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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

ý  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended November 30, 2013

 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. 000-52892

Sara Creek Gold Corp.
(Exact name of registrant as specified in its charter)

Nevada
98-0511130
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)

326 S. Pacific Coast Highway, Suite 102
Redondo Beach CA
 
90277
(Address of principal executive offices)
(Zip Code)

Registrant’s telephone number, including area code: (310) 316-3623

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 past 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.
ý Yes     No
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
ý Yes     No (Not required)

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  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                                    ý

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).   Yes    ý No

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date:
32,561,983 shares of common stock as of January 13, 2014.



 
1

 

SARA CREEK GOLD CORP.
FOR THE FISCAL QUARTER ENDED
November 30, 2013

INDEX TO FORM 10-Q

 
PART I
 
Page
     
Item 1
Condensed Financial Statements (Unaudited)
3
Item 2
Management’s Discussion and Analysis of Financial Condition and
Results of Operations
15
Item 3
Quantitative and Qualitative Disclosures About Market Risk
20
Item 4
Controls and Procedures
20
     
PART II
   
     
Item 1
Legal Proceedings
22
Item 1A
Risk Factors
22
Item 2
Unregistered Sales of Equity Securities and Use of Proceeds
22
Item 3
Defaults Upon Senior Securities
22
Item 4
Mine Safety Disclosures
22
Item 5
Other Information
22
Item 6
Exhibits
22
 
Signatures
23
 
 
 
 

 
 
2

 
 
PART I

Item 1
Financial Statements

SARA CREEK GOLD CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
             
   
November 30, 2013
   
August 31, 2013
 
 ASSETS
           
             
Current assets:
           
Cash
  $ 18,793     $ 8,298  
Accounts receivable
    21,780       18,755  
Inventory
    3,637       7,064  
Prepaid expenses
    363       2,658  
Total current assets
    44,573       36,775  
                 
Fixed assets:
               
Machinery and equipment, net of accumulated
               
depreciation of $16,191 and $15,179, respecitvely
    12,144       13,156  
                 
Other assets:
               
Capitalized oil and gas properties, net of accumulated
               
depletion of $64,760 and $59,878, respectively
    319,208       297,590  
                 
Deposits
    5,000       -  
                 
Total assets
  $ 380,925     $ 347,521  
                 
                 
LIABILITIES AND STOCKHOLDERS' DEFICIT
         
                 
Current liabilities:
               
Accounts payable and accrued expenses
  $ 139,178     $ 31,018  
Net profits interest payable, current portion
    12,414       12,109  
Total current liabilities
    151,592       43,127  
                 
Long term liabilities:
               
Loans payable to related parties
    90,205       89,833  
Asset retirement obligations
    105,494       103,299  
Net profits interest payable, long term portion
    109,267       112,488  
Total long term liabilities
    304,966       305,620  
                 
Total liabilities
    456,558       348,747  
                 
Stockholders' deficit:
               
Common stock; $0.001 par value; 750,000,000
               
shares authorized, 25,961,985
               
shares issued and outstanding
    25,962       -  
Common stock payable
    2,000       -  
Additional paid in capital
    323,664       350,000  
Accumulated deficit
    (427,259 )     (351,226 )
Total stockholders' deficit
    (75,633 )     (1,226 )
                 
Total liabilities and stockholders' deficit
  $ 380,925     $ 347,521  
 
The accompanying notes are an integral part of these financial statements.
 
 
3

 
 
SARA CREEK GOLD CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
   
For the Three Months Ended
 
   
November 30, 2013
   
November 30, 2012
 
             
Revenue:
           
Oil revenues
  $ 25,764     $ 23,425  
                 
Expenses:
               
Direct operating costs
    12,972       12,294  
Depletion, depreciation and amortization
    8,110       7,557  
Professional fees
    71,071       1,117  
General and administrative expenses
    6,231       794  
Total expenses
    98,384       21,762  
                 
Net operating (loss) income
    (72,620 )     1,663  
                 
Other expense:
               
Interest expense
    3,413       3,319  
Total other expense
    3,413       3,319  
                 
Loss before income taxes
    (76,033 )     (1,656 )
Provision for income taxes
    -       -  
                 
Net loss
  $ (76,033 )   $ (1,656 )
                 
Net loss per common share - basic and diluted
  $ -     $ -  
                 
Weighted average common shares outstanding -
               
basic and diluted
    17,654,293       5,264,862  
 
The accompanying notes are an integral part of these financial statements.
 
 
4

 
 
SARA CREEK GOLD CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
   
For the Three Months Ended
 
   
November 30, 2013
   
November 30, 2012
 
             
Cash flows from operating activities:
           
Net loss
  $ (76,033 )   $ (1,656 )
Depletion, depreciation and amortization
    5,915       5,534  
Accretion of asset retirement obligation
    2,195       2,023  
Accretion of net profits interest liability
    3,041       3,319  
Adjustments to reconcile net loss to net
               
cash used in operating activities:
               
Accounts receivable
    (1,493 )     (3,352 )
Inventory
    3,427       4,279  
Prepaid expenses
    2,295       919  
Accounts payable and accrued expenses
    71,101       (3,096 )
Net cash provided by operating activities
    10,448       7,970  
               
Cash flows from investing activities:
               
Cash acquired in acquisition
    6,004       -  
Net cash provided by financing activities
    6,004       -  
                 
Cash flows from financing activities:
               
Payments on net profits interest agreement
    (5,957 )     (6,040 )
Net cash provided by (used in) financing activities
    (5,957 )     (6,040 )
   
#REF!
         
Net change in cash
    10,495       1,930  
                 
Cash, beginning
    8,298       7,822  
                 
Cash, end
  $ 18,793     $ 9,752  
                 
Supplemental disclosure of cash flow information:
               
Interest paid
  $ 3,041     $ 3,319  
 
The accompanying notes are an integral part of these financial statements.
 
 
5

 
 
SARA CREEK GOLD CORP.
CONDENSED STATEMENT OF STOCKHOLDERS' (DEFICIT)
 (Unaudited)
 
                                           
                                           
         
 
                           
Total
 
   
Common Stock
   
Common Stock Payable
   
Additional
   
Accumulated
   
Stockholders'
 
   
Shares
   
Amount
   
Shares
   
Amount
   
Paid-in Capital
   
(Deficit)
   
(Deficit)
 
                                           
 Balance, August 31, 2012
    -     $ -       -     $ -     $ 350,000     $ (309,235 )   $ 40,765  
Net loss
                                    -       (41,991 )     (41,991 )
 Balance, August 31, 2013
    -       -       -       -       350,000       (351,226 )     (1,226 )
Recapitalization on completion of acquisition
of SCNRG
    25,961,985       25,962       2,000,000       2,000       (26,336 )     -       1,626  
Net loss
    -       -       -       -       -       (76,033 )     (76,033 )
 Balance, November 30, 2013
    25,961,985     $ 25,962       2,000,000     $ 2,000     $ 323,664     $ (427,259 )   $ (75,633 )
 
 
 
 
 
 
 
6

 
 
SARA CREEK GOLD CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED NOVEMBER 30, 2013
UNAUDITED
 
 
1.           DESCRIPTION OF BUSINESS

Sara Creek Gold Corp. (“we”, “our”, “us”, “SCGC” or “the Company”) was incorporated under the laws of the State of Nevada on June 12, 2006, under the name of Uventus Technologies Corp. On September 23, 2009, we merged with our wholly owned subsidiary and changed our name to Sara Creek Gold Corp.
 
