NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
(Unaudited)
|
1.
|
ORGANIZATION AND BASIS OF PRESENTATION
|
Imperial Resources, Inc. (“the Company”) was incorporated under the laws of the State of Nevada on August 2, 2007 with the authorized capital stock of 500,000,000 shares at $0.001 par value.
The Company was organized for the purpose of acquiring and exploring a mineral property and later abandoned it. The Company has decided to focus its core activities on development and exploration of oil and gas assets in the United States through its wholly-owned subsidiary Imperial Oil & Gas Inc. (“Imperial Oil” or “IOG”) which was formed under the laws of the State of Delaware on January 8, 2010. Big Dig Operating, Inc., (“Big Dig”) was formed June 13, 2011 for the purpose of operating a salt water disposal facility, and is a wholly owned subsidiary of Imperial Oil & Gas, Inc. In addition, Green Tide Water Disposal, Ltd. (“Green Tide”) was formed on June 15, 2011, as a limited partnership with Imperial owning a 99% limited partnership interest, and Big Dig owning a 1% general partnership interest.
Green Tide has obtained a promissory note to fund the operations of the salt water disposal facility.
The Company is engaged in the exploration and development of oil and natural gas properties. The Company acquires the oil and gas interests in various manners, from purchasing them or via a farm-in whereby we earn our interests by developing the acreage of another. The Company acquires fee simple determinable interests in the oil and gas properties in either acquisition scenario. In addition, the Company has purchased a saltwater disposal facility.
|
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (RESTATED)
|
The consolidated financial statements included herein, presented in accordance with accounting principles generally accepted in the United States of America and stated in US dollars, have been prepared by the Company, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”).
|
(a)
|
Basis of Consolidation
|
The accompanying financial statements present the consolidated accounts of the Company and its subsidiaries. All intercompany account balances and transactions have been eliminated.
The Company’s focus is on the acquisition, development and exploitation of long-lived oil and natural gas reserves and, to a lesser extent, exploration for new oil and natural gas reserves. The Company’s business activities are currently carried out in New Mexico and Texas.
|
(c)
|
Concentration of Credit Risk
|
Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of unsecured accounts receivable from unaffiliated crude oil purchasers and the well operator. A substantial portion of the Company’s oil reserves are exposed to the impact of delays or interruptions of production from these wells due to mechanical problems, damages to the current producing reservoirs and significant governmental regulation, including any curtailment of production or interruption of transportation of oil or natural gas produced from the properties.
|
(d)
|
Investments in Oil and Gas Properties and Property and Equipment-Saltwater Disposal Facility
|
Investment in Oil and natural gas properties:
The Company follows the successful efforts method of accounting and will capitalize successful wells and related leasehold costs. Acquisition costs for proved and unproved properties are capitalized when incurred. Exploration costs, including geological and geophysical costs, the costs of carrying and retaining unproved properties and exploratory dry hole costs are expensed. Development costs, including costs to drill and equip development wells and successful exploratory drilling costs to locate proved reserves are capitalized.
These costs are amortized using the unit of production method. Dry hole and related leasehold costs are expensed.
IMPERIAL RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
(Unaudited)
|
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (RESTATED) – Continued
|
Property and Equipment-Salt Water Disposal Facility:
Maintenance and repairs are charged to operations. Renewals and improvements are capitalized to the appropriate property and equipment accounts.
Upon retirement or disposition of assets other than oil and natural gas properties, the cost and related accumulated depreciation are removed from the accounts with the resulting gains or losses, if any, recognized in income. Depreciation of other property and equipment is computed using the straight-line method based on the estimated useful lives of the property and equipment.
|
(e)
|
Impairment of Long-Lived Assets:
|
The Company reviews and evaluates long-term assets for impairment when events or changes in circumstances indicate that the related carrying amounts may not be recoverable. The assets are subject to impairment consideration under ASC 60-10-35-17 if events or circumstances indicate that their carrying amount might not be recoverable. When the Company determines that an impairment analysis should be done, the analysis will be performed using the rules of ASC 930-360-35 Asset Impairment, and 360-10-15-3 through 15-5, Impairment or Disposal of Long-Term Assets.
