (445,553) 3,973,853
    Provision for income tax 0 0 (3,164,790) 0 (3,164,790)
    NET INCOME (LOSS) (1,219,296) (177,423) 5,242,547 (445,553) 809,063
    Foeign currency translation (42,086) 0 (32,814) 0 (35,773)
    COMPREHENSIVE INCOME (LOSS) $ (1,261,382) $ (177,423) $ 5,209,773 $ (445,553) $ 773,290
    EARNING (LOSS) PER SHARE          
    Basic $ (0.06) $ (0.02) $ 0.25 $ 0.28  
    Diluted $ (0.06) $ (0.02) $ 0.24 $ 0.26  
    WEIGHTED AVERAGE SHARES OUTSTANDING          
    Basic 19,192,249 7,230,066 18,674,988 7,213,468  
    Diluted 19,192,249 7,230,066 19,887,518 7,213,468  
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    1. BASIS OF PRESENTATION (Tables)
    6 Months Ended
    Feb. 28, 2013
    Basis Of Presentation Tables  
    Effect of restatement on the financial statements
        As previously           As  
    Consolidated Balance Sheet for the year ended August 31, 2012   reported     Adjustments     restated  
    Proved properties     15,232,824       (15,232,824 )     -  
    Unproven properties     6,465,622       15,641,759       22,107,381  
    Accumulated other comprehensive loss     (7,299 )     4,340       (2,959 )
    Retained earnings (accumulated deficit) during exploration stage     (4,838,081 )     404,595       (4,433,486 )
                             
    Notes to the Consolidated Financial Statements at August 31, 2012, Note 4. Oil and Gas Properties                        
      Oil and Gas Acquisition - Kotaneelee Gas Project                        
    Unproved Leasehold Costs     6,465,622       571,380       7,037,002  
    Leasehold Costs     581,379       (581,379 )     -  
                             
    Notes to the Consolidated Financial Statements at November 30, 2012, Note 2. Oil and Gas Properties                        
       Oil and Gas Acquisition - Kotaneelee Gas Project                        
    Reserves and resources     11,932,590       (11,932,590 )     -  
    Leasehold Costs     643,074       (643,074 )     -  
    Unproved Leasehold Costs     15,800,124       (12,575,664 )     28,375,788  
    XML 29 R11.htm IDEA: XBRL DOCUMENT v2.4.0.6
    6. SUBSEQUENT EVENTS
    6 Months Ended
    Feb. 28, 2013
    Income Tax Disclosure [Abstract]  
    6. SUBSEQUENT EVENTS

    6. SUBSEQUENT EVENTS

     

    The Company held a special meeting of its shareholders on March 1, 2013.At the meeting, the following proposals were ratified:

     

      (1) 

    an amendment to the Company’s Articles of Incorporation to change the name of the Company from EFL Overseas, Inc.to EFLO Energy, Inc., and

     

      (2) an amendment to the Company’s Articles of Incorporation such that the Company is authorized to issue up to 150,000,000 shares of common stock, up to 10,000,000 shares of preferred stock, and to make certain technical amendments to our Articles of Incorporation.

     

    These amendments to the Company’s Articles of Incorporation were made effective as of April 4, 2013.

    XML 30 R19.htm IDEA: XBRL DOCUMENT v2.4.0.6
    4. CAPITAL STOCK AND STOCK BASED COMPENSATION (Details Narrative) (USD $)
    3 Months Ended 6 Months Ended
    Feb. 28, 2013
    Feb. 29, 2012
    Feb. 28, 2013
    Feb. 29, 2012
    Capital Stock And Stock Based Compensation Details Narrative        
    Non-cash expense related to stock-based compensation $ 193,947   $ 468,632  
    Unrecognized compensation cost remaining under Option Plan 729,938   729,938  
    Fees paid with restricted common stock $ 37,500 $ 116,774 $ 70,000 $ 116,774
    Restricted stock shares issued in payment for fees 20,596 33,785 33,411 33,785
    Weighted average price restricted stock $ 1.82 $ 3.46 $ 2.10 $ 3.46
    XML 31 R15.htm IDEA: XBRL DOCUMENT v2.4.0.6
    4. CAPITAL STOCK AND STOCK-BASED COMPENSATION (Tables)
    6 Months Ended
    Feb. 28, 2013
    Capital Stock And Stock-Based Compensation Tables  
    Options granted to new Chief Operating Officer
    Option Holder   No. of Shares
    Issuable Upon Exercise
        Exercise
    Price
      First Date
    Exercisable
      Expiration  Date
                       
