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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC20549


FORM 10-K A/1


(Mark One)

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2011

or

[   ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the transition period from ______ to _______



Commission File No.: 333-165091


SELGA INC.

(Exact name of registrant as specified in its charter)


Nevada

5500

27-1368734

(State or jurisdiction of incorporation

or organization)

Primary Standard Industrial

Classification Code Number

IRS Employer

Identification Number


1065 Dobbs Ferry Road

White Plains, New York 10607

(Address of principal executive offices)


(647) 456-4002

(Issuer’s telephone number)


 6021 Yonge Street – Suite 1011, Toronto, Canada M2M 3W2

(Former name, former address and former fiscal year, if changed since last report)



Securities registered pursuant to Section 12(b) of the Act:  None


Securities registered pursuant to Section 12(g) of the Act:  Common Stock, par value $0.001


Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.   Yes [  ]   No [X]





Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.   Yes [  ]   No [X]


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 [   ]   No[X]


Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive DataFile 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 [X] No [  ]


Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (s 229.405) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  [   ]


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company filer.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer [  ]                 Accelerated filer [  ]

Non-accelerated filer [  ]   Smaller reporting company [X]


Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes [  ]   No [X]


The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of April 11, 2012:  $ 514,500.


The number of shares of the registrant’s common stock outstanding as of April 11, 2012:  13,430,000.




INDEX TO FORM 10-K ANNUAL REPORT


 

 

Page

PART I

 

2

 

 

 

Item 1.

Business

2

 

 

 

Item 1A.

Risk Factors

7

 

 

 

Item 1A.

Unresolved Staff Comments

14

 

 

 

Item 2.

Properties

14

 

 

 

Item 3.

Legal Proceedings

14

 

 

 

Item 4.

Submission of Matters to a Vote of Security Holders

14

 

 

 

PART II

 

14

 

 

 

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

14

 

 

 

Item 6.

Selected Financial Data

15

 

 

 

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

15

 

 

 

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

25

 

 

 

Item 8.

Financial Statements and Supplementary Data

25

 

 

 

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

26

 

 

 

Item 9A(T).

Controls and Procedures

26

 

 

 

Item 9B.

Other Information

27

 

 

 

PART III

 

27

 

 

 

Item 10.

Directors, Executive Officers, and Corporate Governance

27

 

 

 

Item 11.

Executive Compensation

29

 

 

 

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

31

 

 

 

Item 13.

Certain Relationships and Related Transactions, and Director Independence

31

 

 

 

Item 14.

Principal Accounting Fees and Services

31

 

 

 

PART IV

 

332

 

 

 

Item 15.

Exhibits and Financial Statement Schedules

32

 

 

 

SIGNATURES

 

33



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FORWARD-LOOKING STATEMENTS

CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS


There are statements in this report that are not historical facts. These forward-looking statements can be identified by use of terminologies such as believe, hope, may, anticipate, should, intend, plan, will, expect, estimate, project, positioned, strategy and similar expressions. You should be aware that these forward-looking statements are subject to risks and uncertainties that are beyond our control. For a discussion of these risks, you should read this entire Report carefully, especially the risks discussed under Risk Factors. Although management believes that the assumptions underlying the forward looking statements included in this Report are reasonable, they do not guarantee our future performance, and actual results could differ from those contemplated by these forward looking statements. The assumptions used for purposes of the forward-looking statements specified in the following information represent estimates of future events and are subject to uncertainty as to possible changes in economic, legislative, industry, and other circumstances. As a result, the identification and interpretation of data and other information and their use in developing and selecting assumptions from and among reasonable alternatives require the exercise of judgment. To the extent that the assumed events do not occur, the outcome may vary substantially from anticipated or projected results, and, accordingly, no opinion is expressed on the achievability of those forward-looking statements. In the light of these risks and uncertainties, there can be no assurance that the results and events contemplated by the forward-looking statements contained in this Report will in fact transpire. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates. We do not undertake any obligation to update or revise any forward-looking statements.



PART I


References to “us”, “we” and “our” in this report refer to Selga Inc., together with our wholly-owned  subsidiaries.


ITEM 1.BUSINESS.


FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical facts are forward-looking statements. You can find many of these statements by looking for words such as “believes,” “expects,” “anticipates,” “estimates,” “intends,” or similar expressions used in this report.


These forward-looking statements are subject to numerous assumptions, risks and uncertainties. Factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by us in those statements include, among others, the following:


 

the quality of our properties with regard to, among other things, the existence of reserves in economic quantities;

 

uncertainties about the estimates of reserves;

 

our ability to increase our production and oil and natural gas income through exploration and development;



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the number of well locations to be drilled and the time frame within which they will be drilled;

 

the timing and extent of changes in commodity prices for natural gas and crude oil;

 

domestic demand for oil and natural gas;

 

drilling and operating risks;

 

the availability of equipment, such as drilling rigs and transportation pipelines;

 

changes in our drilling plans and related budgets;

 

the adequacy of our capital resources and liquidity including, but not limited to, access to additional borrowing capacity; and

 

other factors discussed under Item 1A Risk Factors with the heading Risks Related To Our Business.


Because such statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by the forward-looking statements. You are cautioned not to place undue reliance on such statements, which speak only as of the date of this report.


As used in this annual report, the terms "we", "us", "our", "the Company", and "Selga" mean Selga Inc and our wholly owned subsidiaries, unless otherwise indicated.


All dollar amounts refer to US dollars unless otherwise indicated.


GENERAL


Selga Inc. (“the Company”) was incorporated under the laws of the State of Nevada, U.S. on November 9, 2009.  Our registration statement was filed with the Securities and Exchange Commission on February 26, 2010 and was declared effective on May 13, 2010.  


PRIOR BUSINESS OPERATIONS


Selga Inc. started operations in the business of selling new and used automobiles on November 9, 2009. The Company purchased cars at auctions and from private parties and resold them. On January 9, 2010, we entered into a consulting agreement with Selga Auto LLC, a private company that is a separate entity from Selga Inc. and is registered in the state of Georgia and operated by our former director and CEO, Olegs Petusko. Under the terms of the consulting agreement, Selga Auto LLC, agreed to act as our buying agent at two car auctions for a fee of $300 per each automobile purchased with Selga Auto LLC’s assistance.  On April 27, 2010, our consulting agreement with Selga Auto LLC was amended to ensure that our commercial interests would be afforded appropriate protections in the event of competing auction bids between us and Selga Auto LLC. The Company in total purchased 6 cars and sold 4 of them. For the fiscal year ended December 31, 2010, the Company generated $26,185 revenue while cost of goods sold was $24,650 and gross margin was $1,535.


CURRENT BUSINESS OPERATIONS


On March 31, 2011 a share sale agreement was executed between our former director, President, and majority shareholder  Olegs Petusko and current director, President and CEO, and majority shareholder, Warmond Fang, whereby there was an effective change of control of Selga Inc. to Mr. Fang. Upon change of control, Jatinder S. Bhogal was elected a director and Frank J. Hariton was elected secretary.  The Company’s new management continued ongoing business, and entered into a consulting agreement with Selga Auto LLC on March 31, 2011 whereby Selga Auto LLC acted as our consultant in the automobile business for a term of 6 months.  No vehicle purchases or sales were successfully transacted.




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Management undertook efforts to identify additional commercial opportunities for the Company, and determined to investigate and commercially pursue the business of acquiring, exploring and developing oil and gas properties.


On July 11, 2011 a share sale agreement was entered into by and between Selga Inc. and House Spółka z ograniczoną odpowiedzialnością.  Under the terms of the share sale agreement, we purchased all of the shares of Auxillium Spółka zograniczoną odpowiedzialnością, a Polish corporation for 2,653 Zlotys (approximately $953). Upon consummation of the share sale agreement, Auxillium Spółka zograniczoną odpowiedzialnością was established as a wholly-owned subsidiary of Selga Inc., and tasked with investigating oil and gas opportunities in Poland. According to an April 5, 2011 report by the US Energy Information Administration (World Shale Gas Resources: An Initial Assessment of 14 Regions Outside the United States.), Poland may have an estimated 5.3 trillion cubic metres of shale gas reserves, the largest such reserves in Europe.


In addition to Poland, Management investigated domestic oil and gas opportunities in the United States, identifying Alaska as a promising jurisdiction.  According to the Research Development Council for Alaska, Alaska’s oil and gas production accounts for 13.2% of all US production. Furthermore, the US Energy Information Administration indicates that the Alaska North Slope contains 14 of the 100 largest oil fields in the United States, and 5 of the 100 largest natural gas fields.


On August 18, 2011, we formed a new wholly-owned subsidiary, Auxillium Alaska Inc, registered and incorporated under the laws of the state of Alaska to engage in oil and gas exploration activities in Alaska.  On August 29, 2011, we discontinued our efforts in the automobile sales business.


On August 29, 2011 through our wholly-owned subsdiary, Auxillium Alaska Inc., we entered into an agreement to acquire 100% right, title, and interest in certain oil and gas leases in Alaska’s North Slope region, owned by Union Energy (Alaska), LLC. Under the terms of the agreement, we agreed to pay $95,295 to Union Energy (Alaska), LLC and $24,000 to the State of Alaska Department of Natural Resources.  On August 31, 2011, the Company paid $24,000 due to the State of Alaska and on December 28, 2011, we paid the $95,295 owed to Union Energy (Alaska), LLC for the leases. With the balance of $95,295 paid to Union Energy (Alaska) LLC, there are no further payments or monies owed to Union Energy (Alaska) LLC. Under the terms of the leases, there are oil and gas rental payments that the Company is required to pay to the State of Alaska Department of Natural Resources annually to maintain the leases. The payments are for a total of $24,000 on an annual basis due on September 1st of each year.


As a result of these actions we are an exploration stage company engaged primarily in the investigation, acquisition and exploration of prospective oil and gas properties.  We plan to conduct exploration work on current and future properties in order to ascertain which, if any, may possess commercially exploitable quantities of oil and gas reserves. Our ability to commence exploration work is subject to factors, including but not limited to, the availability of financing, personnel, technical expertise, resources and other such factors that may have an impact on the Company to carry out exploration work. There is no assurance that we can successfully acquire such resources in order to conduct further acquisitions or exploration.


Our Auxillium North Slope Leases


Our Company currently has oil and gas lease holdings on the North Slope of Alaska and the potential for acquisitions in Poland.


On December 28, 2011 we concluded the acquisition of an oil and gas prospect in Alaska’s North Slope.  According to the US Energy Information Administration, Alaska’s North Slope contains 14 of the 100



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largest oil fields in the United States, and 5 of the 100 largest natural gas fields. A U.S. Department of Energy report: “Alaska North Slope Oil and Gas A Promising Future or an Area in Decline?” published on April 2009 estimates the ultimate recoverable oil reserves on the North Slope to be 28 billion barrels, including reserves from existing fields as well as undiscovered resources. Natural gas estimates reach as high as 125 trillion cubic feet.


Our leases in the North Slope region cover 9,600 net acres and were originally issued to Union Energy (Alaska) LLC on September 1, 2008, with a term of 10 years and subject to a 12.5% royalty interest in favor of the State of Alaska. The Company believes, based upon currently available geological data and maps from the public domain that our lease prospect contains the East Kurupa gas field, discovered by Texaco in 1976. (State of Alaska Department of Oil and Gas: Petroleum Potential of the Eastern National Petroleum Reserve-Alaska. April, 1997.) At present the main thrust of exploration in the North Slope is focused in the Prudhoe Bay area leaving much of the North Slope foothills unexplored; accordingly, we believe our leases located in the North Slope foothills may offer potential opportunities for further investigation and exploration.  


In order to evaluate the potential of our leases in the North Slope region, we will require further investigation and exploration.  We believe our Alaska leases are in areas , which are potentially promising for gas production as indicated by data from Texaco’s drilling efforts in 1976. The Company does not however, make any representations as to their future production, if any.  Furthermore, any gas recovered from our Alaska leases will not be salable unless or until a proposed North Slope gas pipeline is completed.  


Competition


We operate in a highly competitive industry, competing with major oil and gas companies, independent producers and institutional and individual investors, which are actively seeking oil and gas properties throughout the world together with the equipment, labor and materials required to operate properties. Most of our competitors have financial resources, staffs and facilities substantially greater than ours. The principal area of competition is encountered in the financial ability to acquire good acreage positions and drill wells to explore for oil and gas, then, if warranted, drill production wells and install production equipment. Competition for the acquisition of oil and gas acreage is intense. Therefore, we may not be successful in acquiring and developing profitable properties in the face of this competition. No assurance can be given that sufficient oil and gas acreage will be available for acquisition and development.


Government Regulation


Oil and gas exploration and development companies are subject to various federal, state and local governmental regulations, which may be changed from time to time in response to economic or political conditions and can have a significant impact upon overall operations. Matters subject to regulation include permits for drilling operations, drilling bonds, reports concerning operations, the spacing of wells, unitization and pooling of properties, taxation, abandonment and restoration and environmental protection. These laws and regulations are under constant review for amendment or expansion. Changes in these regulations could require us to expend significant resources to comply with new laws or regulations or changes to current requirements and could have a material adverse effect on us.


Oil and Gas Regulation


The governmental laws and regulations which could have a material impact on our Company are as follows:




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Drilling and Production


These types of regulation include permit requirements for the drilling of wells, drilling bonds and reports concerning operations. Most states regulate one or more of the following: (i) the location of wells; (ii) the method of drilling and casing wells; (iii) the rates of production or "allowables"; (iv) the surface use and restoration of properties upon which wells are drilled; (v) the plugging and abandoning of wells; and (vi) notice to surface owners and other third parties.


State laws may regulate the size and shape of drilling and spacing units or proration units governing the pooling of oil and natural gas properties. Some states allow forced pooling or integration of tracts to facilitate exploration while other states rely on voluntary pooling of lands and leases. In some instances, forced pooling or unitization may be implemented by third parties and may reduce our interest in the unitized properties. In addition, state conservation laws establish maximum rates of production from oil and natural gas wells generally prohibit the venting or flaring of natural gas and impose requirements regarding the ratability of production. These laws and regulations may limit the amount of natural gas and oil we can produce from our wells or limit the number of wells or the locations at which we can drill. Moreover, each state generally imposes a production or severance tax with respect to the production and sale of oil, natural gas and natural gas liquids within its jurisdiction.


Environmental Regulation


Our activities will be subject to existing federal, state and local laws and regulations governing environmental quality and pollution control. Our operations will be subject to stringent environmental regulation by state and federal authorities including the Environmental Protection Agency ("EPA"). Such regulation can increase the cost of such activities. In most instances, the regulatory requirements relate to water and air pollution control measures.