The Company accounts for federal income taxes using the liability method. Under the liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under the liability method, the effect on previously recorded deferred tax assets and liabilities resulting from a change in tax rates is recognized in operating results in the period in which the change is enacted.
|
(g)
|
Basic and Diluted Net Loss Per Share
|
Net loss per share is presented in accordance FASB ASC Topic No. 260
Earnings Per Share
. Basic net loss per share is computed based on the weighted average shares of common stock outstanding for the period. There are no potentially dilutive common stock equivalents such as stock options or warrants outstanding, and as such basic and diluted net loss per share is the same.
|
(h)
|
Use of Estimates in the Preparation of Consolidated Financial Statements
|
Preparation of the accompanying consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The oil and natural gas reserve estimates, and the related future net cash flows derived from those reserves, are used in the determination of depletion expense and the full cost ceiling test and are inherently imprecise. Actual results could differ from those estimates.
|
(i)
|
Fair value of financial instruments
|
The Company calculates the fair value of its assets and liabilities which qualify as financial instruments and includes this additional information in the notes to consolidated financial statements when the fair value is different than the carrying value of these financial instruments. The estimated fair value of accounts receivable, accounts payable and accrued liabilities approximate their carrying amounts due to the relatively short maturity of these instruments. None of these instruments are held for trading purposes. The carrying amounts and fair values for Convertible debt is presented in the following Notes.
IMPERIAL RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
(Unaudited)
|
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (RESTATED) - Continued
|
|
(i)
|
Fair value of financial instruments - continued
|
ASC Topic 820, Fair Value Measurements and Disclosures, defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and requires certain disclosures about fair value measurements. In general, fair values of financial instruments are based upon quoted market prices, where available (Level 1). If such quoted market prices are not available, fair value is based upon internally developed models that primarily use, as inputs, observable market-based parameters (Level 2). Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments may include amounts to reflect counterparty credit quality and the customer’s creditworthiness, among other things, as well as unobservable parameters (Level 3). Any such valuation adjustments are applied consistently over time.
|
(j
)
|
Derivative Instruments
|
The Company does not use derivative financial instruments to hedge exposures to cash-flow or market risks. However, certain other financial instruments with embedded conversion features of debt that are not considered indexed to the Company’s common stock are classified as liabilities when either (a) the holder possesses rights to net-cash settlement, (b) physical or net share settlement is not within the control of the Company, or (c) based on its anti-dilutive provisions. In such instances, net-cash settlement is assumed for financial accounting and reporting. Such financial instruments are initially recorded at fair value and subsequently adjusted to fair value at the close of each reporting period. Fair value for the related embedded conversion feature is determined using the Black-Scholes Option Pricing Model. The gains and losses resulting from changes in the fair value of derivatives are recorded in the Consolidated Statement of Operations.
For purposes of the consolidated statements of cash flows, the Company considers all demand deposits, money market accounts and certificates of deposit purchased with an original maturity of three months or less to be cash equivalents.
Oil and natural gas revenues are recorded using the sales method, whereby the Company recognizes oil and natural gas revenue based on the amount of oil and natural gas sold to purchasers. The Company did not have any oil or natural gas imbalances recorded. The Company does not recognize revenues until they are realized or realizable and earned. Revenues are considered realized or realizable and earned when: (i) persuasive evidence of an arrangement exists; (ii) delivery has occurred or services have been rendered; (iii) the seller’s price to the buyer is fixed or determinable; and (iv) collectability is reasonably assured.
Certain prior period amounts have been reclassified to conform to current period presentation.
|
(n)
|
Recent Accounting Pronouncements
|
In January 2010, the FASB issued Accounting Standard Update (“ASU”) 2010-6,
Improving Disclosures About Fair Value Measurements
, which requires reporting entities to make new disclosures about recurring or nonrecurring fair-value measurements including significant transfers into and out of Level 1 and Level 2 fair-value measurements and information on purchases, sales, issuances, and settlements on a gross basis in the reconciliation of Level 3 fair-value measurements. ASU 2010-6 is effective for annual reporting periods beginning after December 15, 2009, except for Level 3 reconciliation disclosures which are effective for annual periods beginning after December 15, 2010. The adoption of ASU 2010-6 did not have a material impact on our consolidated financial statement disclosures.