    H. Wayne Hamal                  
      Stock Option A     100,000     $ 2.30   1/15/2013   1/15/2015
      Stock Option B     100,000     $ 2.50   1/14/2014   1/15/2016
      Stock Option C     100,000     $ 2.75   1/14/2015   1/15/2017
      Stock Option D     100,000     $ 3.00   7/14/2015   7/15/2017
          400,000                
    XML 32 R13.htm IDEA: XBRL DOCUMENT v2.4.0.6
    2. OIL AND GAS PROPERTIES (Tables)
    6 Months Ended
    Feb. 28, 2013
    Oil And Gas Properties Tables  
    Schedule of Oil and Gas Acquisition
        Fair Value of Assets Acquired (as restated)  
        Nahanni Assets     Devon Assets     Total  
    Asset Description                  
    Unproven Properties                  
       Unproved leasehold costs   $ 14,548,787     $ 13,827,001     $ 28,375,788  
       Plant and equipment     8,594,362       6,484,001       15,078,363  
       Gathering systems     2,383,405       1,788,001       4,171,406  
       Vehicles           4,527       4,527  
          25,526,554       22,103,530       47,630,084  
    Goodwill           1,194,365       1,194,365  
          Total Assets Acquired - KGP   $ 25,526,554     $ 23,297,895     $ 48,824,449  
    XML 33 R14.htm IDEA: XBRL DOCUMENT v2.4.0.6
    3. ASSET RETIREMENT OBLIGATIONS (Tables)
    6 Months Ended
    Feb. 28, 2013
    Asset Retirement Obligations Tables  
    Schedule of Asset Retirement Obligation
    Asset Retirement Obligations      
    Balance, August 31, 2011   $ 80,000  
    Liabilities incurred (acquired)     7,057,716  
    Accretion expense     ––  
    Liabilities (settled)     ––  
    Changes in asset retirement obligations     ––  
    Balance, August 31, 2012     7,137,716  
    Liabilities incurred (acquired)     9,436,526  
    Accretion expense     259,816  
    Liabilities (settled)     ––  
    Changes in asset retirement obligations     ––  
    Total Balance, February 28, 2013   $ 16,834,058  
    Total Balance, February 28, 2013 – Current   $ 80,000  
    Total Balance, February 28, 2013 – Long Term   $ 16,754,058  
    XML 34 R16.htm IDEA: XBRL DOCUMENT v2.4.0.6
    2. OIL AND GAS PROPERTIES (Details) (USD $)
    Feb. 28, 2013
    Unproven Properties  
    Unproved Leasehold costs $ 28,375,788
    Plant and equipment 15,078,363
    Gathering systems 4,171,406
    Vehicles 4,527
    Total 47,630,084
    Goodwill 1,194,365
    Total Assets Acquired - KGP 48,824,449
    Nahanni Assets
     
    Unproven Properties  
    Unproved Leasehold costs 14,548,787
    Plant and equipment 8,594,362
    Gathering systems 2,383,405
    Vehicles 0
    Total 25,526,554
    Goodwill 0
    Total Assets Acquired - KGP 25,526,554
    Devon Assets
     