Waste Disposal


The Resource Conservation and Recovery Act ("RCRA"), and comparable state statutes, affect oil and gas exploration and production activities by imposing regulations on the generation, transportation, treatment, storage, disposal and cleanup of "hazardous wastes" and on the disposal of non-hazardous wastes. Under the auspices of the EPA, the individual states administer some or all of the provisions of RCRA, sometimes in conjunction with their own, more stringent requirements. Drilling fluids, produced waters, and most of the other wastes associated with the exploration, development, and production of crude oil, natural gas, or geothermal energy constitute "solid wastes", which are regulated under the less stringent non-hazardous waste provisions, but there is no guarantee that the EPA or the individual states will not adopt more stringent requirements for the handling of non-hazardous wastes or categorize some non-hazardous wastes as hazardous for future regulation.


Air Emissions


Our operations are subject to local, state and federal regulations for the control of emissions of air pollution. Major sources of air pollutants are subject to more stringent, federally imposed permitting requirements. Administrative enforcement actions for failure to comply strictly with air pollution regulations or permits are generally resolved by payment of monetary fines and correction of any identified deficiencies.  Alternatively, regulatory agencies could require us to forego construction, modification or operation of certain air emission sources.


Clean Water Act




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The Clean Water Act ("CWA") imposes restrictions and strict controls regarding the discharge of wastes, including produced waters and other oil and natural gas wastes, into waters of the United States, a term broadly defined. Permits must be obtained to discharge pollutants into federal waters. The CWA provides for civil, criminal and administrative penalties for unauthorized discharges of oil, hazardous substances and other pollutants. It imposes substantial potential liability for the costs of removal or remediation associated with discharges of oil or hazardous substances. State laws governing discharges to water also provide varying civil, criminal and administrative penalties and impose liabilities in the case of a discharge of petroleum or it derivatives, or other hazardous substances, into state waters. In addition, the EPA has promulgated regulations that may require us to obtain permits to discharge storm water runoff. In the event of an unauthorized discharge of wastes, we may be liable for penalties and costs.


Employees


We have no employees as of the date of this report and anticipate that our operations will be conducted primarily through third party consultants and contractors rather than by employees.  We do not anticipate hiring a large number of employees.


Internet Website


We do not maintain a website.


Item 1A.Risk Factors.


Risks Relating To Our Business

You should carefully consider the risks described below before investing in our publicly traded securities. The risks described below are not the only ones we face. Our business is also subject to the risks that affect many other companies, such as competition, technological obsolescence, labor relations, general economic conditions, geopolitical events, climate change and international operations. Additional risks not currently known to us or that we currently believe are immaterial also may impair our business operations and our liquidity.


Risks Related to Our Business


Our exploratory drilling operations may not be successful, our business may fail and investors may lose their entire investment in our Company.


There can be no assurance that our future drilling activities will be successful. We may not recover all or any portion of our capital investment in the wells. Unsuccessful drilling activities would have a material adverse effect upon our results of operations and financial condition and would likely result in the ultimate failure of our business operations. The cost of drilling, completing, and operating wells is often uncertain, and a number of factors can delay or prevent drilling operations including: (i) unexpected drilling conditions; (ii) pressure or irregularities in formation; (iii) equipment failures or accidents; (iv) adverse weather conditions; and (iv) shortages or delays in availability of drilling rigs and delivery of equipment. If our exploratory drilling operations are not successful, our business may fail and investors may lose their entire investment in our Company.


Oil and gas exploration and development involves many operating risks. If we were to experience any of these problems, it could have a material, adverse effect on our operations and possibly cause us to go out of business and investors to lose their entire investment in our Company.




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Our exploration activities will be subject to many risks, including the risk that we may not discover commercially productive reservoirs. Exploration for oil and natural gas can be unprofitable, not only from failing to discover reserves, but from productive wells that do not produce sufficient revenues to return a profit. In addition, our exploration activities may be curtailed, delayed or cancelled as a result of other factors, including:


•fires;

•explosions;

•blow-outs and surface cratering;

•uncontrollable flows of underground natural gas, oil, or formation water;

•natural disasters;

•facility and equipment failures;

•title problems;

•shortages or delays in the delivery of equipment and services;

•abnormal pressure formations; and,

•environmental hazards such as natural gas leaks, oil spills, pipeline ruptures and discharges of toxic gases.


If any of these events occur, we could incur substantial losses as a result of:


•injury or loss of life;

•severe damage to and destruction of property, natural resources or equipment;

•pollution and other environmental damage;

•clean-up responsibilities;

•regulatory investigation and penalties;

•suspension of our operations; or,

•repairs necessary to resume operations.


We may be affected by any of these events more than larger companies, since we have limited working capital. We have not obtained any liability insurance for our operations at this time. If we were to experience any of these problems, it could have a material, adverse effect on our operations and could cause us to go out of business and investors to lose their entire investment in our Company.


The operations and the potential profitability of oil and gas exploration and development companies often depend upon factors beyond our control. If our operations and potential profitability are negatively impacted because of these factors, our business could suffer and investors could lose all or part of their investment in our Company.


The potential profitability of oil and gas properties is dependent upon many factors beyond our control. For instance, world prices and markets for oil and gas are unpredictable, highly volatile and potentially subject to governmental price fixing, pegging and controls, or any combination of these and other factors, responding to changes in domestic, international, political, social, and economic environments. Additionally, due to worldwide economic uncertainty, the availability and cost of funds and other expenses have become increasingly difficult, if not impossible, to project. These and other changes and events may materially affect our financial performance.


Adverse weather conditions can also hinder drilling operations. A productive well may become uneconomic in the event water or other deleterious substances are encountered which impair or prevent the production of oil and/or gas from the well. In addition, production from any well may be unmarketable if it is impregnated with water or other deleterious substances. The marketability of oil and gas, which may be acquired or discovered will be affected by numerous factors beyond our control. These



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factors include, but are not limited to, the proximity and capacity of oil and gas pipelines and processing equipment, market fluctuations of prices, taxes, royalties, land tenure, allowable production and environmental protection. These factors cannot be accurately predicted. If our operations and potential profitability are negatively impacted because of these factors, our business could suffer and investors could lose all or part of their investment in our Company.


The oil and gas industry is highly competitive and there is no assurance that we will be successful in acquiring further oil and gas exploration prospects and hiring qualified personnel. If we do not compete successfully in these areas, our operations will likely suffer and our Company will likely be unsuccessful.


The oil and gas industry is intensely competitive, and we compete with other companies that have greater resources. Many of these companies not only explore for and produce oil and natural gas, but also carry on refining operations and market petroleum and other products on a regional, national or worldwide basis. These companies may be able to pay more for productive oil and natural gas properties and exploratory prospects or define, evaluate, bid for and purchase a greater number of properties and prospects than our financial or human resources permit. In addition, these companies may have a greater ability to continue exploration activities during periods of low oil and natural gas market prices. Our larger competitors may be able to absorb the burden of present and future laws and regulations more easily than we can, which would adversely affect our competitive position. Our ability to acquire additional properties and to discover reserves in the future will be dependent upon our ability to evaluate and select suitable properties and to consummate transactions in a highly competitive environment.  These companies also may be better able to attract the qualified personnel required to run a successful oil and gas exploration company.


Oil and gas operations are subject to comprehensive regulation which may cause substantial delays or require capital outlays in excess of those anticipated causing an adverse effect on us.


Oil and gas operations are subject to federal, state, and local laws relating to the protection of the environment, including laws regulating removal of natural resources from the ground and the discharge of materials into the environment.  Oil and gas operations are also subject to federal, state, and local laws and regulations which seek to maintain health and safety standards by regulating the design and use of drilling methods and equipment.  Various permits from government bodies are required for drilling operations to be conducted; no assurance can be given that such permits will be received. Environmental standards imposed by federal, state, or local authorities may be changed and any such changes may have material adverse effects on our activities. Moreover, compliance with such laws may cause substantial delays or require capital outlays in excess of those anticipated, thus causing an adverse effect on us. Additionally, we may be subject to liability for pollution or other environmental damages which we may elect not to insure against due to prohibitive premium costs and other reasons. To date we have not been required to spend material amounts on compliance with environmental regulations.  However, we may be required to do so in future and this may affect our ability to expand or maintain our operations.


Oil and gas exploration and development activities are subject to certain environmental regulations which may prevent or delay the commencement or continuance of our operations.


Our oil and gas exploration and development activities will be subject to certain federal, state and local laws and regulations relating to environmental quality and pollution control. Such laws and regulations increase the costs of these activities and may prevent or delay the commencement or continuance of a given operation. Compliance with these laws and regulations has not had a material effect on our operations or financial condition to date. Specifically, we are subject to legislation regarding emissions into the environment, water discharges and storage and disposition of hazardous wastes. In addition,



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legislation has been enacted which requires well and facility sites to be abandoned and reclaimed to the satisfaction of state authorities. However, such laws and regulations are frequently changed and we are unable to predict the ultimate cost of compliance.


Risks Related to Our Company


If we do not continue to obtain additional financing, our business will fail.


Our current operating funds are less than necessary to commence and complete all intended test wells on the Alaska properties covered by our oil and gas leases. Therefore, we will need to obtain additional financing in order to complete our business plan.  We currently have limited operations and we have no gas sales.


As of March 22, 2012, we have cash on hand of approximately $27,650 representing the remaining proceeds of our two financing transactions.  Exploration (and if successful, development) of the Alaska prospects is unlikely to commence in the short term and it is impossible to forecast costs associated with doing so at this time.  Nevertheless, we will require substantial additional financing to cover such costs.  Furthermore, we will require additional financing to sustain our business operations if we are not successful in earning revenues.


We do not currently have any arrangements for financing and may not be able to find such financing. Our ability to obtain additional financing will be subject to a number of factors, including but not limited to the market price for oil and gas, the success of our initial test wells and general market conditions. These factors will make the timing, amount, terms or conditions of financing uncertain and additional financing may be unavailable to us.  If we do not obtain additional financing, our business will fail.


We are a new entrant into the oil and gas industry without a profitable or long operating history. We do not have any significant income producing oil and gas properties and we have limited financial resources. We have not yet commenced our exploration activities nor have we generated any significant revenue since our incorporation. There is no means by which investors can evaluate our potential for success and there is no assurance that we will ever operate profitably.


We have a limited operating history and must be considered in the exploration stage. Our Company's operations will be subject to all the risks inherent in the establishment of an exploration stage enterprise and the uncertainties arising from the absence of a significant operating history. Potential investors should be aware of the difficulties normally encountered by oil and gas exploration and development companies and the high rate of failure of such enterprises, especially those with a limited operating history such as ours. The likelihood of success must be considered in light of the problems, expenses, difficulties, complications and delays encountered in connection with the oil and gas exploration that we plan to undertake. These potential problems include, but are not limited to, unanticipated problems relating to exploration, and additional costs and expenses that may exceed current estimates. The expenditures to be made by us in our oil and gas exploration may not result in the discovery of oil and gas reserves. If the results of our exploration do not reveal commercially viable oil or gas reserves, we may decide to abandon our leasehold interests and acquire new oil and gas interests for exploration or cease operations. The acquisition of additional oil and gas interests will be dependent upon us possessing capital resources in order to purchase such interests. If no funding is available, we may be forced to abandon our operations. No assurance can be given that we will ever operate on a profitable basis.


Potential investors should be aware of the difficulties normally encountered by new resource companies and the high rate of failure of such enterprises. There is a high risk that our business will fail.




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Because our directors have other business interests, they may not be able or willing to devote a sufficient amount of time to our business operations, causing our business to suffer and possibly fail.


Our directors intend to spend a minority of their business time providing their services to us. While they presently possess adequate time to attend to our interests, it is possible that the demands on our directors from their other obligations could increase, or the demands of our business operations could increase, with the result that they would no longer be able to devote sufficient time to the management of our business. If this happens, our Company will not likely perform to its potential and may fail.


Prospects that we decide to drill may not yield natural gas or oil in commercially viable quantities. If this happens, our business will likely fail and investors would likely lose their entire investment in our Company.


None of our properties covered by the oil and gas leases/permits have yet been fully evaluated by the Company. We will not know for certain, prior to drilling and testing, whether natural gas or oil will be present in those properties or, if present, whether natural gas or oil will be present in sufficient quantities to recover drilling or completion costs or to be economically viable. The cost of drilling, completing and operating any well is uncertain and any wells we drill may not be productive. If we never find commercially viable resources of oil and gas, our business will fail and investors will likely lose their entire investment in our Company.


Our Alaska prospects are in areas believed to contain gas, but presently lacking gas transportation facilities.


While our Alaska prospects are in areas that are promising for gas discovery, there are no existing pipeline facilities available to transport any gas they may produce to market.  Unless such facilities are built and available to us, our gas would be “stranded gas” with little or no market value. The Company believes that a pipeline facility may be built in the future based on evolving oil and gas developments in Alaska. On March 30, 2012, ExxonMobil, ConocoPhillips, BP and TransCanada, through participation in the Alaska Pipeline Project, announced their collective efforts to commercialize North Slope natural gas resources within the Alaska Gasline Inducement Act. The four companies in conjunction with the government of Alaska are expected to focus efforts on the construction of a  $26 billion pipeline that will allow for the movement of North Slope Gas to Valdez for export to overseas markets.  An earlier study published on July 28, 2011 by Wood Mackenzie conducted for the Alaska Gasline Port Authority gave a favorable assessment for the construction of a gas pipeline to move North Slope gas to Valdez for export to overseas markets. Investors should be aware that, whether a pipeline is built, the timing of the construction of the pipeline and whether and on what terms the pipeline is made available to transport any potential gas are all matters beyond our control which could have significant impact on our future results.


Risks Related to Our Securities


If a liquid market for our common stock does not develop, shareholders may be unable to sell their shares.


There is currently no liquid market for our common stock and no certainty that a liquid market will develop. While our common stock is quoted for trading on the OTC Bulletin Board, there has been no trading of our common stock. Furthermore, we have initiated the process to have our stock become eligible for DTC deposit.  Unless this is concluded successfully, of which we can give no assurance, broker dealers may be reluctant to accept our stock for deposit. This will further inhibit the development



11




of a trading market. If a liquid market is not developed for our shares, it will be difficult for shareholders to sell their stock.


We do not intend to pay dividends and there will be less ways in which you can make a gain on any investment in our Company.


We have never paid any cash dividends and currently do not intend to pay any dividends for the foreseeable future. To the extent that we require additional funding currently not provided for in our financing plan, our funding sources may likely prohibit the payment of a dividend.


Our Articles of Incorporation provide for indemnification of officers and directors at our expense and limit their liability which may result in a major cost to us and hurt the interests of our shareholders because corporate resources may be expended for the benefit of officers and/or directors.


Our Articles of Incorporation and applicable Nevada law provide for the indemnification of our directors, officers, employees, and agents, under certain circumstances, against attorney's fees and other expenses incurred by them in any litigation to which they become a party arising from their association with or activities on our behalf.  We will also bear the expenses of such litigation or any of our directors, officers, employees, or agents, upon such person's promise to repay us, therefore, if it is ultimately determined that any such person should not have been entitled to indemnification this indemnification policy could result in substantial expenditures by us, which we will be unable to recoup.