IMPERIAL RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
(Unaudited)
|
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (RESTATED) - Continued
|
|
(o)
|
Recent Accounting Pronouncements – continued
|
On December 31, 2008, the SEC published the final rules and interpretations updating its oil and gas reporting requirements. Many of the revisions are updates to definitions in the existing oil and gas rules to make them consistent with the petroleum resource management system, which is a widely accepted standard for the management of petroleum resources that was developed by several industry organizations. Key revisions included changes to the pricing used to estimate reserves utilizing a 12-month average price rather than a single day spot price which eliminates the ability to utilize subsequent prices to the end of a reporting period, the ability to include nontraditional resources in reserves, the use of new technology for determining reserves, and permitting disclosure of probable and possible reserves. The SEC required companies to comply with the amended disclosure requirements for annual reports on Form 10-K for fiscal years ending on or after December 15, 2009. Earlier adoption was not permitted.
In January 2010, the FASB issued ASC Topic No. 932 to amend existing oil and gas reserve accounting and disclosure guidance (formerly FASB Staff Position No. 69),
Extractive Activities-Oil and Gas,
to align its requirements with the SEC’s Modernization of Oil and Gas Reporting rule. The significant revisions involve revised definitions of oil and gas producing activities, changing the pricing used to estimate reserves at period end to a twelve month arithmetic average of the first day of the month prices and additional disclosure requirements. In contrast to the SEC rule, the FASB does not permit the disclosure of probable and possible reserves in the supplemental oil and gas information in the notes to the financial statements. The amendments are effective for annual reporting periods ending on or after December 31, 2009. Application of the revised rules is prospective and companies are not required to change prior period presentation to conform to the amendments. Application of the amended guidance has only resulted in changes to the prices used to determine proved reserves at December 31, 2010 and 2009, respectively. The new guidelines have expanded the definition of proved undeveloped reserves that can be recorded from an economic producer. The opportunity to prove reasonable certainty for spacing areas located more than one direct development spacing area from economic producer did not impact the Company’s proved developed or undeveloped reserves.
The primary changes in the amended ASC Topic No. 932 are as follows:
|
●
|
Amending the definition of proved oil and gas reserves to indicate that entities must use the average, first-day-of-the-month price during the 12-month period before the ending date of the period covered by the report (the 12-month average price) rather than the year-end price, when estimating whether reserve quantities are economical to produce.
|
|
●
|
Change the price used to calculate the aggregate amount of (and changes in) future cash inflows related to the standardized measure of discounted future cash flows from the year-end price to the 12-month average price used in calculating proved reserves.
|
|
●
|
Adding to and amending other definitions in the Master Glossary used in estimating proved oil and gas reserves quantities (for example, reliable technology and reasonable certainty).
|
|
●
|
Requiring that an entity disclose separately information about reserve quantities and financial statement amounts for geographic areas that represent 15 percent or more of proved reserves. In addition, Topic No. 932 is amended to indicate that the quantity of reserves is not the only factor that should be considered in determining whether reserves are significant (that is, an entity would be required to consider all facts and circumstances in determining whether reserves are significant).
|
|
●
|
Clarifying that an entity’s equity method investments must be considered in determining whether it has significant oil- and gas producing activities.
|
IMPERIAL RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
(Unaudited)
|
3.
|
INVESTMENTS IN OIL AND GAS PROPERTIES AND SALT WATER DISPOSAL PROPERTY AND EQUIPMENT
|
Investments in oil and gas properties-
The Company has $463,113 in investments in oil and gas properties as of June 30, 2011, as follows:
|
|
|
Beginning Balance
|
|
|
Additions
|
|
|
Balance as of
June 30, 2011
|
|
|
Producing Well
|
|
$
|
313,266
|
|
|
$
|
-
|
|
|
$
|
313,266
|
|
|
Accumulated depletion on producing well
|
|
|
(70,900
|
)
|
|
|
(6,100
|
)
|
|
|
(77,000
|
)
|
|
Net producing well
|
|
|
242,366
|
|
|
|
(6,100
|
)
|
|
|
236,266
|
|
|
Exploratory Wells
|
|
|
79,760
|
|
|
|
120,088
|
|
|
|
199,847
|
|
|
Total oil and gas
|
|
$
|
322,126
|
|
|
$
|
113,988
|
|
|
$
|
436,113
|
|
Greater Garwood Project and Cochran #1 Well
On January 20, 2010, the Company acquired a 14.9% working interest in the oil, gas and mineral leases in the Greater Garwood hydrocarbon exploration project located in Colorado County, Texas (the “Project”). The Project has one producing well known as the Cochran #1 Well, which is being operated by El Paso E & P Company, L.P. As of June 30, 2011, the investment totaled $236,266.