    Unproven Properties  
    Unproved Leasehold costs 13,827,001
    Plant and equipment 6,484,001
    Gathering systems 1,788,001
    Vehicles 4,527
    Total 22,103,530
    Goodwill 1,194,365
    Total Assets Acquired - KGP $ 23,297,895
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    CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)
    6 Months Ended 52 Months Ended
    Feb. 28, 2013
    Feb. 29, 2012
    Feb. 28, 2013
    CASH FLOWS FROM OPERATING ACTIVITIES      
    Net income (loss) $ 5,242,547 $ (445,553) $ 809,063
    Adjustments to reconcile net income (loss) to net cash used in operating activities:      
    Stock-based compensation and fee payments 1,616,038 0 3,651,846
    Unrealized foreign exchange losses (32,814) 0 (35,773)
    Gain on forgiveness of accounts payable 0 0 (6,000)
    Gain on acquisition of Nahanni assets (11,766,887) 0 (11,766,887)
    Accretion of asset retirement obligations 259,816 0 259,816
    Oil and gas property impairment 0 44,335 879,994
    Deferred income tax provision 3,164,790 0 3,164,790
    Changes in working capital items-      
    Accounts receivable (556,440) 0 (857,410)
    Prepaids and other 76,601 15,332 (146,210)
    Accounts payable and accrued liabilities 434,007 87,264 1,013,587
    Net cash used in operating activities (1,562,342) (298,622) (3,033,184)
    CASH FLOWS FROM INVESTING ACTIVITIES      
    Expenditures on oil and gas properties (380,616) (11,200) (1,120,169)
    Acquisition of oil and gas interest (132,600) 0 (421,895)
    Net cash used in investing activities (513,216) (11,200) (1,542,064)
    CASH FLOWS FROM FINANCING ACTIVITIES      
    Common stock sold for cash, net of fees 2,177,812 0 6,779,612
    Common stock redeemend for cash 0 0 (100)
    Proceeds from notes payable 0 0 554,500
    Repayments of notes payable 0 (2,500) (484,500)
    Loans from related parties 0 0 34,337
    Net cash (used in) provided by financing activities 2,177,812 (2,500) 6,883,849
    INCREASE (DECREASE) IN CASH 102,254 (312,322) 2,308,601
    CASH, BEGINNING OF PERIOD 2,206,347 487,017 0
    CASH, END OF PERIOD 2,308,601 174,695 2,308,601
    SUPPLEMENTAL DISCLOSURE      
    Cash paid for interest 0 0 0
    Cash paid for income taxes 0 0 0
    Forgiveness of debt 0 0 9,337
    NON-CASH INVESTING ACTIVITIES:      
    Accrued expenditures on oil and gas properties 0 33,135 0
    Asset retirment obligation incrurred 0 0 80,000
    Asset retirement obligation acquired in Devon acquisition 0 0 7,057,716
    Asset retirement obligation acquired in Nahanni acquisition 9,436,526 0 9,436,526
    NON-CASH FINANCING ACTIVITIES      
    Common stock issued as repayment of note payable 0 70,000 165,000
    Common stock issued for services 70,000 116,774 1,858,831
    Common stock issued for Devon assets 0 0 15,950,000
    Exchangeable shares granted for Nahanni assets $ 4,190,643 $ 0 $ 4,190,643
    XML 36 R10.htm IDEA: XBRL DOCUMENT v2.4.0.6
    5. RELATED PARTY TRANSACTIONS
    6 Months Ended
    Feb. 28, 2013
    Related Party Transactions [Abstract]  
    5. RELATED PARTY TRANSACTIONS

    5.   RELATED PARTY TRANSACTIONS

     

    Effective January 20, 2011, a company controlled by the Company’s Chief Executive Officer, its Chief Financial Officer, and an unrelated consultant (the “Finders”) entered into an agreement with the Company providing for the payment of finder’s compensation ranging from 5% (on transaction values greater than $1,000,000) to 10% (on transactions valued up to $300,000) on transactions introduced to the Company by or through the Finders for a period of two years (the “Finder’s Fee Agreement”). Under the Finder’s Fee Agreement, compensation is divided between the Finders and the Finders may elect whether the finder’s compensation is payable in cash, or shares of the Company’s restricted common stock. If the Finders elect to receive payment in stock, the shares into which finder’s compensation will be converted will be calculated using the average closing price of the Company’s common stock for the ten trading days preceding the closing date of the transaction to which the compensation relates. The Finder’s Fee Agreement specifically recognizes that the KGP has been presented to the Company by the Finders. During the six months ended February 28, 2013, finder’s compensation of $775,399 has been accrued under the Finder’s Fee Agreement in connection with the Company’s acquisition of the Nahanni Assets. No such fees were incurred during three months ended February 28, 2013 or during the six or three months ended February 29, 2012.

     

    Of the fees paid in stock during the six month periods ended February 28, 2013 and February 29,2012 (see Note 4), fees totaling $60,000 and $116,774 were paid using 33,411and 33,785 shares of the Company’s restricted common stock, respectively, to the Company’s  Chief Executive Officerunder the terms of a management consulting agreement.

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    3 Months Ended 6 Months Ended
    Feb. 28, 2013
    Feb. 29, 2012
    Feb. 28, 2013
    Feb. 29, 2012
    Related Party Transactions Details Narrative        
    Finder's fee incurred in period $ 0 $ 0 $ 775,399 $ 0
    Fees paid in stock     $ 60,000 $ 116,774