We have been advised that, in the opinion of the SEC, indemnification for liabilities arising under federal securities laws is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable.  In the event that a claim for indemnification against these types of liabilities, other than the payment by us of expenses incurred or paid by a director, officer or controlling person in the successful defense of any action, suit or proceeding, is asserted by a director, officer or controlling person in connection with our securities  we will (unless in the opinion of our counsel, the matter has been settled by controlling precedent) submit to a court of appropriate jurisdiction, the question whether indemnification by us is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The legal process relating to this matter if it were to occur is likely to be very costly and may result in us receiving negative publicity, either of which factors is are likely to materially reduce the market and price for our shares, if such a market ever develops.


Risks Relating to Our Common Stock


Limitations upon Broker-Dealers Effecting Transactions in "Penny Stocks"


Trading in our common stock is subject to material limitations as a consequence of regulations which limits the activities of broker-dealers effecting transactions in "penny stocks."  Pursuant to Rule 3a51-1 under the Exchange Act, our common stock is a "penny stock" because it (i) is not listed on any national securities exchange or The NASDAQ Stock Market, (ii) has a market price of less than $5.00 per share, and (iii) its issuer (the Company) has net tangible assets less than $2,000,000 (if the issuer has been in business for at least three (3) years) or $5,000,000 (if the issuer has been in business for less than three (3) years).


Rule 15g-9 promulgated under the Exchange Act imposes limitations upon trading activities on "penny stocks", which makes selling our common stock more difficult compared to selling securities which are not "penny stocks."  Rule 15a-9 restricts the solicitation of sales of "penny stocks" by broker-dealers unless the broker first (i) obtains from the purchaser information concerning his financial situation,



12




investment experience and investment objectives, (ii) reasonably determines that the purchaser has sufficient knowledge and experience in financial matters that the person is capable of evaluating the risks of investing in "penny stocks", and (iii) delivers and receives back from the purchaser a manually signed written statement acknowledging the purchaser's investment experience and financial sophistication.


Rules 15g-2 through 15g-6 promulgated under the Exchange Act require broker-dealers who engage in transactions in "penny stocks" first to provide their customers with a series of disclosures and documents, including (i) a standardized risk disclosure document identifying the risks inherent in investing in "penny stocks", (ii) all compensation received by the broker-dealer in connection with the transaction, (iii) current quotation prices and other relevant market data, and (iv) monthly account statements reflecting the fair market value of the securities.


There can be no assurance that any broker-dealer which initiates quotations for the Common Stock will continue to do so, and the loss of any such broker-dealer likely would have a material adverse effect on the market price of our common stock.


No Active or Regular Market


Although our common stock has been included in the OTCBB, there has been no trading in our stock. Companies quoted for trading on the OTCBB must be reporting issuers under Section 12 of the Exchange Act and must be current in their reports under Section 13 of the Exchange Act, in order to maintain price quotation privileges on the OTCBB. If our common stock is quoted on the OTCBB, and we fail to remain current on our reporting requirements, we could be removed from the OTCBB. As a result, the market liquidity for our securities could be severely and adversely affected by limiting the ability of broker-dealers to sell our securities and the ability of stockholders to sell their securities in the secondary market. In addition, we may be unable to regain our quotation privileges on the OTCBB, which may have an adverse material effect on our business.


Accordingly, there can be no assurance as to the liquidity of any present or future markets that may develop for our common stock, the ability of holders of our common stock to sell our common stock, or the prices at which holders may be able to sell our common stock.


Shares Eligible for Future Sale


The sale of a substantial number of shares of our common stock, or the perception that such sales could occur, could adversely affect prevailing market prices for our common stock.  In addition, any such sale or perception could make it more difficult for us to sell equity, or equity-related securities in the future at a time and price that we deem appropriate.  If and when this registration statement becomes effective and we become subject to the reporting requirements of the Exchange Act, we might elect to adopt a stock option plan and file a registration statement under the Securities Act registering the shares of common stock reserved for issuance thereunder.  Following the effectiveness of any such registration statement, the shares of common stock issued under such plan, other than shares held by affiliates, if any, would be immediately eligible for resale in the public market without restriction.  


The sales of shares of our common stock which are not registered under the Securities Act, known as “restricted” shares, typically are affected under Rule 144.  As of December 31, 2011 we had outstanding an aggregate of 11,000,000 shares of restricted common stock.  All of our shares of common stock, except those issued in the last six months, might be sold under Rule 144. No prediction can be made as to the effect, if any, that future sales of “restricted” shares of our common stock, or the availability of such shares for future sale, will have on the market price of our common stock or our ability to raise capital through an offering of our equity securities.



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No Dividends


We have never paid any dividends on our common stock and we do not intend to pay any dividends in the foreseeable future.  


ITEM 1B.UNRESOLVED STAFF COMMENTS.


None


ITEM 2.PROPERTIES.


We utilize space within the residence of our CEO as offices at no cost to us.  We have described our oil and gas leases above.

 

ITEM 3. LEGAL PROCEEDINGS.


We currently have no legal proceedings pending nor have any legal proceeding been threatened against us or any of our officers, directors or control persons of which we are aware.


ITEM 4. REMOVED AND RESERVED.



PART II

ITEM 5. MARKET for REGISTRANT’S COMMON EQUITY and ISSURER PURCHASES of EQUITY SECURITIES.


Market Information


Our common stock has been included in the Over the Counter Bulletin Board under the symbol “SLGA” Since August 27, 2010.  We are not aware of any trades or quotations.


(1)  There were no trades in our common stock until May 2008.


Reports to Shareholders


We plan to furnish our shareholders with an annual report for each fiscal year ended December 31 containing financial statements audited by our independent certified public accountants.  Additionally, we may, in our sole discretion, issue unaudited quarterly or other interim reports to our shareholders when we deem appropriate.  We intend to maintain compliance with the periodic reporting requirements of the Securities Exchange Act of 1934.


Holders


As of December 31, 2011, we had 30 shareholders of record and 13,430,000 common shares issued and outstanding.  The number of holders does not include the shareholders for whom shares are held in a "nominee" or "street" name.


Dividend Policy




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We have not declared or paid any dividends on our common stock to date.  We anticipate that any future earnings will be retained as working capital and used for business purposes.  Accordingly, it is unlikely that we will declare or pay any such dividends in the foreseeable future.


Securities Authorized for Issuance under Equity Compensation Plans


None


Recent Sales of Unregistered Securities


During the fourth quarter of 2011, we raised $150,000 through the sale of units in a private placement. The units were comprised of an aggregate of 1,000,000 shares.


ITEM 6.SELECTED FINANCIAL DATA.


Because the Company is a smaller reporting company, it does not need to provide the information required by this Item 6.


ITEM 7.MANAGEMENT’S DISCUSSION and ANALYSIS of FINANCIAL CONDITIONS and REULTS OF OPERATION.


Overview


We caution you that reliance on any forward-looking statement involves risks and uncertainties, and that although we believe the assumptions on which our forward-looking statements are based are reasonable, any of those assumptions could prove to be inaccurate, and as a result, the forward-looking statements based on those assumptions could be incorrect.  In light of these and other uncertainties, you should not conclude that we will necessarily achieve any plans and objectives or projected financial results referred to in any of the forward-looking statements.  We do not undertake to release the results of any revisions of these forward-looking statements to reflect future events or circumstances.  Some of the factors that may cause actual results, developments and business decisions to differ materially from those contemplated by such forward-looking statements include the following:


·  

our ability to raise additional capital and secure additional financing;

·  

anticipated trends in our financial condition and results of operations;

·  

our ability to hire and retain key employees;

·  

Risks related to diverting managements attention from ongoing business operations.


Background


Prior to August 2011, the Company’s business model provided automobile resale service in Eastern European countries.  New management considered oil and gas exploration and development to be a more promising operation for our shareholders.


Plan of Operation and Liquidity


Our plan of operation for 2012 is to continue paying our oil and gas lease costs in Alaska and to look for other properties to acquire. We anticipate the cost of these programs will be approximately $30,000 to $50,000, however, this figure could be reduced, possibly substantially, by third-party working interest participation.




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During 2012 we also anticipate spending $45,000 on administrative expenses, including fees payable in connection with our compliance reporting obligations as a public company, such as legal, accounting and audit fees.


Total expenditures in 2012 therefore could be at least $80,000.  While we have cash on hand to cover a portion of these expenses, we will require additional funding.  We anticipate that additional funding will be provided in the form of equity financing from the sale of our common stock or loans from directors. We cannot provide investors with any assurance that additional funds will be raised.  Currently, we do not have any arrangements in place for future equity financings.


We had cash and cash equivalents of $27,648 as of December 31, 2011.


We have funded our activities to date primarily through the issuance of equity securities.


Seasonality and Inflation


We do not believe that our business will be seasonal to any material extent except that exploratory operations, particularly in Alaska, may be hampered by severe winter weather conditions.  Since energy costs are a key component of inflation, we do not believe that our results will be materially impacted by inflation in the current fiscal year.


Critical Accounting Policies


Financial Reporting Release No. 60 of the SEC encourages all companies to include a discussion of critical accounting policies or methods used in the preparation of the financial statements.  There are no material revenue generating activities that give rise to significant assumptions or estimates. Our most critical accounting policies as follows:


Use of Estimates and Assumptions


The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reporting amounts of revenues and expenses during the reporting period.


The Company’s significant estimates and assumptions include the fair value of financial instruments; the carrying value, recoverability and impairment, if any, of long-lived assets, including the values assigned to and the estimated useful lives of oil and gas properties; income tax rate, income tax provision, deferred tax assets and valuation allowance of deferred tax assets; foreign currency exchange rate and the assumption that the Company will continue as a going concern.  Those significant accounting estimates or assumptions bear the risk of change due to the fact that there are uncertainties attached to those estimates or assumptions, and certain estimates or assumptions are difficult to measure or value.


Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable in relation to the financial statements taken as a whole under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.


Management regularly evaluates the key factors and assumptions used to develop the estimates utilizing currently available information, changes in facts and circumstances, historical experience and reasonable



16




assumptions. After such evaluations, and if deemed appropriate, those estimates are adjusted accordingly.  Actual results could differ from those estimates.


Fair Value of Financial Instruments


The Company follows paragraph 825-10-50-10 of the FASB Accounting Standards Codification for disclosures about fair value of its financial instruments and has adopted paragraph 820-10-35-37 of the FASB Accounting Standards Codification (“Paragraph 820-10-35-37”) to measure the fair value of its financial instruments.  Paragraph 820-10-35-37 of the FASB Accounting Standards Codification establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, paragraph 820-10-35-37 of the FASB Accounting Standards Codification establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels.  The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.  The three (3) levels of fair value hierarchy defined by paragraph 820-10-35-37 of the FASB Accounting Standards Codification are described below:


Level 1

 

Quoted market prices available in active markets for identical assets or liabilities as of the reporting date.

 

 

 

Level 2

 

Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.

 

 

 

Level 3

 

Pricing inputs that are generally observable inputs and not corroborated by market data.


Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable.


The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.  If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.


The carrying amounts of the Company’s financial assets and liabilities, such as cash, accrued oil and gas properties payable, approximate their fair values because of the short maturity of these instruments.


Transactions involving related parties cannot be presumed to be carried out on an arm's-length basis, as the requisite conditions of competitive, free-market dealings may not exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions were consummated on terms equivalent to those that prevail in arm's-length transactions unless such representations can be substantiated.


It is not, however, practical to determine the fair value of advances from stockholders due to their related party nature.


Carrying Value, Recoverability and Impairment of Long-Lived Assets


The Company has adopted paragraph 360-10-35-17 of the FASB Accounting Standards Codification for its long-lived assets. The Company’s long-lived assets, which include unproved oil and gas properties, are



17




reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.


The Company assesses the recoverability of its long-lived assets by comparing the projected undiscounted net cash flows associated with the related long-lived asset or group of long-lived assets over their remaining estimated useful lives against their respective carrying amounts. Impairment, if any, is based on the excess of the carrying amount over the fair value of those assets.  Fair value is generally determined using the asset’s expected future discounted cash flows or market value, if readily determinable.  If long-lived assets are determined to be recoverable, but the newly determined remaining estimated useful lives are shorter than originally estimated, the net book values of the long-lived assets are depreciated over the newly determined remaining estimated useful lives.


The Company considers the following to be some examples of important indicators that may trigger an impairment review: (i) significant under-performance or losses of assets relative to expected historical or projected future operating results; (ii) significant changes in the manner or use of assets or in the Company’s overall strategy with respect to the manner or use of the acquired assets or changes in the Company’s overall business strategy; (iii) significant negative industry or economic trends; (iv) increased competitive pressures; and (v) regulatory changes.  The Company evaluates acquired assets for potential impairment indicators at least annually and more frequently upon the occurrence of such events.


Management will periodically review the recoverability of the capitalized oil and gas properties. Management takes into consideration various information including, but not limited to, historical production records taken from previous oil and gas operations, results of exploration activities conducted to date, estimated future prices and reports and opinions of outside consultants.  When it is determined that a project or property will be abandoned or its carrying value has been impaired, a provision is made for any expected loss on the project or property.


The impairment charges, if any, is included in operating expenses in the accompanying statements of operations.


Oil and Gas Properties


The Company follows Topic 932 “Financial Accounting and Reporting by Oil and Gas Producing Companies” of the FASB Accounting Standards Codification (“Topic 932”) of the FASB Accounting Standards Codification for its oil and gas properties and accounts for its oil and gas exploration and production activities using the successful efforts method.  Under this method, all property acquisition costs and costs of exploratory and development wells are capitalized when incurred, pending determination of whether the well has found proved reserves.  If an exploratory well does not find proved reserves, the costs of drilling the well are charged to expense and included within cash flows from investing activities in the statements of cash flows pursuant to Topic 932.  The costs of development wells are capitalized whether productive or nonproductive.  Oil and gas lease acquisition costs are also capitalized.  Interest cost is capitalized as a component of property cost for significant exploration and development projects that require greater than six months to be readied for their intended use.


Other exploration costs, including certain geological and geophysical expenses and delay rentals for oil and gas leases, are charged to expense as incurred.  The sale of a partial interest in a proved property is accounted for as a cost recovery and no gain or loss is recognized as long as this treatment does not significantly affect the unit-of-production amortization rate.  A gain or loss is recognized for all other sales of proved properties and is classified in other operating revenues.  Maintenance and repairs are charged to expense, and renewals and betterments are capitalized to the appropriate property and equipment accounts.



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Unevaluated properties are assessed periodically on a property-by-property basis and any impairment in value is charged to expense.  If the unevaluated properties are subsequently determined to be productive, the related costs are transferred to proved oil and gas properties.  Proceeds from sales of partial interests in unproved leases are accounted for as a recovery of cost without recognizing any gain until all costs are recovered.