Oklahoma Project
On July 12, 2010, Imperial Oil entered into a participation agreement, four areas of mutual interest (AMI) agreement and joint operating agreement to acquire leases on up to 5,000 acres in Oklahoma. The agreement provides for a 50% working interest in horizontal oil and gas drilling projects. As of March 31, 2011, there were no costs incurred. As of June 30, 2011, the Company has incurred $92,685 in acreage costs.
Nunnelly #1 Project
On January 10, 2011, the Company entered into an Oil and Gas lease (“Agreement”) with the mineral owner of approximately 35 acres and an existing wellbore in Montague County Texas. The Agreement provides for the development of the Project lease area and the existing well, known as Nunnelly #1. The mineral owners’ will retain a 25% royalty interest in the acreage. Imperial has the option, to pay the costs associated with deepening and completion of the well, or alternatively, the drilling and completion of a new well. Deepening of the existing Nunnelly #1 wellbore is the Company’s first planned option. As of June 30, 2011, $47,162 is capitalized relating to surface preparation work at the site.
Stateline
On January 25, 2011, the Company entered into a Farmout Agreement ("Agreement") with a private oil and gas exploration company, for the right to earn acreage by drilling up to four wells in an infill development project ("Stateline") in the existing Sawyer Field, in Lea County, New Mexico. The Agreement calls for the Company’s subsidiary to pay a spud fee of $60,000 and drill between one and four wells to earn a 77% net revenue interests in 40 acres for each well drilled, subject to a reservation by the assigning party of a 10% working interest in each well drilled. The Agreement requires that not later than 270 days, drilling will commence on the first well. Drilling on the next well must commence not later than 180 days following the release of the drilling rig on the first well, with the drilling of subsequent wells having the same commencement requirements as the previously drilled well.
IMPERIAL RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
(Unaudited)
|
3.
|
INVESTMENTS IN OIL AND GAS PROPERTIES AND SALT WATER DISPOSAL PROPERTY AND EQUIPMENT - Continued
|
As of June 30, 2011, the Company has invested $60,000 related to the spud fee. The Company’s capital expenses for the first well are estimated to be $635,000.
Property and Equipment-Salt Water Disposal Facility
On April 27, 2011 Imperial Oil entered into a Purchase and Sale Agreement to purchase approximately 41 acres of land, a related salt water disposal facility (”SWDF”) consisting of surface equipment, and a wellbore and associated permits, located in Wise County, Texas. The total purchase price of $500,000 was made through a $50,000 signing payment, plus the execution of a Convertible Promissory Note (the “Note”) totaling $450,000. The Note is secured over the SWDF assets. There are approximately 6,000 wells within 20 miles of the Facility. The Company plans to deepen the well to a depth currently approved by the Texas Railroad Commission, conduct initial marketing operations and to reopen the Facility to dispose of up to 15,000 barrels of salt water a day.
|
|
|
June 30, 2011
|
|
|
Purchase of salt water facility
|
|
$
|
500,000
|
|
|
Depreciation expense and accumulated depreciation
|
|
|
(2,381
|
)
|
|
Total property and equipment related to salt water facility
|
|
$
|
497,619
|
|
|
4.
|
NOTES PAYABLE (RESTATED)
|
Legion Note
On April 27, 2011 Imperial Oil entered into a Purchase and Sale Agreement to purchase approximately 41 acres of land, a related salt water disposal facility (”SWDF”) consisting of surface equipment, and a wellbore and associated permits, located in Wise County, Texas. The total purchase price of $500,000 was made through a $50,000 signing payment, plus the execution of a Convertible Promissory Note (the “Note”) totaling $450,000. The Note is secured over the SWDF assets.