On October 25, 2013, we closed on the Agreement and Plan of Reorganization with SCNRG, LLC (“SCNRG”), a California limited liability company, whereby we acquired 100% of the membership interest in SCNRG, resulting in SCNRG becoming a wholly-owned subsidiary of SCGC, in exchange for 14.0 million shares of our common stock issued to the members of SCNRG.  For accounting purposes, the acquisition of SCNRG by SCGC has been accounted for as a recapitalization of SCGC.  Accordingly, SCNRG is considered the acquirer for accounting purposes and thus, the historical financial statements are SCNRG’s, consolidated with SCGC’s beginning October 25, 2013.  As a result of this transaction, SCGC changed its business direction and is now in the oil and gas industry.  
 
2.           SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Basis of Presentation
 
The accompanying unaudited interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the rules and regulations of the United States Securities and Exchange Commission (“SEC”) for interim financial information.
 
The unaudited interim financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K filed with the SEC on November 29, 2013, which contains the audited financial statements and notes thereto for the year ended August 31, 2013 for SCGC.  Additionally, the Company’s Amendment No. 1 to Current Report on Form 8-K/A filed with the SEC on December 24, 2013, contains the audited financial statements and notes thereto for the years ended August 31, 2013 and 2012 for SCNRG.
 
Certain information or footnote disclosures normally included in financial statements prepared in accordance with GAAP have been omitted, pursuant to the rules and regulations of the SEC for interim financial reporting.  Accordingly, they do not include all the information and footnotes necessary for a comprehensive presentation of financial position, results of operations, or cash flows.  It is management's opinion, however, that all material adjustments (consisting of normal recurring adjustments) have been made which are necessary for a fair financial statement presentation.  The interim results for the three months ended November 30, 2013 are not necessarily indicative of results for the full fiscal year.
 
Principles of Consolidation

The acquisition of SCNRG by SCGC on October 25, 2013, has been accounted for as a recapitalization of SCGC and SCNRG is considered the acquirer for accounting purposes.  Therefore, our condensed consolidated financial statements include the historic accounts of SCNRG, and from the date of our acquisition of SCNRG on October 25, 2013, include the accounts of SCGC.  All significant intercompany balances and transactions have been eliminated.
 
Use of Estimates
 
The preparation of financial statements in conformity with 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 reported amounts of revenues and expenses during the reporting period.  Significant estimates included in the financial statements are: (1) depreciation and depletion; (2) accrued assets and liabilities; (3) asset retirement obligations; and (4) net profits interest payable.  Although management believes these estimates are reasonable, changes in facts and circumstances or discovery of new information may result in revised estimates.  Actual results could differ from those estimates.
 
 
7

 
 
SARA CREEK GOLD CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED NOVEMBER 30, 2013
UNAUDITED
 
 
2.           SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
 
Financial Instruments
 
Financial instruments consist of cash, accounts receivable, accounts payable and notes payable. Recorded values of cash, receivables, accounts payable and accrued liabilities approximate fair values due to the short maturities of such instruments.  Recorded values for notes payable approximate fair values, since their stated or imputed interest rates are commensurate with prevailing market rates for similar obligations.
 
Oil Properties
 
We follow the full-cost method of accounting under which all costs associated with property acquisition, exploration and development activities are capitalized. We also capitalize internal costs that can be directly identified with our acquisition, and exploration and development activities.  We do not capitalize any costs related to production, general corporate overhead or similar activities.  Surface equipment on a property is also part of the amounts capitalized.
 
Under the full-cost method, capitalized costs are depleted (amortized) on a composite unit-of-production method based on proved oil reserves.  If we maintain the same level of production year over year, the depletion expense may be significantly different if our estimate of remaining reserves changes significantly. Proceeds from the sale of properties are accounted for as reductions of capitalized costs unless such sales involve a significant change in the relationship between costs and the value of proved reserves or the underlying value of unproved properties, in which case a gain or loss is recognized. The costs of unproved properties are excluded from amortization until the properties are evaluated.  We review all of our unevaluated properties quarterly to determine whether or not and to what extent proved reserves have been assigned to the properties, and if impairment has occurred. Unevaluated properties are assessed individually when individual costs are significant.
 
We review the carrying value of our oil properties under the full-cost accounting rules of the SEC on a quarterly basis. This quarterly review is referred to as a ceiling test. Under the ceiling test, capitalized costs, less accumulated amortization and related deferred income taxes, may not exceed an amount equal to the sum of the present value of estimated future net revenues (adjusted for cash flow hedges) less estimated future expenditures to be incurred in developing and producing the proved reserves, less any related income tax effects. In calculating future net revenues, current SEC regulations require us to utilize prices at the end of the appropriate quarterly period. Such prices are utilized except where different prices are fixed and determinable from applicable contracts for the remaining term of those contracts, including the effects of derivatives qualifying as cash flow hedges. Two primary factors impacting this test are reserve levels and current prices, and their associated impact on the present value of estimated future net revenues. Revisions to estimates of oil reserves and/or an increase or decrease in prices can have a material impact on the present value of estimated future net revenues. Any excess of the net book value, less deferred income taxes, is generally written off as an expense. Under SEC regulations, the excess above the ceiling is not expensed (or is reduced) if, subsequent to the end of the period, but prior to the release of the financial statements, oil prices increase sufficiently such that an excess above the ceiling would have been eliminated (or reduced) if the increased prices were used in the calculations.
 
The estimates of proved crude oil reserves utilized in the preparation of the financial statements are estimated in accordance with guidelines established by the SEC and the Financial Accounting Standards Board (“FASB”), which require that reserve estimates be prepared under existing economic and operating conditions using a 12-month average price with no provision for price and cost escalations in future years except by contractual arrangements. Actual results could differ materially from these estimates. 
 
 
8

 
 
SARA CREEK GOLD CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED NOVEMBER 30, 2013
UNAUDITED

 
2.           SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
 
Long-Lived Assets
 
Impairment of long-lived assets is recorded when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying value.  The carrying value of the assets is then reduced to their estimated fair value that is usually measured based on an estimate of future discounted cash flows.
 