The provision for depreciation, depletion and amortization (“DD&A”) of oil and gas properties is calculated on a field-by-field basis using the unit-of-production method.  Oil is converted to natural gas equivalents, Mcf, at the rate of one barrel to six Mcf.  Taken into consideration in the calculation of DD&A are estimated future dismantlement, restoration and abandonment costs, which are net of estimated salvage values.


To date, the Company has no declared oil and gas reserves.


Related Parties


The Company follows subtopic 850-10 of the FASB Accounting Standards Codification for the identification of related parties and disclosure of related party transactions.


Pursuant to section 850-10-20 the related parties include a) affiliates of the Company; b) entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of section 825–10–15, to be accounted for by the equity method by the investing entity; c) trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management; d) principal owners of the Company; e) management of the Company; f) other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and g. other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.


The financial statements shall include disclosures of material related party transactions, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of consolidated or combined financial statements is not required in those statements. The disclosures shall include:  a) the nature of the relationship(s) involved b)  description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the financial statements; c) the dollar amounts of transactions for each of the periods for which income statements are presented and the effects of any change in the method of establishing the terms from that used in the preceding period; and d) amounts due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.


Revenue Recognition


The Company applies paragraph 605-10-S99-1 of the FASB Accounting Standards Codification for revenue recognition.  The Company recognizes revenue when it is realized or realizable and earned.  The Company considers revenue realized or realizable and earned when all of the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) the product has been shipped or the services have



19




been rendered to the customer, (iii) the sales price is fixed or determinable, and (iv) collectability is reasonably assured.


The Company derives revenue primarily from the sale of produced natural gas and crude oil.  The Company reports revenue as the gross amount received before taking into account production taxes and transportation costs, which are reported as separate expenses.  Revenue is recorded in the month the Company’s production is delivered to the purchaser, but payment is generally received between thirty (30) and ninety (90) days after the date of production.  No revenue is recognized unless it is determined that title to the product has transferred to the purchaser.  At the end of each month, the Company estimates the amount of production delivered to the purchaser and the price the Company will receive.


Foreign Currency Transactions


The Company applies the guidelines as set out in Section 830-20-35 of the FASB Accounting Standards Codification (“Section 830-20-35”) for foreign currency transactions.  Pursuant to Section 830-20-35 of the FASB Accounting Standards Codification, foreign currency transactions are transactions denominated in currencies other than U.S. Dollar, the Company’s reporting currency or Polish Zolty (“PLN”), the Company’s Polish operating subsidiary’s functional currency.  Foreign currency transactions may produce receivables or payables that are fixed in terms of the amount of foreign currency that will be received or paid.  A change in exchange rates between the functional currency and the currency in which a transaction is denominated increases or decreases the expected amount of functional currency cash flows upon settlement of the transaction. That increase or decrease in expected functional currency cash flows is a foreign currency transaction gain or loss that generally shall be included in determining net income for the period in which the exchange rate changes. Likewise, a transaction gain or loss (measured from the transaction date or the most recent intervening balance sheet date, whichever is later) realized upon settlement of a foreign currency transaction generally shall be included in determining net income for the period in which the transaction is settled. The exceptions to this requirement for inclusion in net income of transaction gains and losses pertain to certain intercompany transactions and to transactions that are designated as, and effective as, economic hedges of net investments and foreign currency commitments.  Pursuant to Section 830-20-25 of the FASB Accounting Standards Codification, the following shall apply to all foreign currency transactions of an enterprise and its investees: (a) at the date the transaction is recognized, each asset, liability, revenue, expense, gain, or loss arising from the transaction shall be measured and recorded in the functional currency of the recording entity by use of the exchange rate in effect at that date as defined in section 830-10-20 of the FASB Accounting Standards Codification; and (b) at each balance sheet date, recorded balances that are denominated in currencies other than the functional currency or reporting currency of the recording entity shall be adjusted to reflect the current exchange rate.


Income Tax Provision


The Company adopted the provisions of paragraph 740-10-25-13 of the FASB Accounting Standards Codification. Paragraph 740-10-25-13.addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements.  Under paragraph 740-10-25-13, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position.  The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent (50%) likelihood of being realized upon ultimate settlement.  Paragraph 740-10-25-13 also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures.  The Company had no material adjustments to its liabilities for unrecognized income tax benefits according to the provisions of paragraph 740-10-25-13.



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The estimated future tax effects of temporary differences between the tax basis of assets and liabilities are reported in the accompanying consolidated balance sheets, as well as tax credit carry-backs and carry-forwards. The Company periodically reviews the recoverability of deferred tax assets recorded on its consolidated balance sheets and provides valuation allowances as management deems necessary.


Management makes judgments as to the interpretation of the tax laws that might be challenged upon an audit and cause changes to previous estimates of tax liability. In addition, the Company operates within multiple taxing jurisdictions and is subject to audit in these jurisdictions. In management’s opinion, adequate provisions for income taxes have been made for all years. If actual taxable income by tax jurisdiction varies from estimates, additional allowances or reversals of reserves may be necessary.


Uncertain Tax Positions


The Company did not take any uncertain tax positions and had no adjustments to its income tax liabilities or benefits pursuant to the provisions of Section 740-10-25 for the year ended December 31, 2011 or 2010.


Limitation on Utilization of NOLs due to Change in Control


Pursuant to the Internal Revenue Code Section 382 (“Section 382”), certain ownership changes may subject the NOL’s to annual limitations which could reduce or defer the NOL.  Section 382 imposes limitations on a corporation’s ability to utilize NOLs if it experiences an “ownership change.”  In general terms, an ownership change may result from transactions increasing the ownership of certain stockholders in the stock of a corporation by more than 50 percentage points over a three-year period.  In the event of an ownership change, utilization of the NOLs would be subject to an annual limitation under Section 382 determined by multiplying the value of its stock at the time of the ownership change by the applicable long-term tax-exempt rate. Any unused annual limitation may be carried over to later years.  The imposition of this limitation on its ability to use the NOLs to offset future taxable income could cause the Company to pay U.S. federal income taxes earlier than if such limitation were not in effect and could cause such NOLs to expire unused, reducing or eliminating the benefit of such NOLs.


Foreign Currency Translation


The Company follows Section 830-10-45 of the FASB Accounting Standards Codification (“Section 830-10-45”) for foreign currency translation to translate the financial statements of the foreign subsidiary from the functional currency, generally the local currency, into U.S. Dollars.  Section 830-10-45 sets out the guidance relating to how a reporting entity determines the functional currency of a foreign entity (including of a foreign entity in a highly inflationary economy), re-measures the books of record (if necessary), and characterizes transaction gains and losses. the assets, liabilities, and operations of a foreign entity shall be measured using the functional currency of that entity. An entity’s functional currency is the currency of the primary economic environment in which the entity operates; normally, that is the currency of the environment, or local currency, in which an entity primarily generates and expends cash.


The functional currency of each foreign subsidiary is determined based on management’s judgment and involves consideration of all relevant economic facts and circumstances affecting the subsidiary. Generally, the currency in which the subsidiary transacts a majority of its transactions, including billings, financing, payroll and other expenditures, would be considered the functional currency, but any dependency upon the parent and the nature of the subsidiary’s operations must also be considered.  If a subsidiary’s functional currency is deemed to be the local currency, then any gain or loss associated with



21




the translation of that subsidiary’s financial statements is included in accumulated other comprehensive income. However, if the functional currency is deemed to be the U.S. Dollar, then any gain or loss associated with the re-measurement of these financial statements from the local currency to the functional currency would be included in the consolidated statements of income and comprehensive income (loss). If the Company disposes of foreign subsidiaries, then any cumulative translation gains or losses would be recorded into the consolidated statements of income and comprehensive income (loss).  If the Company determines that there has been a change in the functional currency of a subsidiary to the U.S. Dollar, any translation gains or losses arising after the date of change would be included within the statement of income and comprehensive income (loss).


Based on an assessment of the factors discussed above, the management of the Company determined the relevant subsidiarys local currency to be the functional currency for its foreign subsidiary, Auxillium Spółka zograniczoną odpowiedzialnością The financial records of the Companys Polish operating subsidiary are maintained in their local currency, the Polish Zolty (PLN), which is the functional currency.  Assets and liabilities are translated from the local currency into the reporting currency, U.S. dollars, at the exchange rate prevailing at the balance sheet date.  Revenues and expenses are translated at weighted average exchange rates for the period to approximate translation at the exchange rates prevailing at the dates those elements are recognized in the consolidated financial statements.  Foreign currency translation gain (loss) resulting from the process of translating the local currency financial statements into U.S. dollars are included in determining accumulated other comprehensive income in the consolidated statement of stockholders’ equity.


Unless otherwise noted, the rate presented below per U.S. $1.00 was the midpoint of the interbank rate as quoted by OANDA Corporation (www.oanda.com) contained in its consolidated financial statements.  Management believes that the difference between PLN vs. U.S. dollar exchange rate quoted by the National Bank of Poland (“NBP”) and PLN vs. U.S. dollar exchange rate reported by OANDA Corporation were immaterial.  Translations do not imply that the PLN amounts actually represent, or have been or could be converted into, equivalent amounts in U.S. dollars.  Translation of amounts from PLN into U.S. dollars has been made at the following exchange rates for the respective periods:


 

 

December 31,

2011

 

 

July 11,

2011

 

 

 

 

 

 

 

 

 

 

Balance sheet

 

 

3.2501

 

 

 

2.7838

 

 

 

 

 

 

 

 

 

 

Statement of operations and comprehensive income (loss)

 

 

2.9259

 

 

 

 

 


Net gains and losses resulting from foreign exchange transactions, if any, are included in the Company’s consolidated statements of operations and comprehensive income (loss).


Comprehensive Income (Loss)


The Company applies section 220-10-45 of the FASB Accounting Standards Codification. This statement establishes rules for the reporting of comprehensive income and its components.  Comprehensive income (loss), for the Company, consists of net income (loss) and foreign currency translation adjustments and is presented in the Company’s Consolidated Statements of Operations and Comprehensive Income (Loss) and Stockholders’ Equity.


Net Income (Loss) per Common Share


Net income (loss) per common share is computed pursuant to section 260-10-45 of the FASB Accounting Standards Codification.  Basic net income (loss) per common share is computed by dividing net income



22




(loss) by the weighted average number of shares of common stock outstanding during the period.  Diluted net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of shares of common stock and potentially outstanding shares of common stock during the period to reflect the potential dilution that could occur from common shares issuable through contingent shares issuance arrangement, stock options or warrants.


There were no potentially outstanding dilutive shares for the year ended December 31, 2011 or 2010.


Cash Flows Reporting


The Company adopted paragraph 230-10-45-24 of the FASB Accounting Standards Codification for cash flows reporting, classifies cash receipts and payments according to whether they stem from operating, investing, or financing activities and provides definitions of each category, and uses the indirect or reconciliation method (“Indirect method”) as defined by paragraph 230-10-45-25 of the FASB Accounting Standards Codification to report net cash flow from operating activities by adjusting net income to reconcile it to net cash flow from operating activities by removing the effects of (a) all deferrals of past operating cash receipts and payments and all accruals of expected future operating cash receipts and payments and (b) all items that are included in net income that do not affect operating cash receipts and payments.  The Company reports the reporting currency equivalent of foreign currency cash flows, using the current exchange rate at the time of the cash flows and the effect of exchange rate changes on cash held in foreign currencies is reported as a separate item in the reconciliation of beginning and ending balances of cash and cash equivalents and separately provides information about investing and financing activities not resulting in cash receipts or payments in the period pursuant to paragraph 830-230-45-1 of the FASB Accounting Standards Codification.


Recently Issued Accounting Pronouncements


FASB Accounting Standards Update No. 2011-05


In June 2011, the FASB issued the FASB Accounting Standards Update No. 2011-05 “Comprehensive Income” (“ASU 2011-05”), which was the result of a joint project with the IASB and amends the guidance in ASC 220, Comprehensive Income, by eliminating the option to present components of other comprehensive income (OCI) in the statement of stockholders’ equity. Instead, the new guidance now gives entities the option to present all non-owner changes in stockholders’ equity either as a single continuous statement of comprehensive income or as two separate but consecutive statements. Regardless of whether an entity chooses to present comprehensive income in a single continuous statement or in two separate but consecutive statements, the amendments require entities to present all reclassification adjustments from OCI to net income on the face of the statement of comprehensive income.


The amendments in this Update should be applied retrospectively and are effective for public entity for fiscal years, and interim periods within those years, beginning after December 15, 2011.


FASB Accounting Standards Update No. 2011-08


In September 2011, the FASB issued the FASB Accounting Standards Update No. 2011-08 “Intangibles—Goodwill and Other: Testing Goodwill for Impairment” (“ASU 2011-08”). This Update is to simplify how public and nonpublic entities test goodwill for impairment. The amendments permit an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in Topic 350. Under the amendments in this



23




Update, an entity is not required to calculate the fair value of a reporting unit unless the entity determines that it is more likely than not that its fair value is less than its carrying amount.


The guidance is effective for interim and annual periods beginning on or after December 15, 2011. Early adoption is permitted.


FASB Accounting Standards Update No. 2011-10


In December 2011, the FASB issued the FASB Accounting Standards Update No. 2011-10 “Property, Plant and Equipment: Derecognition of in Substance Real Estate-a Scope Clarification” (“ASU 2011-09”). This Update is to resolve the diversity in practice as to how financial statements have been reflecting circumstances when parent company reporting entities cease to have controlling financial interests in subsidiaries that are in substance real estate, where the situation arises as a result of default on nonrecourse debt of the subsidiaries.


The amended guidance is effective for annual reporting periods ending after June 15, 2012 for public entities. Early adoption is permitted.


FASB Accounting Standards Update No. 2011-11


In December 2011, the FASB issued the FASB Accounting Standards Update No. 2011-11 “Balance Sheet: Disclosures about Offsetting Assets and Liabilities” (“ASU 2011-11”). This Update requires an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. The objective of this disclosure is to facilitate comparison between those entities that prepare their financial statements on the basis of U.S. GAAP and those entities that prepare their financial statements on the basis of IFRS.


The amended guidance is effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods.


FASB Accounting Standards Update No. 2011-12


In December 2011, the FASB issued the FASB Accounting Standards Update No. 2011-12 “Comprehensive Income:  Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05” (“ASU 2011-12”). This Update is a deferral of the effective date pertaining to reclassification adjustments out of accumulated other comprehensive income in ASU 2011-05. FASB is to going to reassess the costs and benefits of those provisions in ASU 2011-05 related to reclassifications out of accumulated other comprehensive income. Due to the time required to properly make such a reassessment and to evaluate alternative presentation formats, the FASB decided that it is necessary to reinstate the requirements for the presentation of reclassifications out of accumulated other comprehensive income that were in place before the issuance of Update 2011-05.