The note is repayable monthly at $9,529.59 for fifty four months at a 6% fixed interest rate, commencing on September 1, 2011. The outstanding principal balance plus any accrued interest under the Note was convertible into common shares six months after execution of the agreement upon the option of the Holder. The Note was convertible into the number of shares equal to the balance of the principal and interest being converted divided by a 15% discount to the daily volume weighted average price per share for the ten business days prior to the date of the conversion notice. The note is secured over the SWDF assets, and was convertible subsequent to a six month waiting period. In addition, the conversion is limited to at least $25,000 in principal and accrued unpaid interest with a maximum of $75,000 in any one calendar month.
Legion Note Derivative Liability
The above embedded conversion feature was determined to be a derivative liability, and such financial instruments are initially recorded at fair value and subsequently adjusted to fair value at the close of each reporting period. The fair value was determined using the Black-Scholes Option Pricing Model using the following assuptions at each measurement date: risk-free interest rates ranging from 2.06% to 2.74%; expected life of 4.08 to 4.25 years; and, expected volatility of 166% based on historical stock prices of the Company. The gains and losses resulting from changes in the fair value of derivatives are recorded in the Consolidated Statement of Operations.
The fair value of the derivative liability at April 27, 2011 was $623,510; and at June 30, 2011, $500,080. The Company has categorized its derivative liability measured at fair value into the three-level fair value hierarchy based upon the priority of inputs to respective valuation techniques. Liabilities included within level 3 of the fair value hierarchy include a share conversion feature on convertible debt. The valuation methodology for liabilities within level 3 uses a combination of observable and unobservable inputs in calculating fair value. The debt discount related to the derivative liability totaled $450,000 at April 27, 2011. Amortization totaled $8,450 for the period ended June 30, 2011.
IMPERIAL RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
(Unaudited)
|
4.
|
NOTES PAYABLE (RESTATED) - Continued
|
Quarry Bay Note
On June 15, 2011, the Green Tide Water Disposal, Ltd., was formed as a limited partnership with Imperial Oil & Gas, Inc. being a limited partner owning 99% and Big Dig Operating, Inc., a wholly owned subsidiary of Imperial Oil & Gas, Inc., being the general partner and owning 1%, and obtained a Convertible Promissory Note on June 17, 2011, for amounts up to $1,200,000 to rework and operate the SWDF. The note provides that Green Tide will pay interest at a rate of twenty percent per annum with principal and interest paid monthly in amounts equal to eighty percent of the net cash flow generated by the operations of the SWDF, until such time that the cumulative distribution equals the principal amount loaned. The lender may convert at its option, the unpaid balance of the note into limited partner interests in Green Tide of up to 50% of the equity. There was determined to be no beneficial conversion feature at the date of the note. As of June 30, 2011, $200,000 in partial proceeds had been received.
Notes payable are summarized as follows:
|
Description
|
|
Amount
|
|
|
|
|
|
|
|
Legion Note
|
|
$
|
442,720
|
|
|
Quarry Bay Note
|
|
|
200,000
|
|
|
Total borrowings
|
|
|
642,720
|
|
|
Less: Current Portion
|
|
|
(90,410
|
)
|
|
Less: Debt Discount
|
|
|
(441,550)
|
|
|
Notes payable as of June 30, 2011
|
|
$
|
110,760
|
|
The Company intends to seek business opportunities that will provide a profit. However, the Company does not have the working capital necessary to be successful in this effort and to service its debt, which raises substantial doubt about its ability to continue as a going concern.
Continuation of the Company as a going concern is dependent upon obtaining additional working capital and the management of the Company has developed a strategy, which it believes will accomplish this objective through additional loans and equity funding, which will enable the Company to operate for the coming year.
|
6.
|
INCOME TAXES (RESTATED)
|
At June 30, 2011, the Company has accumulated operating losses totaling approximately $1,315,000. The net operating loss carry forwards will begin to expire in 2027 if not utilized. The Company has recorded net operating losses in each year since its inception through June 30, 2011. Based upon all available objective evidence, including the Company’s loss history, management believes it is more likely than not that the net deferred assets will not be fully realized. Therefore, the Company has provided a valuation allowance against its deferred tax assets as of June 30, 2011.
|
7.
|
COMMITMENTS AND CONTINGENCIES
|
Stateline
On January 25, 2011, the Company entered into a Farmout Agreement ("Agreement") with a private oil and gas exploration company, for the right to earn acreage by drilling up to four wells in an infill development project ("Stateline") in the existing Sawyer Field, in Lea County, New Mexico. The Agreement calls for the Company’s subsidiary to pay a spud fee of $60,000 and drill between one and four wells to earn a 77% net revenue interests in 40 acres for each well drilled, subject to a reservation by the assigning party of a 10% working interest in each well drilled. The Agreement requires that not later than 270 days, drilling must be commenced on the first well. Drilling on the next well must be commenced not later than 180 days following the release of the drilling rig on the first well, with the drilling of subsequent wells having the same commencement requirements as the previously drilled well.