Asset Retirement Obligations
 
Asset retirement obligations relate to the plug and abandonment costs when our wells are no longer useful, and for the cost of removing related surface facilities. We determine the value of the liability by reviewing operator estimates and estimate the increase we will face in the future. We then discount the future value based on an intrinsic interest rate that is appropriate for us. If costs rise more than what we have expected there could be additional charges in the future, however, on a quarterly basis we monitor the costs of the abandoned wells and adjust this liability if necessary.
 
Revenue Recognition
 
Oil revenues are recognized net of royalties when production is sold to a purchaser at a fixed or determinable price, when title has transferred, and if collection of the revenue is probable.
 
Net Profits Interest
 
A Net Profits Interest (“NPI”) on the DEEP property calls for 40% of the net cash flow, as defined in the Assignment of Net Profit Interest (see Note 6), to be paid each month to the owner of the NPI.  If net cash flow is negative, such losses carry forward to be deducted against future positive net cash flow.  There is a minimum monthly payment of $1,985 (SCNRG’s 66.67% share).  Payments are required until SCNRG’s NPI payments total between $231,345 and $238,285 (the actual maximum amount within this range dependent on when SCNRG satisfies its aggregate NPI payment obligations) has been paid on or before December 31, 2022.  As of November 30, 2013, SCNRG has made NPI payments totaling $67,588.
 
Given its terminating nature, the discounted present value of the minimum monthly NPI payments, based on a discount rate of 10.0% per annum, was recorded as a liability at SCNRG’s December 1, 2009 acquisition date of the DEEP property.
 
Concentrations
 
Pursuant to a January 13, 2010 Crude Oil Purchase Contract between the DEEP operator and Plains Marketing L.P. (“PMLP”), all production from the DEEP property is sold to PMLP. The initial term of the agreement was for one year, expiring on December 31, 2010, and was automatically renewed for an additional one-year term that expired on December 31, 2011. Since January 1, 2012, the agreement has continued on a month-to-month basis and is cancellable upon thirty day’s written notice by either party.
 
New Accounting Pronouncements
 
There are no recent accounting pronouncements that are expected to have a material effect on the Company’s financial statements.
 
 
9

 
 
SARA CREEK GOLD CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED NOVEMBER 30, 2013
UNAUDITED
 
 
3.           ACQUISITION OF SCNRG

As described in Note 1, on October 25, 2013, we acquired 100% of the membership interest in SCNRG, resulting in SCNRG becoming a wholly-owned subsidiary of the SCGC, in exchange for 14.0 million shares of our common stock issued to the members of SCNRG.  For accounting purposes, the acquisition of SCNRG by SCGC has been accounted for as a recapitalization of SCGC.   Accordingly, SCNRG is considered the acquirer for accounting purposes and thus, the historical financial statements are SCNRG’s, consolidated with SCGC’s beginning October 25, 2013.  
 
The 14.0 million common shares issued by SCGC had an aggregate par value of $14,000.  The net assets acquired by SCNRG as the accounting acquirer were:
 
Cash
  $ 6,004  
Accounts receivable
    1,553  
Oil properties
 
26,500
 
Deposit
    5,000  
Accounts payable and accrued liabilities
    (37,431 )
Net assets acquired
  $ 1,626  
 
The difference between the par value of the common shares issued and the net assets acquired was recorded in additional paid-in capital.
 
The following table presents unaudited pro forma consolidated information, adjusted for the acquisition of the SCGC, as if the acquisition had occurred on September 1, 2012:
 
   
Three Months Ended
November 30,
 
   
2013
   
2012
 
Revenue
  $ 28,097     $ 23,425  
Net loss
  $ (87,473 )   $ (13,875 )
Loss per share
  $ --     $ --  
 
These amounts have been calculated after applying our accounting policies and adjusting the results to reflect the recapitalization of SCGC.  The unaudited pro forma adjustments are based on available information and certain assumptions we believe are reasonable.
 
4.           LOANS PAYABLE, RELATED PARTY
 
SCNRG received various loans from its former members from its inception totaling $90,205 and $89,833 as of November 30, 2013 and August 31, 2013, respectively. Each loan was originally unsecured, non-interest bearing and due on demand. On September 18, 2013, each loan was formalized through the issuance of an amended and restated promissory note to each former member. The amended and restated promissory notes are unsecured, bear interest at a rate of 1.66% per annum and mature no later than September 18, 2018. The unpaid principal and interest are payable upon the earlier of their maturity or upon the issuance of new debt or equity securities in a transaction or series of transactions resulting in aggregate gross proceeds to Sara Creek of a minimum of $5 million.  Sara Creek assumed these loans payable upon its acquisition of SCNRG on October 25, 2013.
 
 
10

 
 
SARA CREEK GOLD CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED NOVEMBER 30, 2013
UNAUDITED
 
 
4.           LOANS PAYABLE, RELATED PARTY - CONTINUED
 
Loans from related parties consist of the following at November 30, 2013 and August 31, 2013:
 
   
November 30, 2013
   
August 31, 2013
 
Darren Katic
  $ 38,500     $ 38,500  
Manhattan Holdings, LLC
    38,500       38,500  
Gerald Tywoniuk
    12,833       12,833  
Total long-term term loans
    89,833       89,833  
Accrued interest payable
    372       -  
Less current portion
    -       -  
Long-term loans from related parties
  $ 90,205     $ 89,833  

5.           ASSET RETIREMENT OBLIGATION
 
Our asset retirement obligations relate to the abandonment of oil wells and related surface facilities. The amounts recognized are based on numerous estimates and assumptions, including future retirement costs, inflation rates and credit adjusted risk-free interest rates.
 
The following shows the changes in asset retirement obligations:
 
   
2013
   
2012
 
Asset retirement obligations, August 31
  $ 103,299     $ 95,206  
Liabilities incurred during the period
    -       -  
Liabilities settled during the period
    -       -  
Accretion
    2,195       2,023  
Asset retirement obligations, November 30
  $ 105,494     $ 97,229  
 
6.           NET PROFITS INTEREST (“NPI”) PAYABLE
 
In connection with SCNRG’s December 1, 2009 Purchase and Sale Agreement for DEEP, and as part of the purchase price consideration, SCNRG entered into an Assignment of Net Profit Interest with Christian Hall Petroleum. Pursuant to the agreement, SCNRG is required to make monthly payments to the holder in an amount equal to 40% of SCNRG’s share of net profit (as defined in the agreement) from production, with a stated minimum payment of not less than $1,985 per month (SCNRG’s 66.67% share), for a period of twelve years commencing on January 1, 2011 and expiring December 31, 2022.  Payments are required until NPI payments total between $231,345 and $238,285 (the actual maximum amount within this range dependent on when SCNRG satisfies the aggregate NPI payment obligations).  The discounted present value of the NPI, utilizing a discount rate of 10% per annum, was recorded on December 1, 2009 in the amount of $135,466. As of November 30, 2013, SCNRG has made NPI payments totaling $67,588.
 