All other requirements in Update 2011-05 are not affected by this Update, including the requirement to report comprehensive income either in a single continuous financial statement or in two separate but consecutive financial statements. Public entities should apply these requirements for fiscal years, and interim periods within those years, beginning after December 15, 2011.


Management does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying consolidated financial statements.



24





Off-Balance Sheet Arrangements


We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.


ITEM 7A.  QUANTITATIVE and QUALITATIVE DISCLOSURES about MARKET RISK.


Not applicable.


ITEM 8.  FINANCIAL STATEMENTS and SUPPLEMENTARY DATA.


Our financial statements for the years ended December 31, 2011 and 2010, and the reports thereon of Li & Company, and Chang G. Park, CPA, respectively, are included here:



25







Selga, Inc.

(An Exploration Stage Company)

December 31, 2011 and 2010

Index to the Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm

 

F-2

Report of Independent Registered Public Accounting Firm

 

F-3

Consolidated Balance Sheets at December 31, 2011 and December 31, 2010

 

F-4

Consolidated Statements of Operations and Comprehensive Income (Loss) for the Years then Ended and for the Period from August 29, 2011 (exploration date) through December 31, 2011

 

F-5

Consolidated Statement of Stockholders’ Equity (Deficit) for the Period from November 9, 2009 (inception) through December 31, 2011

 

F-6

Consolidated Statements of Cash Flows for the Years then Ended and for the Period from August 29, 2011 (exploration date) through December 31, 2011

 

F-7

Notes to the Consolidated Financial Statements

 

F-8




F-1




REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Directors and Stockholders of

Selga Inc.

(An exploration stage company)

Toronto, Ontario

Canada


We have audited the accompanying consolidated balance sheet of Selga Inc., an exploration stage company (the “Company”) as of December 31, 2011 and the related consolidated statements of operations, stockholders’ equity and cash flows for the year then ended and for the period from August 29, 2011 (exploration date) through December 31, 2011.  These consolidated financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these consolidated financial statements based on our audit.  The Company’s consolidated financial statements as of December 31, 2010, for the year then ended and for the period from November 9, 2009 (inception) through December 31, 2010 was audited by other auditors whose reports dated March 15, 2011 included an explanatory paragraph as to an uncertainty with respect to the Company’s ability to continue as a going concern.  The other auditors’  reports have been  furnished  to us, and our opinion,  insofar as it relates  to  amounts  included  for such prior  periods,  is based  solely on the reports of such other auditors.


We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such opinion.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.


In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2011 and the results of its operations and its cash flows for the year then ended and for the period from August 29, 2011 (exploration date) through December 31, 2011 in conformity with accounting principles generally accepted in the United States of America.


The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.  As discussed in Note 3 to the consolidated financial statements, the Company had a deficit accumulated during the exploration stage at December 31, 2011 and had a net loss and net cash used in operating activities for the year then ended.  These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regards to these matters are also described in Note 3.  The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.



/s/Li & Company, PC

Li & Company, PC


Skillman, New Jersey

April 11, 2012




F-2




REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Directors and Stockholders of

Selga Inc.

(A development stage company)

Atlanta, Georgia


We have audited the accompanying balance sheet of Selga Inc., a development stage company (the “Company”) as of December 31, 2010 and the related statements of operations, stockholders’ equity and cash flows for the year then ended and for the period from November 9, 2009 (inception) through December 31, 2010.  These financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these financial statements based on our audits.


We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such opinion.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.


In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2010 and 2009 and the results of its operations and its cash flows for the years then ended and for the period from November 9, 2009 (inception) through December 31, 2010 in conformity with accounting principles generally accepted in the United States of America.


The financial statements have been prepared assuming that the Company will continue as a going concern.  As discussed in Note 3 to the financial statements, the Company’s losses from operations and no operation raise substantial doubt about its ability to continue as a going concern.  The financial statements do not include any adjustments that might result from the outcome of this uncertainty.




/s/PLS CPA

PLS CPA, PROFESSIONAL CORP.


San Diego, CA  92111

March 15, 2011




F-3





Selga, Inc. and Subsidiaries

 

 (A Exploration Stage Company)

 

 Consolidated Balance Sheets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31,

2011

 

 

December 31,

2010

 

 

 

 

 

 

 

 

 

 

 

 

 

 Assets

 

 

 

 

 

 

 

 

 

 Current assets:

 

 

 

 

 

 

 

 

 

 

 Cash

 

 

$

45,814 

 

 

$

683 

 

 

 Net current assets of discontinued operations

 

 

 

 

 

 

6,695 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Total Current Assets

 

 

 

45,814 

 

 

 

7,378 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Oil and gas properties (successful efforts method):

 

 

 

95,295 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Total assets

 

 

$

141,109 

 

 

$

7,378 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Liabilities and stockholders' equity (deficit)

 

 

 

 

 

 

 

 

 

 Current liabilities:

 

 

 

 

 

 

 

 

 

 

 Net current liabilities of discontinued operations

 

 

 

 

 

 

775 

 

 

 Accrued expenses

 

 

 

12,865 

 

 

 

 

 

 Advances from stockholders

 

 

 

42,632 

 

 

 

170 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Total current liabilities

 

 

 

55,497 

 

 

 

945 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Liabilities

 

 

 

55,497 

 

 

 

945 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Stockholders' equity (deficit):

 

 

 

 

 

 

 

 

 

 

 Common stock, $0.001 par value, 75,000,000 shares authorized,

 12,430,000 shares issued and outstanding

 

 

13,430 

 

 

 

12,430 

 

 

 Additional paid-in capital

 

 

 

171,040 

 

 

 

21,870 

 

 

 Deficit accumulated during the exploration and development stage

 

(98,858)

 

 

 

(27,867)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Total stockholders' equity (deficit)

 

 

 

85,612 

 

 

 

6,433 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Total liabilities and stockholders' equity (deficit)

 

 

$

141,109 

 

 

$

7,378 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to the consolidated financial statements.




F-4





Selga, Inc. and Subsidiaries

 (A Exploration Stage Company)

 Consolidated Statements of Operations and Comprehensive Income (Loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Period from

 

 

 

 

 

 

 

 

 

 

 

 

 

 

August 29, 2011

 

 

 

 

 

 

For the Year

 

 

For the Year

 

 

(Exploration Date)

 

 

 

 

 

 

Ended

 

 

Ended

 

 

through

 

 

 

 

 

 

December 31, 2011

 

 

December 31, 2010

 

 

December 31, 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Revenues earned during the exploration stage

 

 

$

 

 

$

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Cost of revenues earned during the exploration stage:

 

 

 

 

 

 

 

 

 

 

 

State license fees

 

 

 

24,000 

 

 

 

 

 

 

24,000 

 

 

 

Total cost of revenues earned during the development stage

 

24,000 

 

 

 

 

 

 

24,000 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Gross profit

 

 

 

(24,000)

 

 

 

 

 

 

(24,000)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative expenses

 

 

 

1,128 

 

 

 

 

 

 

1,128 

 

 

Professional fees

 

 

 

39,260 

 

 

 

 

 

 

39,260 

 

 

 

Total operating expenses

 

 

 

40,388 

 

 

 

 

 

 

40,388 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Loss before income taxes

 

 

 

(64,388)

 

 

 

 

 

 

(64,388)

 

 Income tax provision

 

 

 

 

 

 

 

 

 

 

 Loss from continuing operations

 

 

 

(64,388)

 

 

 

 

 

 

(64,388)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Discontinued operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from operations of discontinued operations, net of taxes

 

(4,686)

 

 

 

(27,697)

 

 

 

 

 

 

Loss from disposal of discontinued operations, net of taxes

 

(1,917)

 

 

 

 

 

 

 

 

 Loss from discontinued operations

 

 

 

(6,603)

 

 

 

(27,697)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Net loss

 

 

 

(70,991)

 

 

 

(27,697)

 

 

 

(64,388)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation gain (loss)

 

 

 

 

 

 

 

 

 

 

 Comprehensive income (loss)

 

 

$

(70,991)

 

 

$

(27,697)

 

 

$

(64,388)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Net loss per common share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

- Basic and diluted:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

 

 

$

(0.01)

 

 

$

 

 

 

 

 

 

 

Discontinued operations

 

 

 

(0.00)

 

 

 

(0.00)

 

 

 

 

 

 

 

Total net loss per common share

 

 

$

(0.01)

 

 

$

(0.00)

 

 

 

 

 

 

Weighted common shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

- Basic and diluted

 

 

 

12,471,100 

 

 

 

10,911,795 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 See accompanying notes to the consolidated financial statements.



F-5







Selga, Inc. and Subsidiaries

(A Exploration Stage Company)

Consolidated Statement of Stockholders' Equity (Deficit)

For the period from November 9, 2009 (inception) through December 31, 2011

 

 

 

 

 

 

 Deficit

 

 

 

 

 

 

 

 

 Common Stock, $0.001 Par Value

 

 Additional

 

 Accumulated

 

Total

 

 

 

 

 

 Number of

 

 

 

 

 Paid-in

 

 during the

 

Stockholders'

 

 

 

 

 

 Shares

 

 Amount

 

 Capital

 

 Exploration Stage

 

 Equity (Deficit)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Balance, November 9, 2009 (inception)

 

-

 

$

-

 

$

-

 

$

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common shares for cash

at par on December 24, 2009

 

10,000,000

 

 

10,000

 

 

-

 

 

 

 

 

10,000 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Net loss

 

 

 

 

 

 

 

 

 

 

(170)

 

 

(170)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Balance, December 31, 2009

 

10,000,000

 

$

10,000

 

$

-

 

$

(170)

 

$

9,830 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common shares for cash

at $0.01 per share

 

2,430,000

 

 

2,430

 

 

21,870

 

 

 

 

 

24,300 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Net loss

 

 

 

 

 

 

 

 

 

 

(27,697)

 

 

(27,697)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Balance,  December 31, 2010

 

12,430,000

 

 

12,430

 

 

21,870

 

 

(27,867)

 

 

6,433 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Forgiveness of debt by former stockholders

 

 

 

 

 

 

 

170

 

 

 

 

 

170 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common shares for cash at

$0.15 per share in December 2011

1,000,000

 

 

1,000

 

 

149,000

 

 

 

 

 

150,000 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

(70,991)

 

 

(70,991)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Balance, December 31, 2011

 

13,430,000

 

$

13,430

 

$

171,040

 

$

(98,858)

 

$

85,612 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 See accompanying notes to the consolidated financial statements.




F-6





Selga, Inc. and Subsidiaries

 (A Exploration Stage Company)

 Consolidated Statements of Cash Flows

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Period from

 

 

 

 

 

 

 

 

 

 

 

 

 

 

August 29, 2011

 

 

 

 

 

 

For the Year

 

 

For the Year

 

 

(Exploration Date)

 

 

 

 

 

 

Ended

 

 

Ended

 

 

through

 

 

 

 

 

 

December 31, 2011

 

 

December 31, 2010

 

 

December 31, 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Cash flows from operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 Net loss

 

 

$

(70,991)

 

 

$

(27,697)

 

 

$

(64,388)

 

 Adjustments to reconcile net loss to net cash provided by operating activities

 

 

 Loss from disposal of discontinued operations, net of taxes

 

1,917 

 

 

 

 

 

 

 

 

 Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Inventories

 

 

 

6,695 

 

 

 

(6,695)

 

 

 

 

 

 

 Accrued expenses  

 

 

 

12,090 

 

 

 

775 

 

 

 

12,865 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Net cash provided by operating activities

 

 

 

(50,289)

 

 

 

(33,617)

 

 

 

(51,523)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Cash paid in disposal of discontinued operations

 

 

 

(1,917)

 

 

 

 

 

 

 

 

 Purchase of unproved oil and gas property acreage

 

 

 

(95,295)

 

 

 

 

 

 

(95,295)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Net cash used in investing activities

 

 

 

(97,212)

 

 

 

 

 

 

(95,295)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Amounts received from stockholders

 

 

 

42,632 

 

 

 

 

 

 

42,632 

 

 

 Proceeds from sale of common stock

 

 

 

150,000 

 

 

 

24,300 

 

 

 

150,000 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Net cash provided by (used in) financing activities

 

 

 

192,632 

 

 

 

24,300 

 

 

 

192,632 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Net change in cash

 

 

 

45,131 

 

 

 

(9,317)

 

 

 

45,814 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Cash at beginning of period

 

 

 

683 

 

 

 

10,000 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Cash at end of period

 

 

$

45,814 

 

 

$

683 

 

 

$

45,814 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Supplemental disclosure of cash flows information:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Interest paid

 

 

$

 

 

$

 

 

$

 

 

 Income tax paid

 

 

$

 

 

$

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Non cash financing and investing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Forgiveness of advances from former stockholders to contributed capital

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to the consolidated financial statements.



F-7




Selga, Inc.

(An Exploration Stage Company)

December 31, 2011 and 2010

Notes to the Consolidated Financial Statements



Note 1 – Organization and Operations


Selga Inc.


Selga Inc. (“Selga” or the “Company”) was incorporated under the laws of the State of Nevada on November 9, 2009.


The Company intended to export new and used cars from the United States to South America, Europe and Africa prior to August 29, 2011.


Change in Control and Scope of Business


On March 31, 2011, a Stock Purchase Agreement (the “SPA”) by and among the Company’s then sole officer and director Olegs Petusko (“OP”), the Company and Warmond Fang (“WF”) was executed and a closing was held under the SPA.

 

Pursuant to the SPA (i) WF purchased an aggregate of 10,000,000 shares of common stock of the Company (80.5% of the outstanding shares) from OP for a purchase price of $400,700.00; (ii) the Company disposed of its operating subsidiary by transferring its membership interest to OP;  (iii) WF and Jatinder S. Bhogal were elected directors of the Company; (iv) WF was elected President and CEO of the Company and Frank J. Hariton was elected secretary of the Company; and (v) OP resigned as an officer and director of the Company.   The Company entered into a six month consulting agreement with Selga Auto LLC, a company owned by OP to assist the Company in operating its business for a consulting fee of $300 per automobile sold which was terminated on July 11, 2011 with no automobile being sold.


Acquisition of Auxillium Spółka Zograniczoną Odpowiedzialnością in Poland


On July 11, 2011, a Share Sale Agreement (the SSA) was entered into by and between the Company and House Spółka z ograniczoną odpowiedzialnością, a Polish company (the Seller).  Pursuant to the SSA, the Company purchased all of the shares of Auxillium Spółka zograniczoną odpowiedzialnością (the Auxillium Poland) from the Seller for 2,653 Zlotys (approximately $953).  Auxillium Poland will investigate potential oil and gas opportunities in Poland.


Auxillium Poland is currently inactive.


Discontinuance of Auto Export Business


On August 29, 2011 the Company discontinued the business of exporting new and used cars from the United States to South America, Europe and Africa and now engages in the business of acquiring, exploring and developing oil and gas properties. Loss from disposal of the discontinued operations amounted to $1,917.