As of March 31, 2011, the Company has invested $60,000 related to the spud fee. The Company’s capital expense for the first well is expected to be around $635,000.
IMPERIAL RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
(Unaudited)
|
8
.
|
SIGNIFICANT TRANSACTIONS WITH RELATED PARTY
|
On April 1, 2010, Imperial Oil entered into an Assignment of Overriding Royalty Interest Agreement to assign or pay Sydney Oil & Gas, LLC (“Sydney”), a gross overriding royalty of 6.5% of 8/8 for each lease or working interest acquired by Imperial Oil. Imperial’s CEO owns an interest in and controls Sydney. At June 30, 2011, no royalties have been paid.
|
9.
|
RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS
|
The Company has restated its previously issued financial statements for matters related to the following previously reported items:
On April 27, 2011 Imperial Oil entered into a Purchase and Sale Agreement to purchase approximately 41 acres of land, a related salt water disposal facility (”SWDF”) consisting of surface equipment, and a wellbore and associated permits, located in Wise County, Texas. The total purchase price of $500,000 was made through a $50,000 signing payment, plus the execution of a Convertible Promissory Note (the “Note”) totaling $450,000. The Note is secured over the SWDF assets.
The note is repayable monthly at $9,529.59 for fifty four months at a 6% fixed interest rate, commencing on June 1, 2011. The outstanding principal balance plus any accrued interest under the Note is convertible into common shares six months after execution of the agreement upon the option of the Holder. The Note is convertible into the number of shares equal to the balance of the principal and interest being converted divided by a 15% discount to the daily volume weighted average price per share for the ten business days prior to the date of the conversion notice.
This note was originally accounted for using ASC 470-20 by recording a discount on the note payable based on the related intrinsic value. However, this instrument should have been accounted for under ASC 815-15, whereby the Company bifurcates the conversion feature and records it at its fair value, with changes in fair value being reported in the statement of operations. The effects of this change on the Balance Sheet, Statement of Operations, and Cash Flows Statement, are shown below:
IMPERIAL RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
(Unaudited)
|
9.
|
RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS - Continued
|
|
Consolidated Balance Sheet
|
|
|
|
|
June 30, 2011
|
|
|
|
|
Previously Reported
|
|
|
Adjustments
|
|
|
As Restated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
303,768
|
|
|
|
|
|
|
$
|
303,768
|
|
|
Accounts receivable
|
|
|
27,482
|
|
|
|
|
|
|
|
27,482
|
|
|
Total Current Assets
|
|
|
331,250
|
|
|
|
|
|
|
|
331,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in oil and gas properties, net
|
|
|
436,113
|
|
|
|
|
|
|
|
436,113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment – Salt Water Disposal Facility, net
|
|
|
497,619
|
|
|
|
|
|
|
|
497,619
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
|
1,264,982
|
|
|
|
|
|
|
|
1,264,982
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
69,722
|
|
|
$
|
-
|
|
|
$
|
69,722
|
|
|
Current portion of notes payable
|
|
|
90,410
|
|
|
|
|
|
|
|
90,410
|
|
|
Total Current Liabilities
|
|
|
160,132
|
|
|
|
|
|
|
|
160,132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes payable , net of discount
|
|
|
473,573
|
|
|
|
(362,813
|
)
|
|
|
110,760
|
|
|
Derivate Liability
|
|
|
-
|
|
|
|
500,080
|
|
|
|
500,080
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
633,705
|
|
|
|
137,267
|
|
|
|
692,235
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
500,000,000 shares authorized, $0.001 par value, ; 42,362,100 shares issued and outstanding at June 30, 2011and March 31, 2011
|
|
|
42,362
|
|
|
|
|
|
|
|
42,362
|
|
|
Additional-paid-in capital
|
|
|
1,845,676
|
|
|
|
(81,827)
|
|
|
|
1,763,849
|
|
|
Accumulated deficit
|
|
|
(1,256,761
|
)
|
|
|
(55,440
|
)
|
|
|
(1,312,201
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Stockholders' Equity
|
|
|
631,277
|
|
|
|
(137,267
|
)
|
|
|
572,747
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders' Equity
|
|
$
|
1,264,982
|
|
|
$
|
-
|
|
|
$
|
1,264,982
|
|
IMPERIAL RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
(Unaudited)
|
9.