Changes in the NPI liability are as follows:
 
   
2013
   
2012
 
NPI liability, August 31
  $ 124,597     $ 135,640  
Accretion recorded during the period
    3,041       3,319  
Payments made during the period
    (5,957 )     (6,040 )
NPI liability, November 30
  $ 121,681     $ 132,919  
 
The current portion is $12,414 and $12,109 respectively at November 30, 2013, and August 31, 2013.
 
 
11

 
 
SARA CREEK GOLD CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED NOVEMBER 30, 2013
UNAUDITED
 
 
7.           FAIR VALUE MEASUREMENTS
 
We hold certain financial assets, which are required to be measured at fair value on a recurring basis in accordance with the Statement of Financial Accounting Standard No. 157, “Fair Value Measurements” (“ASC Topic 820-10”).   ASC Topic 820-10 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).  ASC Topic 820-10 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability.
 
The three levels of the fair value hierarchy under ASC Topic 820-10 are described below:
 
 
o
Level 1 - Valuations based on quoted prices in active markets for identical assets or liabilities that an entity has the ability to access.  We believe receivables, payables and our loans approximate fair value at August 31, 2013.
 
 
o
Level 2 - Valuations based on quoted prices for similar assets or liabilities, quoted prices for identical assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities.
 
 
o
Level 3 - Valuations based on inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. We consider depleting assets, asset retirement obligations and net profit interest liability to be Level 3. We determine the fair value of Level 3 assets and liabilities utilizing various inputs, including oil price quotations and contract terms. 
 
   
Fair Value Measurement
 
 November 30, 2013
 
Level 1
   
Level 2
   
Level 3
 
  Capitalized oil and gas properties
 
$
-
   
$
-
   
$
319,208
 
  Net profit interest liability
   
-
     
-
     
(121,681
)
  Asset retirement obligation
   
-
     
-
     
(105,494
)
Total
 
$
-
   
$
-
   
$
92,033
 
 
8.           COMMITMENTS AND CONTINGENCIES
 
Commitments
 
Pursuant to SCNRG’s December 1, 2009 Purchase and Sale Agreement, oil production from the DEEP property is subject to a 1% overriding royalty.  Additionally, production is also subject to an aggregate additional 19.92% royalty for total royalties of 20.92%.
 
Further, in connection with the aforementioned agreement, SCNRG has entered into an Operating Agreement with Caleco, LLC (“Caleco”) for a term equal to the life of the wells.  Caleco owns a 16.83% working interest in DEEP, which is subject to a purchase option described in Note 11, Subsequent Events.  As the operator, Caleco incurs production and other costs, which are subsequently billed to SCNRG through a joint interest billing process; and the operator distributes to SCNRG its share of revenue received from production, less royalties and NPI obligations. All expenses and revenue presented by the operator represent the pro rata share of the revenue earned and expenses incurred.  In accordance with the terms of the agreement, the operator is entitled to a fee for services but has instead elected to bill SCNRG based on actual time and materials.
 
12

 
 
SARA CREEK GOLD CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED NOVEMBER 30, 2013
UNAUDITED

 
8.           COMMITMENTS AND CONTINGENCIES - CONTINUED
 
Contingencies
 
We are subject to various federal, state and local laws and regulations relating to discharge of materials into, and protection of, the environment. These laws and regulations may, among other things, impose liability on the owners for the cost of pollution cleanup resulting from operations and subject the owners to liability for pollution damages. In some instances, the operator may be directed to suspend or cease operations in the affected area.  As of November 30, 2013, and August 31, 2013, we have no reserve for environmental remediation and are not aware of any environmental claims.
 
9.           STOCKHOLDERS’ (DEFICIT)
 
Three Months Ended November 30, 2013
 
On October 25, 2013, the Company issued 14,000,000 shares of its common stock to the members of SCNRG for 100% of the membership interests in SCNRG.

As described in Note 1, the acquisition of SCNRG by SCGC has been accounted for as a recapitalization of SCGC for accounting purposes.

10.           RELATED PARTY TRANSACTIONS
 
On January 1, 2014, we exercised our option to acquire all of the membership interests in Hawker Energy, LLC, a California limited liability company (“Hawker”), from Darren Katic and Charles Moore (collectively the “Sellers”).  We issued 3,000,000 shares of our common to the Sellers as consideration for the acquisition, 1,500,000 shares to each Seller.  We may be required to issue up to an additional 33,000,000 shares to Sellers upon SCGC or Hawker achieving certain milestones. (See Note 11).  Mr. Katic is a director and our Chief Executive Officer and Chief Financial Officer.  He was a member of SCNRG, LLC, which we acquired on October 25, 2013, and at which point Mr. Katic became a director, officer and a significant shareholder of SCGC.
 
The Hawker option was originally entered into with Sara Creek on October 15, 2013 and amended on November 20, 2013 to (a) extend the term of the option, (b) revise the option consideration payable upon consummation of certain transactions described in the Agreement and (c) provide for additional option consideration in the event of the consummation of certain transactions not previously contemplated by the parties.
 
On January 10, 2014, Darren Katic, one of the sellers of SCNRG and a director and officer and significant shareholder of SCGC, purchased 380,000 units of SCGC for $38,000, Manhattan Holdings, LLC, one of the sellers of SCNRG and a significant shareholder of SCGC, acquired 900,000 units of SCGC for $90,000, and Gerald Tywoniuk, also one of the sellers of SCNRG, purchased 500,000 units of SCGC for $50,000.  All of these amounts are a portion of the monies we raised described in “Note 11-Subsequent Events” below.  Each unit is comprised of one share of our common stock, together with a warrant to acquire an additional one-half share of our common stock at $0.20 per share.  The warrants expire five years from the closing date.   The price of each unit was $0.10 per unit.
 
 
13

 
 
SARA CREEK GOLD CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED NOVEMBER 30, 2013
UNAUDITED
 
  
11.           SUBSEQUENT EVENTS

Acquisition of Hawker Energy, LLC
 
On January 1, 2014, we exercised our option to acquire all of the membership interests in Hawker from Darren Katic and Charles Moore (collectively the “Sellers”).  We issued 3,000,000 shares of our common to the Sellers as consideration for the acquisition, 1,500,000 shares to each Seller.  We may be required to issue up to an additional 33,000,000 shares to Sellers upon SCGC or Hawker achieving certain milestones as described below.  Mr. Katic is a director of SCGC, our Chief Executive Officer and Chief Financial Officer, and a significant shareholder of SCGC.
 