The consolidated financial statements for the year ended December 31, 2010 have been presented to give retroactive effect to this discontinuance.



F-8





Formation of Auxillium Alaska, Inc.


On August 18, 2011, the Company formed Auxillium Alaska, Inc. (“Auxillium Alaska”) as a wholly-owned subsidiary under the laws of the State of Alaska. Auxillium Alaska engages in the business of acquiring, exploring and developing oil and gas properties.


Note 2 – Summary of Significant Accounting Policies


Basis of Presentation


The Company’s financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).


Principles of Consolidation


The consolidated financial statements include all accounts of the entities as of the reporting period ending date(s) and for the reporting period(s) as follows:


Entity

 

Reporting period ending date(s) and reporting period(s)

 

 

 

Selga

 

As of December 31, 2011 and 2010 and for the years then ended

 

 

 

Auxillium Poland

 

As of December 31, 2011 and for the period from July 11, 2011 (date of acquisition) through December 31, 2011

 

 

 

Auxillium Alaska

 

As of December 31, 2011 and for the period from August 18, 2011 (inception) through December 31, 2011


All inter-company balances and transactions have been eliminated.


Reclassification


Certain amounts in the prior period financial statements have been reclassified to conform to the current period presentation.   These reclassifications had no effect on reported losses.


Development Stage Company


The Company was a development stage company as defined by section 915-10-20 of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification up to August 29, 2011.  On August 29, 2011 the Company discontinued the business of exporting new and used cars from the United States to South America, Europe and Africa then under development and engage in the business of acquiring, exploring and developing mineral properties.  Although the Company has recognized nominal amount of revenues since inception, the Company was still devoting substantially all of its efforts on establishing the business and, therefore, qualifies as a development stage company.  All losses accumulated from November 9, 2009 (inception) through August 29, 2011 (date of discontinuance) have been considered as part of the Company’s development stage activities.


Exploration Stage Company




F-9




Although the Company acquired oil and gas properties on August 29, 2011, a substantial portion of the Company’s activities has involved establishing the business and the Company has neither started exploring the oil and gas properties, nor generated any revenue to date.  Upon entry into the oil and gas exploration business the Company became an exploration stage company as defined by section 915-10-20 of the FASB Accounting Standards Codification.  All activities since August 29, 2011 have been considered as part of the Company’s exploration stage activities.


Use of Estimates and Assumptions


The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reporting amounts of revenues and expenses during the reporting period.


The Company’s significant estimates and assumptions include the fair value of financial instruments; the carrying value, recoverability and impairment, if any, of long-lived assets, including the values assigned to and the estimated useful lives of oil and gas properties; income tax rate, income tax provision, deferred tax assets and valuation allowance of deferred tax assets; foreign currency exchange rate and the assumption that the Company will continue as a going concern.  Those significant accounting estimates or assumptions bear the risk of change due to the fact that there are uncertainties attached to those estimates or assumptions, and certain estimates or assumptions are difficult to measure or value.


Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable in relation to the financial statements taken as a whole under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.


Management regularly evaluates the key factors and assumptions used to develop the estimates utilizing currently available information, changes in facts and circumstances, historical experience and reasonable assumptions. After such evaluations, and if deemed appropriate, those estimates are adjusted accordingly.  Actual results could differ from those estimates.


Fair Value of Financial Instruments


The Company follows paragraph 825-10-50-10 of the FASB Accounting Standards Codification for disclosures about fair value of its financial instruments and has adopted paragraph 820-10-35-37 of the FASB Accounting Standards Codification (“Paragraph 820-10-35-37”) to measure the fair value of its financial instruments.  Paragraph 820-10-35-37 of the FASB Accounting Standards Codification establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, paragraph 820-10-35-37 of the FASB Accounting Standards Codification establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels.  The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.  The three (3) levels of fair value hierarchy defined by paragraph 820-10-35-37 of the FASB Accounting Standards Codification are described below:



F-10





Level 1

 

Quoted market prices available in active markets for identical assets or liabilities as of the reporting date.

 

 

 

Level 2

 

Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.

 

 

 

Level 3

 

Pricing inputs that are generally observable inputs and not corroborated by market data.


Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable.


The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.  If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.


The carrying amounts of the Company’s financial assets and liabilities, such as cash, accrued oil and gas properties payable, approximate their fair values because of the short maturity of these instruments.


Transactions involving related parties cannot be presumed to be carried out on an arm's-length basis, as the requisite conditions of competitive, free-market dealings may not exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions were consummated on terms equivalent to those that prevail in arm's-length transactions unless such representations can be substantiated.


It is not, however, practical to determine the fair value of advances from stockholders due to their related party nature.


Carrying Value, Recoverability and Impairment of Long-Lived Assets


The Company has adopted paragraph 360-10-35-17 of the FASB Accounting Standards Codification for its long-lived assets. The Company’s long-lived assets, which include unproved oil and gas properties, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.


The Company assesses the recoverability of its long-lived assets by comparing the projected undiscounted net cash flows associated with the related long-lived asset or group of long-lived assets over their remaining estimated useful lives against their respective carrying amounts. Impairment, if any, is based on the excess of the carrying amount over the fair value of those assets.  Fair value is generally determined using the asset’s expected future discounted cash flows or market value, if readily determinable.  If long-lived assets are determined to be recoverable, but the newly determined remaining estimated useful lives are shorter than originally estimated, the net book values of the long-lived assets are depreciated over the newly determined remaining estimated useful lives.


The Company considers the following to be some examples of important indicators that may trigger an impairment review: (i) significant under-performance or losses of assets relative to expected historical or projected future operating results; (ii) significant changes in the manner or use of assets or in the Company’s overall strategy with respect to the manner or use of the acquired assets or changes in the Company’s overall business strategy; (iii) significant negative industry or economic trends; (iv) increased



F-11




competitive pressures; and (v) regulatory changes.  The Company evaluates acquired assets for potential impairment indicators at least annually and more frequently upon the occurrence of such events.


Management will periodically review the recoverability of the capitalized oil and gas properties. Management takes into consideration various information including, but not limited to, historical production records taken from previous oil and gas operations, results of exploration activities conducted to date, estimated future prices and reports and opinions of outside consultants.  When it is determined that a project or property will be abandoned or its carrying value has been impaired, a provision is made for any expected loss on the project or property.


The impairment charges, if any, is included in operating expenses in the accompanying statements of operations.


Cash Equivalents


The Company considers all highly liquid investments with maturities of three months or less at the time of purchase to be cash equivalents.


Oil and Gas Properties


The Company follows Topic 932 “Financial Accounting and Reporting by Oil and Gas Producing Companies” of the FASB Accounting Standards Codification (“Topic 932”) of the FASB Accounting Standards Codification for its oil and gas properties and accounts for its oil and gas exploration and production activities using the successful efforts method.  Under this method, all property acquisition costs and costs of exploratory and development wells are capitalized when incurred, pending determination of whether the well has found proved reserves.  If an exploratory well does not find proved reserves, the costs of drilling the well are charged to expense and included within cash flows from investing activities in the statements of cash flows pursuant to Topic 932.  The costs of development wells are capitalized whether productive or nonproductive.  Oil and gas lease acquisition costs are also capitalized.  Interest cost is capitalized as a component of property cost for significant exploration and development projects that require greater than six months to be readied for their intended use.


Other exploration costs, including certain geological and geophysical expenses and delay rentals for oil and gas leases, are charged to expense as incurred.  The sale of a partial interest in a proved property is accounted for as a cost recovery and no gain or loss is recognized as long as this treatment does not significantly affect the unit-of-production amortization rate.  A gain or loss is recognized for all other sales of proved properties and is classified in other operating revenues.  Maintenance and repairs are charged to expense, and renewals and betterments are capitalized to the appropriate property and equipment accounts.


Unevaluated properties are assessed periodically on a property-by-property basis and any impairment in value is charged to expense.  If the unevaluated properties are subsequently determined to be productive, the related costs are transferred to proved oil and gas properties.  Proceeds from sales of partial interests in unproved leases are accounted for as a recovery of cost without recognizing any gain until all costs are recovered.


The provision for depreciation, depletion and amortization (“DD&A”) of oil and gas properties is calculated on a field-by-field basis using the unit-of-production method.  Oil is converted to natural gas equivalents, Mcf, at the rate of one barrel to six Mcf.  Taken into consideration in the calculation of DD&A are estimated future dismantlement, restoration and abandonment costs, which are net of estimated salvage values.



F-12





To date, the Company has no declared oil and gas reserves.


Related Parties


The Company follows subtopic 850-10 of the FASB Accounting Standards Codification for the identification of related parties and disclosure of related party transactions.


Pursuant to section 850-10-20 the related parties include a) affiliates of the Company; b) entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of section 825–10–15, to be accounted for by the equity method by the investing entity; c) trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management; d) principal owners of the Company; e) management of the Company; f) other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and g. other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.


The financial statements shall include disclosures of material related party transactions, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of consolidated or combined financial statements is not required in those statements. The disclosures shall include:  a) the nature of the relationship(s) involvedb)  description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the financial statements; c) the dollar amounts of transactions for each of the periods for which income statements are presented and the effects of any change in the method of establishing the terms from that used in the preceding period; and d. mounts due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.


Commitments and Contingencies


The Company follows subtopic 450-20 of the FASB Accounting Standards Codification to report accounting for contingencies. Certain conditions may exist as of the date the consolidated financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur.  The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment.  In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.


If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s consolidated financial statements.  If the assessment indicates that a potentially material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed.




F-13




Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed.  Management does not believe, based upon information available at this time, that these matters will have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows. However, there is no assurance that such matters will not materially and adversely affect the Company’s business, financial position, and results of operations or cash flows.


Revenue Recognition


The Company applies paragraph 605-10-S99-1 of the FASB Accounting Standards Codification for revenue recognition.  The Company recognizes revenue when it is realized or realizable and earned.  The Company considers revenue realized or realizable and earned when all of the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) the product has been shipped or the services have been rendered to the customer, (iii) the sales price is fixed or determinable, and (iv) collectability is reasonably assured.


The Company derives revenue primarily from the sale of produced natural gas and crude oil.  The Company reports revenue as the gross amount received before taking into account production taxes and transportation costs, which are reported as separate expenses.  Revenue is recorded in the month the Company’s production is delivered to the purchaser, but payment is generally received between thirty (30) and ninety (90) days after the date of production.  No revenue is recognized unless it is determined that title to the product has transferred to the purchaser.  At the end of each month, the Company estimates the amount of production delivered to the purchaser and the price the Company will receive.


Foreign Currency Transactions


The Company applies the guidelines as set out in Section 830-20-35 of the FASB Accounting Standards Codification (“Section 830-20-35”) for foreign currency transactions.  Pursuant to Section 830-20-35 of the FASB Accounting Standards Codification, foreign currency transactions are transactions denominated in currencies other than U.S. Dollar, the Company’s reporting currency or Polish Zolty (“PLN”), the Company’s Polish operating subsidiary’s functional currency.  Foreign currency transactions may produce receivables or payables that are fixed in terms of the amount of foreign currency that will be received or paid.  A change in exchange rates between the functional currency and the currency in which a transaction is denominated increases or decreases the expected amount of functional currency cash flows upon settlement of the transaction. That increase or decrease in expected functional currency cash flows is a foreign currency transaction gain or loss that generally shall be included in determining net income for the period in which the exchange rate changes. Likewise, a transaction gain or loss (measured from the transaction date or the most recent intervening balance sheet date, whichever is later) realized upon settlement of a foreign currency transaction generally shall be included in determining net income for the period in which the transaction is settled. The exceptions to this requirement for inclusion in net income of transaction gains and losses pertain to certain intercompany transactions and to transactions that are designated as, and effective as, economic hedges of net investments and foreign currency commitments.  Pursuant to Section 830-20-25 of the FASB Accounting Standards Codification, the following shall apply to all foreign currency transactions of an enterprise and its investees: (a) at the date the transaction is recognized, each asset, liability, revenue, expense, gain, or loss arising from the transaction shall be measured and recorded in the functional currency of the recording entity by use of the exchange rate in effect at that date as defined in section 830-10-20 of the FASB Accounting Standards Codification; and (b) at each balance sheet date, recorded balances that are denominated in currencies other than the functional currency or reporting currency of the recording entity shall be adjusted to reflect the current exchange rate.




F-14




Income Tax Provision


The Company adopted the provisions of paragraph 740-10-25-13 of the FASB Accounting Standards Codification. Paragraph 740-10-25-13.addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements.  Under paragraph 740-10-25-13, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position.  The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent (50%) likelihood of being realized upon ultimate settlement.  Paragraph 740-10-25-13 also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures.  The Company had no material adjustments to its liabilities for unrecognized income tax benefits according to the provisions of paragraph 740-10-25-13.


The estimated future tax effects of temporary differences between the tax basis of assets and liabilities are reported in the accompanying consolidated balance sheets, as well as tax credit carry-backs and carry-forwards. The Company periodically reviews the recoverability of deferred tax assets recorded on its consolidated balance sheets and provides valuation allowances as management deems necessary.


Management makes judgments as to the interpretation of the tax laws that might be challenged upon an audit and cause changes to previous estimates of tax liability. In addition, the Company operates within multiple taxing jurisdictions and is subject to audit in these jurisdictions. In management’s opinion, adequate provisions for income taxes have been made for all years. If actual taxable income by tax jurisdiction varies from estimates, additional allowances or reversals of reserves may be necessary.


Uncertain Tax Positions


The Company did not take any uncertain tax positions and had no adjustments to its income tax liabilities or benefits pursuant to the provisions of Section 740-10-25 for the year ended December 31, 2011 or 2010.


Limitation on Utilization of NOLs due to Change in Control


Pursuant to the Internal Revenue Code Section 382 (“Section 382”), certain ownership changes may subject the NOL’s to annual limitations which could reduce or defer the NOL.  Section 382 imposes limitations on a corporation’s ability to utilize NOLs if it experiences an “ownership change.”  In general terms, an ownership change may result from transactions increasing the ownership of certain stockholders in the stock of a corporation by more than 50 percentage points over a three-year period.  In the event of an ownership change, utilization of the NOLs would be subject to an annual limitation under Section 382 determined by multiplying the value of its stock at the time of the ownership change by the applicable long-term tax-exempt rate. Any unused annual limitation may be carried over to later years.  The imposition of this limitation on its ability to use the NOLs to offset future taxable income could cause the Company to pay U.S. federal income taxes earlier than if such limitation were not in effect and could cause such NOLs to expire unused, reducing or eliminating the benefit of such NOLs.