|
RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS - Continued
|
|
Consolidated Statement of Operations
|
|
|
|
|
Three Months Ended June 30, 2011
|
|
|
|
|
Previously Reported
|
|
|
Adjustments
|
|
|
As Restated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil and gas revenue
|
|
$
|
27,482
|
|
|
$
|
|
|
|
$
|
27,482
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operatin
g
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease operating costs
|
|
|
4,631
|
|
|
|
|
|
|
|
4,631
|
|
|
Repairs and Maintenance
|
|
|
11,079
|
|
|
|
|
|
|
|
11,079
|
|
|
Depreciation
|
|
|
2,381
|
|
|
|
|
|
|
|
2,381
|
|
|
Depletion
|
|
|
6,100
|
|
|
|
|
|
|
|
6,100
|
|
|
Professional Fees
|
|
|
52,193
|
|
|
|
|
|
|
|
52,193
|
|
|
Other Administrative Expenses
|
|
|
29,123
|
|
|
|
|
|
|
|
29,123
|
|
|
Total Operating Expenses
|
|
|
105,507
|
|
|
|
-
|
|
|
|
105,507
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(LOSS) INCOME FROM OPERATIONS
|
|
|
(78,025
|
)
|
|
|
-
|
|
|
|
(78,025
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income and (Expenses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(5,330
|
)
|
|
|
(178,879
|
)
|
|
|
(184,209
|
)
|
|
Gain on derivative liability
|
|
|
-
|
|
|
|
123,430
|
|
|
|
123,430
|
|
|
Total other income (expense)
|
|
|
(5,330
|
)
|
|
|
(55,449
|
)
|
|
|
(60,779
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS
|
|
|
(83,355
|
)
|
|
|
(55,449)
|
|
|
|
(138,804
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS PER COMMON SHARE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
(0.00
|
)
|
|
|
(0.00
|
)
|
|
|
(0.00
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE OUTSTANDING SHARES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
42,362,100
|
|
|
|
|
|
|
|
42,362,100
|
|
IMPERIAL RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
(Unaudited)
|
9.
|
RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS - Continued
|
|
Consolidated Statement of Cash Flows
|
|
|
|
|
Three Months Ended June 30, 2011
|
|
|
|
|
Previously Reported
|
|
|
Adjustments
|
|
|
As Restated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(83,355
|
)
|
|
$
|
(55,449)
|
|
|
$
|
(138,804
|
)
|
|
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital contributions - expenses
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
Amortization of discount and interest expense
|
|
|
3,081
|
|
|
|
178,879
|
|
|
|
181,960
|
|
|
Gain on derivative liability
|
|
|
-
|
|
|
|
(123,430
|
)
|
|
|
(123,430
|
)
|
|
Depletion and depreciation expense
|
|
|
8,481
|
|
|
|
|
|
|
|
8,481
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in accounts receivable
|
|
|
1,021
|
|
|
|
|
|
|
|
1,021
|
|
|
Changes in accounts payable
|
|
|
(12,983
|
)
|
|
|
|
|
|
|
(12,983
|
)
|
|
Net cash used in operating activities
|
|
|
(83,755
|
)
|
|
|
-
|
|
|
|
(83,755
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows used in investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in oil and gas properties
|
|
|
(120,088
|
)
|
|
|
|
|
|
|
(120,088
|
)
|
|
Purchase of saltwater disposal facility
|
|
|
(50,000
|
)
|
|
|
|
|
|
|
(50,000
|
)
|
|
Net cash used in investing activities
|
|
|
(170,088
|
)
|
|
|
-
|
|
|
|
(170,088
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans from related parties
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
Notes payable
|
|
|
200,000
|
|
|
|
|
|
|
|
200,000
|
|
|
Repayments of notes payable
|
|
|
(7,280
|
)
|
|
|
|
|
|
|
(7,280
|
)
|
|
Net cash provided from financing activities
|
|
|
192,720
|
|
|
|
|
|
|
|
192,720
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
(61,123
|
)
|
|
|
-
|
|
|
|
(61,123
|
)
|
|
Cash and cash equivalents at the beginning of period
|
|
|
364,891
|
|
|
|
|
|
|
|
364,891
|
|
|
Cash and cash equivalents at the end of period
|
|
|
303,768
|
|
|
|
|
|
|
|
303,768
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Cash Flow Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
|
2,250
|
|
|
|
-
|
|
|
|
2,250
|
|
|
Supplemental Disclosure of Noncash Investing and Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Liability
|
|
|
-
|
|
|
|
623,510
|
|
|
|
623,510
|
|
|
Purchase of saltwater disposal facility through issuance of note payable
|
|
|
450,000
|
|
|
|
-
|
|
|
|
450,000
|
|
IMPERIAL RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
(Unaudited)
|
10.