Hawker is a California-based independent development-stage oil company focused on identifying and evaluating low-risk developmental opportunities in proven oil reserves in existing oil fields. Over the last two years, Hawker has assembled an inventory of potential development opportunities. Hawker, through its wholly-owned subsidiary Punta Gorda Resources, LLC, claims developmental rights of certain mineral rights of coastal lease PRC 145.1 just offshore Ventura County in the Rincon Field and ownership rights to an associated on-shore drilling and production site. This lease is subject to 24.5% in overriding royalties, primarily to the State of California. A single active well on PRC 145.1 has historically produced between 5 and 15 barrels of oil per day (gross production before royalties). This lease has ten other non-active wells, one or more of which may be recompleted or re-drilled. All rights claimed by Hawker to PRC 145.1 are being challenged in court by the lease’s operator of record -- Case No. 56-2013-00440672-CU-BC-VTA pending in Ventura County Superior Court.
 
Sellers may be entitled to additional shares of our common stock upon the following terms:
 
(a) 2,000,000 shares of our common stock shall be issued upon our or Hawker’s acquisition of California Oil Independents (or certain oil and gas interests held by it located in the Monroe Swell Field, Monterey, California);
 
(b) 2,000,000 shares of our common stock shall be issued upon our or Hawker’s acquisition of a participation in South Coast Oil – Huntington Beach (or the oil and gas interests held by it);
 
(c) 5,000,000 shares of our common stock shall be issued upon our or Hawker’s acquisition of the Midway-Sunset Lease oil and gas interests held by Christian Hall (or affiliates);
 
(d) 10,000,000 shares of our common stock shall be issued upon our or Hawker’s acquisition TEG Oil & Gas, Inc. (or certain oil and gas interests held by it located in the Tapia Field, Los Angeles County, California);
 
(e) 7,000,000 shares of our common stock shall be issued upon the conveyance to us or Hawker of certain assets and rights regarding PRC 145.1 Lease held by Rincon Island Limited Partnership or settlement in lieu of such conveyance; and
 
(f) 7,000,000 shares of our common stock shall be issued upon the conveyance to us or Hawker of certain mineral rights regarding PRC 427 Lease held by ExxonMobil.
 
Sale of common stock and warrant units
 
On January 10, 2014, we closed a private placement of 3,600,000 units for gross proceeds of $360,000.  No commissions were paid or are payable.  The price of each unit was $0.10.  Each unit is comprised of one share of our common stock, together with a warrant to acquire an additional one-half share of our common stock at $0.20 per share.  The warrants expire five years from the closing date.
 
Acquisition of remaining interest in the DEEP Lease
 
Our wholly-owned subsidiary SCNRG is in the process of closing on its option to acquire the remaining one-third working interest in the DEEP Lease for $325,000, which would bring SCNRG’s working interest to 100%.   The operator, Caleco, LLC, will continue to operate the DEEP Lease on our behalf during a transitional period.  We expect to complete this acquisition in January 2014.
 
 
14

 
 
Item 2     Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and plan of operations should be read in conjunction with our unaudited interim financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q.  Various statements have been made herein that may constitute “forward-looking statements”.  Forward-looking statements may also be made in the Company’s other reports filed with or furnished to the United States Securities and Exchange Commission (the “SEC”) and in other documents.  In addition, the Company through its management may make oral forward-looking statements.

Forward-looking statements are subject to risks and uncertainties which could cause actual results to differ materially from such statements.  The words “believe,” “expect,” “anticipate,” “optimistic,” “intend,” “plan,” “aim,” “will,” “may,” “should,” “could,” “would,” “likely” and similar expressions are intended to identify forward-looking statements.  These statements are not guarantees of future performance, and therefore, you should not put undue reliance upon them.  Some of the statements that are forward-looking include: our ability to successfully implement our business plan; our estimates of revenues and of other expenses associated with our operations; our ability to explore and develop our properties; our reserve estimates; and our ability to generate sufficient cash flows and maintain adequate sources of liquidity to finance our ongoing operations and capital expenditures.  The Company undertakes no obligation to update or revise any forward-looking statements.

History and Overview

Sara Creek Gold Corp. (“Sara Creek”, the “Company”, “we”, “us” or “our”) was incorporated under the laws of the State of Nevada on June 12, 2006, under the name of Uventus Technologies Corp.  On September 23, 2009, we merged with our wholly-owned subsidiary and changed our name to Sara Creek Gold Corp.  On October 25, 2013, pursuant to an Agreement and Plan of Reorganization (the “Agreement”), we acquired SCNRG, LLC, a California limited liability company (“SCNRG”).

As a result of our acquisition of SCNRG, SCNRG became a wholly-owned subsidiary of Sara Creek.  However, for accounting purposes SCNRG is deemed to be the acquirer. Pursuant to the Agreement, the members of the SCNRG exchanged 100% of their membership interests in exchange for 14.0 million common shares of Sara Creek, an amount that constituted a majority of the common shares outstanding and a majority of the total diluted common share count immediately following the closing.
 
Accordingly, going forward, the consolidated financial statements of Sara Creek, including its wholly-owned subsidiary SCNRG, will consist of SCNRG’s historical results consolidated with Sara Creek’s results beginning October 25, 2013. For example, for the first fiscal quarter ended November 30, 2013 (which is disclosed in this report), the condensed consolidated financial statements of Sara Creek, including its wholly-owned subsidiary SCNRG, consist of SCNRG’s results for the three months ended November 30, 2013, consolidated with Sara Creek’s results beginning October 25, 2013, compared to SCNRG’s historical results for the three months ended November 30, 2012.
 
We are now in the oil and gas exploitation business and our goal is to acquire and develop mature leases, interests and other rights to oil and gas producing properties with proven undeveloped potential.  We expect to change our name in 2014 to reflect our new business focus.
 
Recent Developments – Three Months Ended November 30, 2013

ACQUISITION OF SCNRG
 
On October 25, 2013, we acquired SCNRG in exchange for 14.0 million shares of our common stock. As a result of the acquisition, SCNRG has become our wholly-owned subsidiary.
 
SCNRG owns a two-thirds working interest in an oil producing property known as the DEEP Lease (also referred to as “DEEP” or the “DEEP property”). At the date of our acquisition of SCNRG, it held an option to purchase the remaining one-third working interest in the DEEP Lease prior to December 31, 2013 for an aggregate price of $325,000.  We are in the process of closing on our option to acquire the remaining one-third working interest, which we expect to complete in January 2014.
 
The DEEP Lease consists of 40 gross acres of land including both surface and mineral rights located within the Midway-Sunset oil field.  Midway-Sunset is a very large oil field in Kern County, San Joaquin Valley, California. Discovered in 1894, and having a cumulative production of close to 3 billion barrels of oil through the end of 2006, it is the largest oil field in California and the third largest in the United States. Wells drilled in the Midway-Sunset oil field produce primarily 13° to 15° API gravity oil from numerous productive semi-consolidated Miocene sands, ranging in depth from 1,400’ to approximately 3,500’. The productive intervals in the DEEP Lease are the Monarch sand at about 1,600’, and the Top Oil sand at about 1,450’. Both sands are characterized with above-average permeability (.5 Darcy to 2 Darcies) and porosity (25% to 35%), and low water saturation (under 35%). The net Top Oil thickness averages about 35’, and the Monarch thickness averages about 80’.
 