Foreign Currency Translation


The Company follows Section 830-10-45 of the FASB Accounting Standards Codification (“Section 830-10-45”) for foreign currency translation to translate the financial statements of the foreign subsidiary from the functional currency, generally the local currency, into U.S. Dollars.  Section 830-10-45 sets out the guidance relating to how a reporting entity determines the functional currency of a foreign



F-15




entity (including of a foreign entity in a highly inflationary economy), re-measures the books of record (if necessary), and characterizes transaction gains and losses. the assets, liabilities, and operations of a foreign entity shall be measured using the functional currency of that entity. An entity’s functional currency is the currency of the primary economic environment in which the entity operates; normally, that is the currency of the environment, or local currency, in which an entity primarily generates and expends cash.


The functional currency of each foreign subsidiary is determined based on management’s judgment and involves consideration of all relevant economic facts and circumstances affecting the subsidiary. Generally, the currency in which the subsidiary transacts a majority of its transactions, including billings, financing, payroll and other expenditures, would be considered the functional currency, but any dependency upon the parent and the nature of the subsidiary’s operations must also be considered.  If a subsidiary’s functional currency is deemed to be the local currency, then any gain or loss associated with the translation of that subsidiary’s financial statements is included in accumulated other comprehensive income. However, if the functional currency is deemed to be the U.S. Dollar, then any gain or loss associated with the re-measurement of these financial statements from the local currency to the functional currency would be included in the consolidated statements of income and comprehensive income (loss). If the Company disposes of foreign subsidiaries, then any cumulative translation gains or losses would be recorded into the consolidated statements of income and comprehensive income (loss).  If the Company determines that there has been a change in the functional currency of a subsidiary to the U.S. Dollar, any translation gains or losses arising after the date of change would be included within the statement of income and comprehensive income (loss).


Based on an assessment of the factors discussed above, the management of the Company determined the relevant subsidiary’s local currency to be the functional currency for its foreign subsidiary.


The financial records of the Company’s Polish operating subsidiary, Auxillium Spółka zograniczoną odpowiedzialnością, are maintained in their local currency, the Polish Zolty (PLN), which is the functional currency.  Assets and liabilities are translated from the local currency into the reporting currency, U.S. dollars, at the exchange rate prevailing at the balance sheet date.  Revenues and expenses are translated at weighted average exchange rates for the period to approximate translation at the exchange rates prevailing at the dates those elements are recognized in the consolidated financial statements.  Foreign currency translation gain (loss) resulting from the process of translating the local currency financial statements into U.S. dollars are included in determining accumulated other comprehensive income in the consolidated statement of stockholders’ equity.


Unless otherwise noted, the rate presented below per U.S. $1.00 was the midpoint of the interbank rate as quoted by OANDA Corporation (www.oanda.com) contained in its consolidated financial statements.  Management believes that the difference between PLN vs. U.S. dollar exchange rate quoted by the National Bank of Poland (“NBP”) and PLN vs. U.S. dollar exchange rate reported by OANDA Corporation were immaterial.  Translations do not imply that the PLN amounts actually represent, or have been or could be converted into, equivalent amounts in U.S. dollars.  Translation of amounts from PLN into U.S. dollars has been made at the following exchange rates for the respective periods:

 

December 31, 2011

 

 

July 11,

2011

 

 

 

 

 

 

 

 

 

Balance sheet

 

3.2501

 

 

 

2.7838

 

 

 

 

 

 

 

 

 

Statement of operations and comprehensive income (loss)

 

2.9259

 

 

 

 

 



F-16







Net gains and losses resulting from foreign exchange transactions, if any, are included in the Company’s consolidated statements of operations and comprehensive income (loss).


Comprehensive Income (Loss)


The Company applies section 220-10-45 of the FASB Accounting Standards Codification. This statement establishes rules for the reporting of comprehensive income and its components.  Comprehensive income (loss), for the Company, consists of net income (loss) and foreign currency translation adjustments and is presented in the Company’s Consolidated Statements of Operations and Comprehensive Income (Loss) and Stockholders’ Equity.


Net Income (Loss) per Common Share


Net income (loss) per common share is computed pursuant to section 260-10-45 of the FASB Accounting Standards Codification.   Basic net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period.  Diluted net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of shares of common stock and potentially outstanding shares of common stock during the period to reflect the potential dilution that could occur from common shares issuable through contingent shares issuance arrangement, stock options or warrants.


There were no potentially outstanding dilutive shares for the year ended December 31, 2011 or 2010.


Cash Flows Reporting


The Company adopted paragraph 230-10-45-24 of the FASB Accounting Standards Codification for cash flows reporting, classifies cash receipts and payments according to whether they stem from operating, investing, or financing activities and provides definitions of each category, and uses the indirect or reconciliation method (“Indirect method”) as defined by paragraph 230-10-45-25 of the FASB Accounting Standards Codification to report net cash flow from operating activities by adjusting net income to reconcile it to net cash flow from operating activities by removing the effects of (a) all deferrals of past operating cash receipts and payments and all accruals of expected future operating cash receipts and payments and (b) all items that are included in net income that do not affect operating cash receipts and payments.  The Company reports the reporting currency equivalent of foreign currency cash flows, using the current exchange rate at the time of the cash flows and the effect of exchange rate changes on cash held in foreign currencies is reported as a separate item in the reconciliation of beginning and ending balances of cash and cash equivalents and separately provides information about investing and financing activities not resulting in cash receipts or payments in the period pursuant to paragraph 830-230-45-1 of the FASB Accounting Standards Codification.


Subsequent Events


The Company follows the guidance in Section 855-10-50 of the FASB Accounting Standards Codification for the disclosure of subsequent events. The Company will evaluate subsequent events through the date when the financial statements were issued.  Pursuant to ASU 2010-09 of the FASB Accounting Standards Codification, the Company as an SEC filer considers its financial statements issued when they are widely distributed to users, such as through filing them on EDGAR.


Recently Issued Accounting Pronouncements



F-17





FASB Accounting Standards Update No. 2011-05


In June 2011, the FASB issued the FASB Accounting Standards Update No. 2011-05 “Comprehensive Income” (“ASU 2011-05”), which was the result of a joint project with the IASB and amends the guidance in ASC 220, Comprehensive Income, by eliminating the option to present components of other comprehensive income (OCI) in the statement of stockholders’ equity. Instead, the new guidance now gives entities the option to present all non-owner changes in stockholders’ equity either as a single continuous statement of comprehensive income or as two separate but consecutive statements. Regardless of whether an entity chooses to present comprehensive income in a single continuous statement or in two separate but consecutive statements, the amendments require entities to present all reclassification adjustments from OCI to net income on the face of the statement of comprehensive income.


The amendments in this Update should be applied retrospectively and are effective for public entity for fiscal years, and interim periods within those years, beginning after December 15, 2011.


FASB Accounting Standards Update No. 2011-08


In September 2011, the FASB issued the FASB Accounting Standards Update No. 2011-08 “Intangibles—Goodwill and Other: Testing Goodwill for Impairment” (“ASU 2011-08”). This Update is to simplify how public and nonpublic entities test goodwill for impairment. The amendments permit an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in Topic 350. Under the amendments in this Update, an entity is not required to calculate the fair value of a reporting unit unless the entity determines that it is more likely than not that its fair value is less than its carrying amount.


The guidance is effective for interim and annual periods beginning on or after December 15, 2011. Early adoption is permitted.


FASB Accounting Standards Update No. 2011-10


In December 2011, the FASB issued the FASB Accounting Standards Update No. 2011-10 “Property, Plant and Equipment: Derecognition of in Substance Real Estate-a Scope Clarification” (“ASU 2011-09”). This Update is to resolve the diversity in practice as to how financial statements have been reflecting circumstances when parent company reporting entities cease to have controlling financial interests in subsidiaries that are in substance real estate, where the situation arises as a result of default on nonrecourse debt of the subsidiaries.


The amended guidance is effective for annual reporting periods ending after June 15, 2012 for public entities. Early adoption is permitted.


FASB Accounting Standards Update No. 2011-11


In December 2011, the FASB issued the FASB Accounting Standards Update No. 2011-11 “Balance Sheet: Disclosures about Offsetting Assets and Liabilities” (“ASU 2011-11”). This Update requires an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. The objective of this disclosure is to facilitate comparison between those entities that prepare their financial statements on the basis of U.S. GAAP and those entities that prepare their financial statements on the basis of IFRS.



F-18





The amended guidance is effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods.


FASB Accounting Standards Update No. 2011-12


In December 2011, the FASB issued the FASB Accounting Standards Update No. 2011-12 “Comprehensive Income:  Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05” (“ASU 2011-12”). This Update is a deferral of the effective date pertaining to reclassification adjustments out of accumulated other comprehensive income in ASU 2011-05. FASB is to going to reassess the costs and benefits of those provisions in ASU 2011-05 related to reclassifications out of accumulated other comprehensive income. Due to the time required to properly make such a reassessment and to evaluate alternative presentation formats, the FASB decided that it is necessary to reinstate the requirements for the presentation of reclassifications out of accumulated other comprehensive income that were in place before the issuance of Update 2011-05.


All other requirements in Update 2011-05 are not affected by this Update, including the requirement to report comprehensive income either in a single continuous financial statement or in two separate but consecutive financial statements. Public entities should apply these requirements for fiscal years, and interim periods within those years, beginning after December 15, 2011.


Management does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying consolidated financial statements.


Note 3 – Going Concern


The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business.


As reflected in the accompanying consolidated financial statements, the Company had a deficit accumulated during the exploration stage at December 31, 2011, a net loss and net cash used in operating activities for the year then ended. These factors raise substantial doubt about the Company’s ability to continue as a going concern.


While the Company is attempting to commence explorations and generate sufficient revenues, the Company’s cash position may not be sufficient enough to support the Company’s daily operations.  Management intends to raise additional funds by way of a public or private offering.  Management believes that the actions presently being taken to further implement its strategy and generate sufficient revenues provide the opportunity for the Company to continue as a going concern.  While the Company believes in the viability of its strategy to commence explorations and generate sufficient revenues and in its ability to raise additional funds, there can be no assurances to that effect.  The ability of the Company to continue as a going concern is dependent upon the Company’s ability to further implement its strategy and generate sufficient revenues.


The consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.




F-19




Note 4 – Oil and Gas Properties


Oil and Gas Properties in the State of Alaska


On August 29, 2011, Auxillium Alaska, Inc. (“Auxillium Alaska”) agreed to buy and Union Energy (Alaska), LLC, (“Union”) agreed to sell 100% of Union’s right, title and interest in the certain oil and gas leases (“Leases” or “Properties”) at Union’s costs incurred to date of $95,295 within 90 days of the date hereof and to pay the State of Alaska Department of Natural Resources aggregating $24,000 on or before the due date of September 1, 2011.  Union will deliver to Auxillium Alaska an 81.25% Net Revenue Interest in the Leases and retain a 6.25% overriding royalty interest on additional oil and gas leasehold acquired or purchased by Auxillium Alaska within the Prospect Area of Mutual Interest (“AMI”) with the remaining 12.5% as royalty interest to be paid to the State of Alaska.  Auxillium Alaska and Union will be subject to the AMI relating to the Properties. Union assigned 100% of its right, title and interest in the Properties at closing on August 29, 2011 and Funds will be wired from Auxillium Alaska to Union within 90 days of closing or the Leases shall revert to Union and any expenses paid by Auxillium Alaska shall be forfeited.


On August 31, 2011, the Company paid the $24,000 due to the State of Alaska under the two leases.


On December 28, 2011, Auxillium Alaska paid the $95,295 to Union.


Note 5 – Related Party Transactions


Advances from Stockholders


From time to time, stockholders of the Company advance funds to the Company for working capital purpose. Those advances are unsecured, non-interest bearing and due on demand.


Advances from stockholders at December 31, 2011 and December 31, 2010 consisted of the following:


 

 

 

December 31,

2011

 

 

December 31,

2010

 

 

 

 

 

 

 

 

 

 

Advances from stockholder and officer

 

$

42,632

 

 

$

-

 

 

 

 

 

 

 

 

 

 

Advances from former stockholder and officer

 

 

-

 

 

 

170

*

 

 

 

 

 

 

 

 

 

 

 

$

42,632

 

 

$

170

 


* On April 1, 2011 as part of the change in control the former sole shareholder and officer agreed to forgive debt outstanding to him totaling $170 which has been recorded as contributed capital.


The major stockholder and officer advanced $42,632 to the Company and no repayment has been made towards these advances for the period from July 1, 2011 through December 31, 2011.


Note 6 – Stockholders’ Deficit


Shares Authorized




F-20




Upon formation the total number of shares of common stock which the Company is authorized to issue is Seventy Five Million (75,000,000) shares, par value $.001 per share.


Common Stock


On December 24, 2009, the Company issued 10,000,000 shares of common stock at par ($0.001 per share) for total cash proceeds of $10,000.


In May and June 2010, the Company issued 1,690,000 shares of common stock at $0.01 per share for total cash proceeds of $16,900.  In July and August 2010, the Company issues 740,000 shares of common stock at $0.01 per share for total cash proceeds of $7,400.


In December 2011, the Company issued 1,000,000 shares of its common stock at $0.15 per share to two (2) investors for total cash proceeds of $150,000.


Additional Paid-in Capital


On April 1, 2011, as part of the change in control the former sole stockholder and officer agreed to forgive debt outstanding to him totaling $170 which have been recorded as contributed capital.


Note 7 – Income Tax Provision


Deferred Tax Assets


At December 31, 2011, the Company has available for federal income tax purposes a net operating loss (“NOL”) carry-forwards of $98,843 that may be used to offset future taxable income through the fiscal year ending December 31, 2031.  No tax benefit has been reported with respect to these net operating loss carry-forwards in the accompanying financial statements since the Company believes that the realization of its net deferred tax asset of approximately $33,607 was not considered more likely than not and accordingly, the potential tax benefits of the net loss carry-forwards are offset by the full valuation allowance.


Deferred tax assets consist primarily of the tax effect of NOL carry-forwards.  The Company has provided a full valuation allowance on the deferred tax assets because of the uncertainty regarding its realizability.  The valuation allowance increased approximately $24,132 and $9,417 for the year ended December 31, 2011 and 2010, respectively.


Components of deferred tax assets as of December 31, 2011 and 2010 are as follows:


 

 

December 31,

2011

 

 

December 31,

2010

 

 

 

 

 

 

 

 

 

 

Net deferred tax assets – Non-current:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expected income tax benefit from NOL carry-forwards

 

$

33,607

 

 

$

9,475

 

 

 

 

 

 

 

 

 

 

Less valuation allowance

 

 

(33,607

)

 

 

(9,475

)

 

 

 

 

 

 

 

 

 

Deferred tax assets, net of valuation allowance

 

$

-

 

 

$

-

 





F-21




Income Tax Provision in the Consolidated Statements of Operations


A reconciliation of the federal statutory income tax rate and the effective income tax rate as a percentage of income before income taxes is as follows:


 

 

For the Year

Ended

December 31, 2011

 

 

For the Year

 Ended

December 31, 2010

 

 

 

 

 

 

 

 

 

 

Federal statutory income tax rate

 

 

34.0

%

 

 

34.0

%

 

 

 

 

 

 

 

 

 

Change in valuation allowance on net operating loss carry-forwards

 

 

(34.0

)

 

 

(34.0

)

 

 

 

 

 

 

 

 

 

Effective income tax rate

 

 

0.0

%

 

 

0.0

%


Note 8 – Subsequent Events


The Company has evaluated all events that occurred after the balance sheet date through the date when the financial statements were issued to determine if they must be reported.  The Management of the Company determined that there were no reportable subsequent events to be disclosed.