|
SUBSEQUENT EVENTS (RESTATED)
|
On July 8, 2011, Imperial Resources, Inc., pursuant to the Securities Purchase Agreement with an accredited investor dated December 31, 2010, entered into a second Securities Purchase Agreement with the accredited investor, by subscribing $150,000 for 532,461 shares of common stock at a 10% discount to the Volume Weighted Average closing Price for the ten business days prior to the Agreement, this being a price of $0.2817 per share, as mutually agreed between the Company and the accredited investor. Following the issuance, the total number of issued shares of the Company’s common stock will be 42,894,561.
On November 8, 2011 the Salt Water Disposal Facility (“SWDF”) owned by the Company’s Green Tide Water Disposal, Ltd. subsidiary located in Wise County, Texas, was struck by lightning. There were no causalities, injuries or environmental damages, however, the surface plant consisting of tanks and pumps were largely destroyed by an explosion caused by a lightning strike and ensuing fire. No damage is believed to have been caused to the newly deepened and completed well bore, wellhead, land and roadway infrastructure which form the majority portion of the SWDF assets, along with the value of the disposal permit. The replacement value of the surface equipment destroyed is estimated to be approximately $530,000. The equipment destroyed was not insured.
On January 10, 2012, Imperial Oil sold all of its interest in leases obtained as a result of a participation agreement and area of mutual interest (AMI) agreement to acquire leases on up to 5,000 acres in Oklahoma entered into on July 12, 2010. The Company received a cash payment of $540,000 in consideration for the sale of its lease interests and the Company’s release of its interest in the AMI. Concurrent with the sale and as an additional consideration for the sale the Company has, with its partner in the divested AMI, entered into a new AMI elsewhere in Oklahoma. The terms of the new AMI provide for the Company to operate and to retain a 90% working interest in any properties that are leased in the new AMI.
On April 16, 2012, Imperial Resources, Inc., pursuant to a Securities Purchase Agreement with an accredited investor issued 75,153 common shares for $20,000 at a 10% discount to the Volume Weighted Average closing Price for the ten business days prior to the Agreement, this being a price of $0.26 per share. Following the issuance the total number of issued shares of the Company’s common stock will be 42,969,714.
In addition, the Company obtained three convertible promissory notes on March 6, 2012, May 28, 2012 and June 18, 2012, totaling $125,000, $50,000, and $60,000 respectively. The notes provide that Green Tide will pay interest at a rate of twenty percent per annum with principal and interest paid monthly in amounts equal to eighty percent of the net cash flow generated by the operations of the SWDF, until such time that the cumulative distribution equals the principal amount loaned. The notes were to continue to complete and open the SWDF.
On July 31, 2012, Imperial Resources, Inc., entered into a Securities Purchase Agreement with an accredited investor, by subscribing $100,000 for 506,483 shares of common stock at a 15% discount to the Volume Weighted Average closing Price for the ten business days prior to the Agreement, this being a price of $0.1974 per share, as mutually agreed between the Company and the accredited investor. Following the issuance the total number of issued shares of the Company’s common stock will be 43,476,197.