 
15

 
 
Oil production on the DEEP Lease is subject to a 20.92% overriding royalty interest.  In addition, in connection with SCNRG’s December 1, 2009 Purchase and Sale Agreement whereby it acquired DEEP, and as part of the purchase price consideration, SCNRG entered into an Assignment of Net Profit Interest with Christian Hall Petroleum. Pursuant to the agreement, SCNRG is required to make monthly payments to the holder in an amount equal to 40% of its share of net profit (as defined in the agreement) from production, with a stated minimum payment of not less than $1,985 per month, for a period of twelve years commencing on January 1, 2011 and expiring December 31, 2022. Payments are required until our NPI payments total between $231,345 and $238,285 (the actual maximum amount within this range dependent on when SCNRG satisfies the aggregate NPI payment obligations). As of November 30, 2013, SCNRG has made NPI payments totaling $67,588.  The discounted present value of the NPI is shown as a liability on SCNRG’s financial statements in the amount of $121,681 at November 30, 2013.  All of these amounts represent SCNRG’s two-thirds working interest in the DEEP Lease as of November 30, 2013 (which increases to 100% upon SCNRG’s expected closing of its acquisition of the remaining one-third working interest in January 2014 as described above).
 
As further described in our Annual Report on Form 10-K for the year ended August 31, 2013, our 66.67% share of the net proved reserves at that date from the DEEP Lease were 178,500 barrels, of which 1,900 barrels were proved producing reserves and 176,600 barrels were proved undeveloped reserves.  The present value (at a 10% discount rate) of our 66.67% share was $3.3 million, of which $0.1 million was from the proved developed reserves and $3.2 million was from the proved undeveloped reserves.  The property has development potential both from the existing wellbores, together with twelve additional proved undeveloped gross well locations.
 
Net oil sales from our 66.67% share of the DEEP Lease to our account (after royalties) from the current three (gross) producing wells averaged 2.7 net barrels per day for the three months ended November 30, 2013, and realized $91.12 per barrel before royalties to produce net revenues of $24,165 after royalties.
 
Subsequent Events to November 30, 2013

Acquisition of Hawker Energy, LLC
 
On January 1, 2014, we exercised our option to acquire all of the membership interests in Hawker Energy, LLC, a California limited liability company (“Hawker”), from Darren Katic and Charles Moore (collectively the “Sellers”).  We issued 3,000,000 shares of our common to the Sellers as consideration for the acquisition and, as described below, may be required to issue up to an additional 33,000,000 shares of our common stock to the Sellers upon us or Hawker achieving certain milestones.  Mr. Katic is a director and our Chief Executive Officer and Chief Financial Officer.  He was a member of SCNRG, LLC, which we acquired on October 25, 2013 and at which point Mr. Katic became a director, officer and significant shareholder of Sara Creek.
 
Hawker is a California-based independent development-stage oil company focused on identifying and evaluating low-risk developmental opportunities in proven oil reserves in existing oil fields. Over the last two years, Hawker has assembled an inventory of potential development opportunities. Hawker, through its wholly-owned subsidiary Punta Gorda Resources, LLC, claims developmental rights of certain mineral rights of coastal lease PRC 145.1 just offshore Ventura County in the Rincon Field and ownership rights to an associated on-shore drilling and production site. This lease is subject to 24.5% in overriding royalties, primarily to the State of California. A single active well on PRC 145.1 has historically produced between 5 and 15 barrels of oil per day (gross production before royalties). This lease has ten other non-active wells, one or more of which may be recompleted or re-drilled. All rights claimed by Hawker to PRC 145.1 are being challenged in court by the lease’s operator of record -- Case No. 56-2013-00440672-CU-BC-VTA pending in Ventura County Superior Court (see Part II, Item 1, “Legal Proceedings”).
 
Sellers may be entitled to additional shares of our common stock upon the following terms:
 
(a) 2,000,000 shares of our common stock shall be issued upon our or Hawker’s acquisition of California Oil Independents (or certain oil and gas interests held by it located in the Monroe Swell Field, Monterey, California);
 
(b) 2,000,000 shares of our common stock shall be issued upon our or Hawker’s acquisition of a participation in South Coast Oil – Huntington Beach (or the oil and gas interests held by it);
 
(c) 5,000,000 shares of our common stock shall be issued upon our or Hawker’s acquisition of the Midway-Sunset Lease oil and gas interests held by Christian Hall (or affiliates);
 
(d) 10,000,000 shares of our common stock shall be issued upon our or Hawker’s acquisition of TEG Oil & Gas, Inc. (or certain oil and gas interests held by it located in the Tapia Field, Los Angeles County, California);
 
(e) 7,000,000 shares of our common stock shall be issued upon the conveyance to us or Hawker of certain assets and rights regarding PRC 145.1 Lease held by Rincon Island Limited Partnership or settlement in lieu of such conveyance; and
 
 
16

 
 
(f) 7,000,000 shares of our common stock shall be issued upon the conveyance to us or Hawker of certain mineral rights regarding PRC 427 Lease held by ExxonMobil.
 
Sale of common stock and warrant units

On January 10, 2014, we closed a private placement of 3,600,000 “Units” for gross proceeds of $360,000.  No commissions were paid or are payable.  The price of each Unit was $0.10.  Each Unit is comprised of one share of our common stock, together with a warrant to acquire an additional one-half share of our common stock on payment of $0.20 per share.  The warrants expire five years from the closing date.

Of the amounts described above, Darren Katic, a director and officer of Sara Creek, purchased 380,000 Units for $38,000, Manhattan Holdings, LLC, a former member of SCNRG and now a significant shareholder of SCGC, purchased 900,000 Units for $90,000, and Gerald Tywoniuk, also a former member of SCNRG purchased 500,000 Units for $50,000.

Acquisition of remaining interest in the DEEP Lease

Our wholly-owned subsidiary SCNRG is expected to close in January 2014 on its option to acquire the remaining one-third working interest in the DEEP Lease for $325,000, bringing SCNRG’s working interest to 100%.   The operator, Caleco, LLC, will continue to operate the DEEP Lease on our behalf until SCNRG qualifies as operator with the State of California.

Results of Operations
 
The following discussion of the financial condition and results of operations should be read in conjunction with the unaudited interim financial statements and related notes appearing elsewhere in this report. This discussion should not be construed to imply that the results discussed herein will necessarily continue into the future, or that any conclusion reached herein will necessarily be indicative of actual operating results in the future.

As noted above, as a result of completion of our acquisition of SCNRG, the condensed consolidated financial statements of Sara Creek, including SCNRG, consist of SCNRG’s historical results consolidated with Sara Creek’s results beginning October 25, 2013, compared to SCNRG’s historical results for the three months ended November 30, 2012.
 