F-22




ITEM 9.  CHANGES in and DISAGREEMENTS with ACCOUNTANTS on ACCOUNTING and FINANCIAL DISCLOSURE.


None.


ITEM 9A(T).  CONTROLS and PROCEDURES.


Disclosure Controls and Procedures


We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) that are designed to ensure that information that would be required to be disclosed in Exchange Act reports is recorded, processed, summarized and reported within the time period specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including to our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.


As required by Rule 13a-15 under the Exchange Act, our management, including Warmond Fang, our chief executive officer and chief financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2011.  Based on that evaluation, Mr. Wang concluded that as of December 31, 2011, and as of the date that the evaluation of the effectiveness of our disclosure controls and procedures was completed, our disclosure controls and procedures were not effective to satisfy the objectives for which they are intended.


Management’s Annual Report on Internal Control over Financial Reporting


Section 404 of the Sarbanes-Oxley Act of 2002 requires that management document and test the Company’s internal control over financial reporting and include in this Annual Report on Form 10-K a report on management’s assessment of the effectiveness of our internal control over financial reporting.


Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) of the Exchange Act.  Under the supervision and with the participation of our management, including James Wang, our chief executive officer and chief financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based upon the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).  Based on that evaluation, our management concluded that our internal control over financial reporting is not effective, as of December 31, 2011. This was due to deficiencies that existed in the design or operation of our internal control over financial reporting that adversely affected our internal controls and that may be considered to be material weaknesses.


The matters involving internal control over financial reporting that our management considered to be material weaknesses under the standards of the Public Company Accounting Oversight Board were: (1) lack of a functioning audit committee due to a lack of a majority of independent members and a lack of a majority of outside directors on our board of directors, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures; (2) inadequate segregation of duties consistent with control objectives of having segregation of the initiation of transactions, the recording of transactions and the custody of assets; and (3) ineffective controls over period end financial disclosure and reporting processes.  The aforementioned material weaknesses were identified by our Chief Executive Officer and Chief Financial Officer in connection with the review of our financial statements as of December 31, 2011.


To address the material weaknesses set forth in items (2) and (3) discussed above, management performed additional analyses and other procedures to ensure that the financial statements included herein fairly



26




present, in all material respects, our financial position, results of operations and cash flows for the periods presented.


This annual report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting.  Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only management’s report in this annual report.


Management's Remediation Initiatives


In an effort to remediate the identified material weaknesses and other deficiencies and enhance our internal controls, we have initiated, or plan to initiate, the following series of measures:


We will increase our personnel resources and technical accounting expertise within the accounting function when funds are available to us. First, we will create a position to segregate duties consistent with control objectives of having separate individuals perform (i) the initiation of transactions, (ii) the recording of transactions and (iii) the custody of assets. Second, we will create a senior position to focus on financial reporting and standardizing and documenting our accounting procedures with the goal of increasing the effectiveness of the internal controls in preventing and detecting misstatements of accounting information. Third, we plan to appoint one or more outside directors to our board of directors who shall be appointed to an audit committee resulting in a fully functioning audit committee who will undertake the oversight in the establishment and monitoring of required internal controls and procedures such as reviewing and approving estimates and assumptions made by management when funds are available to us.


Management believes that the appointment of one or more outside directors, who shall be appointed to a fully functioning audit committee, will remedy the lack of a functioning audit committee and a lack of a majority of outside directors on our Board.


We anticipate that these initiatives will be at least partially, if not fully, implemented by December 31, 2012. Additionally, we plan to test our updated controls and remediate our deficiencies by December 31, 2012.


ITEM 9B.  OTHER INFORMATION.


We do not have any information that was required to be reported on Form 8-K during the fourth quarter.



PART III


ITEM 10.DIRECTORS, EXECUTIVE OFFICERS and CORPORATE GOVERNANCE.


Our directors and officers as of December 31, 2011 are:


Name

Age

Titles

Warmond Fang

30

CEO, President and a Director

Jatinder S. Bhogal

45

Director

Frank J. Hariton

63

Secretary

 

Warmond Fang.  Mr. Fang holds a Bachelors degree (Honors) in Political Science from York University and a Masters Degree (Honors with Distinction) in International Relations from the University of Hong



27




Kong. Mr. Fang has also undertook advanced academic studies in Chinese foreign policy, political economy and business law at Peking University. Since 2001 Mr. Fang has been president and CEO of Armega International Group, in the hospitality industry. In 2005, Mr. Fang served as Business Development Consultant for Yunnan Daphne Pharmaceuticals where he managed overseas product marketing and development. From 2007 to 2008, Mr. Fang served as President and CEO of Dongguan Armega Education Consulting, providing translation/interpreting services, language training, and education consulting services to government, as well as domestic and foreign private enterprises operating in China.


Jatinder S. Bhogal.  Since December 1993, Mr. Bhogal has worked as an independent business consultant to emerging growth companies. For nearly 20 years, Mr. Bhogal has provided early business development guidance and consulting to companies developing healthcare services, medical devices, pharmaceuticals and vaccines, solar-photovoltaics, biofuels, information technology solutions, strategic minerals, and conventional oil and gas.  Mr. Bhogal is also a Director of NDB Energy, Inc. and New Energy Technologies, Inc


Frank J. Hariton.  Mr. Hariton is an attorney in private practice in New York State.  Mr. Hariton has been Secretary of Petrocorp Inc., an OTCQB listed oil and gas exploration company, since 2007.  Mr. Hariton received his BA (1971) and JD (1974) from Case Western Reserve University.


Neither Mr. Fang nor Mr. Hariton has an employment agreement with the Registrant


Family Relationships

There are no family relationships, or other arrangements or understandings between or among any of the directors, executive officers or other person pursuant to which such person was selected to serve as a director or officer.  


Involvement in certain legal proceedings


Our directors, executive officers and control persons have not been involved in any of the following events during the past five years:


·

any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;


·

any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);


·

being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; or


·

being found by a court of competent jurisdiction (in a civil action), the Securities and Exchange Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated.


Term of Office


The term of office of the current directors shall continue until new directors are elected or appointed at an annual meeting of shareholders.


Committees of the Board and Financial Expert



28





We do not have a separately-designated audit or compensation committee of the Board or any other Board-designated committee. Audit and compensation committee functions are performed by our Board of Directors. We will form such committees in the future as the need for such committees may arise. In addition, at this time we have determined that we do not have an “audit committee financial expert” as defined by the SEC on our Board.


Code of Ethics


Due to its small size, the Company has not adopted a code of ethics.  The Company will adopt a code of ethics for our senior officers, including our principal executive officer, principal financial officer, principal accounting officer or controller and any person who may perform similar functions.  As required by SEC rules, we will report the nature of any change or waiver of our code of ethics.


ITEM 11.EXECUTIVE COMPENSATION.


Compensation of Executive Officers


Executive Compensation


The following table sets forth all compensation earned during the year ended December 31, 2011 and 2010 of our two executive officer. We refer to all of these officers collectively as our “named executive officers”.


Summary Compensation Table

Name and

Principal

Position




Year



Salary

($)



Bonus

($)


Stock

Awards

($)


Option Awards

($)

Non-Equity

Incentive Plan

Compensation ($)

Other Compensation

($)


All other Compensation

($)



Total

($)

Warmund Fang- CEO

12/31/10

12/31/11

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

Frank Hariton*- Secretary

12/31/10

12/31/11

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0


* Mr. Hariton is paid a retainer of $1,500 a month for legal services, but is not compensated for serving as secretary.


Compensation of Directors


The Company has no standard arrangements in place or currently contemplated to compensate the Company’s directors for their service as directors or as members of any committee of directors.


Employment Agreements


We do not have employment agreements with any of our executive officers or directors.  We have verbal understandings with our executive officers regarding monthly retainers and reimbursement for actual out-of-pocket expenses.


Termination of Employment




29




There are no compensatory plans or arrangements, including payments to be received from the Company, with respect to any person named in the Summary Compensation Table set forth above that would in any way result in payments to any such person because of his or her resignation, retirement or other termination of such person’s employment with us.


Indemnification of Directors and Executive Officers and Limitation of Liability


Nevada law generally permits us to indemnify our directors, officers, employees and agents. Pursuant to the provisions of Nevada Revised Statutes 78.7502, we, as a corporation organized in Nevada, may indemnify our directors, officers, employees and agents in accordance with the following:


(a)  A corporation may indemnify any person who was or is a party or is threatened to be made a party to any action, except an action by or in the right of the corporation, by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation, against expenses, actually and reasonably incurred by him in connection with the action, suit or proceeding if he: (a) is not liable for breach of his fiduciary duties as a director or officer pursuant to Nevada Revised Statutes 78.138; or (b) acted in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful.


(b)  A corporation may indemnify any person who was or is a party or is threatened to be made a party to any action by or in the right of the corporation to procure a judgment in its favor, by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation against expenses actually and reasonably incurred by him in connection with the defense or settlement of the action or suit if he: (a) is not liable for breach of his fiduciary duties pursuant to Nevada Revised Statutes 78.138; or (b) acted in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation. Indemnification may not be made for any claim, issue or matter as to which such a person has been adjudged by a court of competent jurisdiction, after exhaustion of all appeals there from, to be liable to the corporation or for amounts paid in settlement to the corporation, unless and only to the extent that the court in which the action or suit was brought or other court of competent jurisdiction determines upon application that in view of all the circumstances of the case, the person is fairly and reasonably entitled to indemnity for such expenses as the court deems proper.


(c)  To the extent that a director, officer, employee or agent of a corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding, or in defense of any claim, issue or matter therein, the corporation shall indemnify him against expenses, including attorneys’ fees, actually and reasonably incurred by him in connection with the defense.


Charter Provisions, Bylaws and Other Arrangements of the Registrant


Our Certificate of Incorporation, as amended, does not contain any specific language enhancing or limiting the Nevada statutory provisions referred to above.


Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy and is, therefore, unenforceable.





30




ITEM 12.SECURITY OWNERSHIP of CERTAIN BENEFICIAL OWNERS and MANAGEMENT and RELATED STOCKHOLDER MATTERS.

Security Ownership of Certain Beneficial Owners


The following table sets forth, as of December 31, 2011, the stock ownership of (i) each of our named executive officers and directors, (ii) all executive officers and directors as a group, and (iii) each person known by us to be a beneficial owner of 5% or more of our common stock.  No person listed below has any option, warrant or other right to acquire additional securities from us, except as may be otherwise noted.  We believe that all persons named in the table have sole voting and investment power with respect to all shares of common stock beneficially owned by them except as stated therein.


Name and Address of

Beneficial Owner

Amount and Nature of

Beneficial Ownership

Percentage

of Class

Warmond Fang

6021 Yonge Street - Suite 1011

Toronto, Ontario

Canada M2M 3W2

10,000,000 shares - Direct

74.6%

Jatinder S. Bhogal

6021 Yonge Street - Suite 1011

Toronto, Ontario

Canada M2M 3W2

500,000 shares - Direct

3.7%

Frank J. Hariton

1065 Dobbs Ferry Road

White Plains, NY 10607

-0-

-0- %

All officers and directors as a group (3 persons)

10,500,000 shares

78.3%



Changes in Control


We know of no contractual arrangements which may at a subsequent date result in a change of control in the Company.


ITEM 13.CERTAIN RELATIONSHIPS and RELATED TRANSACTIONS, and DIRECTOR INDEPENDENCE.


There were no related party transactions during the year ended December 31, 2011


Director Independence

We believe that the following director of our company is considered “independent” under Rule 400(a)(15) of the National Association of Securities Dealers listing standards:  Jatinder S. Bhogal.


ITEM 14.PRINCIPAL ACCOUNTANT FEES and SERVICES.


Audit Fees


The aggregate fees billed by the Company’s auditors for professional services rendered in connection with the audit of the Company’s annual financial statements in the Company’s Form 10-K and reviews of the financial statements included in the Company’s Form 10-Q or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements was $10,000 to Li & Company, PC, our current independent registered public accounting firm and $5,500 to Chang Park, our



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previous independent registered public accounting firm for fiscal year ended December 31, 2011 and $8,950 to Chang Park, our previous independent registered public accounting firm for fiscal year ended December 31, 2010 .


Tax Compliance Services


$800 to Chang G. Park, CPA.


Pre-approval of All Services from the Independent Auditors


Effective May 6, 2003, the Securities and Exchange Commission adopted rules that require that before our auditor is engaged by us or our subsidiaries to render any auditing or permitted non-audit related service, the engagement be:


 

-

approved by our audit committee; or

 

-

entered into pursuant to pre-approval policies and procedures established by the audit committee, provided the policies and procedures are detailed as to the particular service, the audit committee is informed of each service, and such policies and procedures do not include delegation of the audit committee's responsibilities to management.


We do not have an audit committee, however our board of directors acts as the audit committee, established pre-approval policies and procedures as to the particular service which do not include delegation of the audit committee's responsibilities to management. Our board of directors pre-approves all services provided by our independent auditors and is informed of each service. 



PART IV


ITEM 15.  EXHIBITS and FINANCIAL STATEMENT SCHEDULES


Exhibit No.

Description

3.1

Articles of Incorporation, incorporated by reference to like numbered exhibit filed with the Registrant’s registration statement on Form S-1 filed February 26, 2010.

3.2

By –Laws * incorporated by reference to like numbered exhibit filed with the Registrant’s registration statement on Form S-1 filed February 26, 2010.

22.1

Subsidiaries; Auxillium Alaska, Inc. (a 100% owned Alaskan corporation) and Auxillium Spółka zograniczoną odpowiedzialnością, (a 100% owned Polish corporation)

31.1

Certification of the Chief Executive Officer pursuant to Rule 13a-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2

 Certification of the Chief Financial Officer pursuant to Rule 13a-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1

Certifications of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2

Certifications of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002



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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this  amended report to be signed on its behalf by the undersigned, thereunto duly authorized.


  

  

SELGA INC.

  

  

  

  January 16, 2013

By:

/s/ Warmond  Fang

  

  

Warmond Fang

  

  

Chief Executive Officer (Principal Executive, financial and accounting Officer)



Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature

Title

Date

 

 

 

/s/ Warmond Fang

Warmond Fang

Chairman of the Board, Director

and Chief Executive Officer

January 16, 2013

 

 

 

/s/ Jatinder S. Bhogal

Jatinder S. Bhogal

Director

January 16, 2013




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