Three months ended November 30, 2013 and 2012

Our net loss of $76,033 in the three months ended November 30, 2013 was largely the result of professional fees incurred to complete our acquisition of SCNRG.  This loss compares to a $1,656 loss in the comparable prior year quarter.

Revenue, direct operating costs and depletion, depreciation and amortization expense were largely unchanged at $25,764, $12,972 and $8,110, respectively, in the quarter ended November 30, 2013, compared to $23,425, $12,294 and $7,557 in the quarter ended November 30, 2012.  Net oil sales from our two-thirds working interest in the DEEP Lease to our account (after royalties) from the current three (gross) producing wells averaged 2.7 net barrels per day for the three months ended November 30, 2013, and realized $91.12 per barrel before royalties to produce net revenues of $24,165 after royalties, with the balance of the oil sales revenue attributable to a 2.5% working interest in the DF#15 well in the Sawtelle Field, Los Angeles.  There was no significant downtime or repairs on the DEEP property in either period.  Revenue, direct operating costs, and depletion, depreciation and amortization expenses vary with oil prices, downtime, repair and other operating costs, expensed workover programs, investments in drilling for new production and proved reserve estimates.
 
Professional fees increased from $1,117 for the three months ended November 30, 2012, to $71,017 for the three months ended November 30, 2013, primarily due to professional fees incurred in connection with the acquisition of, and preparation of audited financial statements for, SCNRG.  Other general and administrative expenses were $6,231 in the current year quarter compared to $794 in the corresponding year ago quarter.  Professional fees can vary substantially from quarter-to-quarter going forward depending on financing activity, business development and property evaluation costs, litigation expenses associated with coastal lease PRC 145.1 and costs associated with being a public company.

Interest expense is primarily accretion of interest on the NPI, and the expense amounted to $3,413 for the quarter ended November 30, 2013 compared to $3,319 a year ago.  This amount will remain relatively constant unless there is a reduction in the expected timeframe for repayment of the NPI which would cause interest accretion to accelerate.
 
 
17

 
 
Cash Flows

Operating Activities

During the nine months ended November 30, 2013, we generated cash in the amount of $10,448 for operating activities, compared to $7,970 in the corresponding year ago quarter.  There was no significant downtime or repairs on the DEEP property in either period.  Although there were significant professional fees, $71,071, in the quarter ended November 30, 2013, related to completion of the acquisition of, and preparation of audited financial statements for, SCNRG, these fees were largely unpaid at the end of the quarter contributing to a large accounts payable balance of $139,178.  We anticipate that these payables will be paid from proceeds from private placements (including the sale of Units described elsewhere in this report) or other financings that we may undertake.

Investing Activities

Completion of the acquisition of SCNRG meant that SCNRG acquired Sara Creek’s cash balance of $6,004.

There were no investing activities for the three months ended November 30, 2012.

Financing Activities

During the three months ended November 30, 2013 and 2012, we paid $5,957 and $6,040, respectively, required under the NPI.

Liquidity and Financial Condition

As of November 30, 2013, we had cash of $18,793, current liabilities of $151,592 and a working capital deficit of $107,019.  During the three months ended November 30, 2013, the Company had a net loss of $76,033, largely attributable to $71,071 in professional fees mostly related to completion of our acquisition of SCNRG.

To date, we have relied on investor capital to fund our operations.  On January 10, 2014, we closed a private placement of 3,600,000 “Units” for gross proceeds of $360,000.  No commissions were paid or are payable.  The price of each Unit was $0.10.  Each Unit is comprised of one share of our common stock, together with a warrant to acquire an additional one-half share of our common stock on payment of $0.20 per share.  The warrants expire five years from the closing date.

We expect to use these proceeds, as well as proceeds from any future closings of private placements or other financings, to settle existing accounts payable, acquire the remaining one-third working interest in the DEEP Lease (which we expect to complete in January 2014), fund our operations over the next year, pursue the Hawker litigation (see Part II, Item 1, “Legal Proceedings”), drill up to two additional wells on the DEEP property and pursue other opportunities.

We presently do not have any available credit, financing or other external sources of liquidity.  In order to obtain future capital, we anticipate needing to sell additional shares of common stock or borrow funds from private lenders.  We have no assurance that future financings will be available to us on acceptable terms. If financing is not available on satisfactory terms, we may be unable to continue, develop, or expand our operations.  Equity financing could result in additional dilution to existing shareholders and any downturn in the U.S. stock and debt markets, or oil prices, is likely to make it more difficult to obtain financing through the issuance of equity or debt securities.  As a result, there can be no assurance that we will be successful in obtaining additional funding.

Even if we are able to raise the funds required, it is possible that operations do not perform as expected, we could incur unexpected costs and expenses, fail to collect significant amounts owed to us, or experience unexpected cash requirements that would force us to seek alternative financing.

Going Concern

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As of November 30, 2013, we had total current assets of $44,573 and a working capital deficit in the amount of $107,019. We incurred a net loss of $76,033 during the three months ended November 30, 2013, and an accumulated net loss of $427,259 since inception of SCNRG.

Management’s business plan for the balance of 2014 is to close the acquisition of the remaining one-third working interest in the DEEP Lease, drill up to two wells on the DEEP property, continue to pursue Hawker’s claim to coastal lease PRC 145.1 (see Part II, Item 1, “Legal Proceedings”), and to pursue other opportunities. We currently do not have sufficient financial resources to fund this plan.  We will also require further financial results to further develop the DEEP Lease, to exploit coastal lease PRC 145.1 and close other opportunities.  We expect to raise additional capital through a combination of equity and debt financing as and when needed.  However, there can be no assurance that we will be successful in raising such financing.

These financial statements do not include adjustments relating to the recoverability and classification of reported asset amounts or the amount and classification of liabilities that might be necessary should we be unable to continue as a going concern. Our continuation as a going concern is dependent upon its ability to obtain additional financing or sale of its common stock as may be required and ultimately to attain profitability.

 
18

 
 
Summary of Significant Accounting Policies
 
Our financial statements and related public financial information are based on the application of accounting principles generally accepted in the United States (“GAAP”). GAAP requires the use of estimates, assumptions, judgments and subjective interpretations of accounting principles that have an impact on the assets, liabilities, revenues and expense amounts reported. These estimates can also affect supplemental information contained in our external disclosures including information regarding contingencies, risk and financial condition. We believe our use of estimates and underlying accounting assumptions adhere to GAAP and are consistently and conservatively applied. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions. We continue to monitor significant estimates made during the preparation of our financial statements.  
 
Our significant accounting policies are summarized in Note 2 of our unaudited interim financial statements contained elsewhere in this report. While all these significant accounting policies impact our financial condition and results of operations, we view certain of these policies as critical. Policies determined to be critical are those policies that have the most significant impact on our financial statements and require management to use a greater degree of judgment and estimates. Actual results may differ from those estimates. Our management believes that given current facts and circumstances, it is unlikely that applying any other reasonable judgments or estimate methodologies would cause effect on our results of operations, financial position or liquidity for the periods presented in this report.
 
We believe the following critical accounting policies and procedures, among others, affect our more significant judgments and estimates used in the preparation of our unaudited interim financial statements:

Oil Properties
 
We follow the full-cost method of accounting under which all costs associated with property acquisition, exploration and development activities are capitalized. We also capitalize internal costs that can be directly identified with our acquisition, and exploration and development activities.  We do not capitalize any costs related to production, general corporate overhead or similar activities.  Surface equipment on a property is also part of the amounts capitalized.

Under the full-cost method, capitalized costs are depleted (amortized) on a composite unit-of-production method based on proved oil reserves.  If we maintain the same level of production year over year, the depletion expense may be significantly different if our estimate of remaining reserves changes significantly. Proceeds from the sale of properties are accounted for as reductions of capitalized costs unless such sales involve a significant change in the relationship between costs and the value of proved reserves or the underlying value of unproved properties, in which case a gain or loss is recognized. The costs of unproved properties are excluded from amortization until the properties are evaluated.  We review all of our unevaluated properties quarterly to determine whether or not and to what extent proved reserves have been assigned to the properties, and if impairment has occurred. Unevaluated properties are assessed individually when individual costs are significant.

We review the carrying value of our oil properties under the full-cost accounting rules of the SEC on a quarterly basis. This quarterly review is referred to as a ceiling test. Under the ceiling test, capitalized costs, less accumulated amortization and related deferred income taxes, may not exceed an amount equal to the sum of the present value of estimated future net revenues (adjusted for cash flow hedges) less estimated future expenditures to be incurred in developing and producing the proved reserves, less any related income tax effects. In calculating future net revenues, current SEC regulations require us to utilize prices at the end of the appropriate quarterly period. Such prices are utilized except where different prices are fixed and determinable from applicable contracts for the remaining term of those contracts, including the effects of derivatives qualifying as cash flow hedges. Two primary factors impacting this test are reserve levels and current prices, and their associated impact on the present value of estimated future net revenues. Revisions to estimates of oil reserves and/or an increase or decrease in prices can have a material impact on the present value of estimated future net revenues. Any excess of the net book value, less deferred income taxes, is generally written off as an expense. Under SEC regulations, the excess above the ceiling is not expensed (or is reduced) if, subsequent to the end of the period, but prior to the release of the financial statements, oil prices increase sufficiently such that an excess above the ceiling would have been eliminated (or reduced) if the increased prices were used in the calculations.

The estimates of proved crude oil reserves utilized in the preparation of the financial statements are estimated in accordance with guidelines established by the SEC and the Financial Accounting Standards Board (“FASB”), which require that reserve estimates be prepared under existing economic and operating conditions using a 12-month average price with no provision for price and cost escalations in future years except by contractual arrangements. Actual results could differ materially from these estimates. 
 
 
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Long-Lived Assets 

Impairment of long-lived assets is recorded when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying value.  The carrying value of the assets is then reduced to their estimated fair value that is usually measured based on an estimate of future discounted cash flows.

Asset Retirement Obligations

Asset retirement obligations relate to the plug and abandonment costs when our wells are no longer useful, and for the cost of removing related surface facilities. We determine the value of the liability by reviewing operator estimates and estimate the increase we will face in the future. We then discount the future value based on an intrinsic interest rate that is appropriate for us. If costs rise more than what we have expected there could be additional charges in the future, however, we monitor the costs of the abandoned wells quarterly and we will adjust this liability if necessary. 

Net Profits Interest

A Net Profits Interest (“NPI”) on the DEEP property calls for 40% of the net cash flow, as defined in the Assignment of Net Profit Interest (see Note 5 of the unaudited financial statements contained in this report), to be paid each month to the owner of the NPI.  If net cash flow is negative, such losses carry forward to be deducted against future positive net cash flow.  There is a minimum monthly payment of $1,985 (SCNRG’s 66.67% share). Payments are required until SCNRG’s NPI payments total between $231,345 and $238,285 (the actual maximum amount within this range dependent on when SCNRG satisfies its aggregate NPI payment obligations) has been paid on or before December 31, 2022.  As of November 30, 2013, SCNRG has made NPI payments totaling $67,588.

Given its terminating nature, the discounted present value of the minimum monthly NPI payments, based on a discount rate of 10.0% per annum, was recorded as a liability at the December 1, 2009, acquisition date of the DEEP property.

Recently Issued Accounting Pronouncements
 
There are no recent accounting pronouncements that are expected to have a material effect on our financial statements.

Off-Balance Sheet Arrangements
 
We do not have any off-balance sheet arrangements, financings, or other relationships with unconsolidated entities or other persons, also known as “special purpose entities” (SPEs).

Item 3
Quantitative and Qualitative Disclosures about Market Risk

Not required for a smaller reporting company.

Item 4
Controls and Procedures

Evaluation of Disclosure Controls and Procedures
 
Our management is responsible for establishing and maintaining a system of disclosure controls and procedures that is designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended (“Exchange Act”), is recorded, processed, summarized and reported, within the time specified in the Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer's management, including its principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
 
As required by Rule 13a-15 under the Exchange Act, as of the end of the period covered by this report, we have carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures. Under the direction of our Chief Executive Officer and Chief Financial Officer, we evaluated our disclosure controls and procedures and internal control over financial reporting and concluded that our disclosure controls and procedures were not effective as of November 30, 2013.
 
Management identified the following material weaknesses:
 
 
1.
Lack of an audit committee, comprised of independent directors, of our Board of Directors, and lack of independent directors on our Board.
 
 
2.
Inadequate number of accounting and finance personnel or consultants sufficiently trained to address some of the complex accounting and financial reporting matters that arise from time-to-time.
 
 
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3.
Lack of control procedures and documentation thereof.
 
As we increase the size and scale of our operations, we intend to remediate the foregoing material weaknesses.
 
Changes in Internal Control over Financial Reporting
 
During the first quarter ended November 30, 2013, there were no changes in our internal control over financial reporting.
 
 
 
 
 

 
 
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PART II

Item 1
Legal Proceedings

Punta Gorda Resources, LLC vs. Windsor Energy Us Corporation, et al., Case No. 56-2013-00440672-CU-BC-VTA, Superior Court of California, Ventura County.  On June 4, 2013, Punta Gorda Resources, LLC (a wholly owned subsidiary of Hawker Energy, LLC) filed a complaint for specific performance, breach of contract and declaratory relief in the United States Bankruptcy Court against the named defendants seeking to compel them to transfer rights and interests provided in a Bankruptcy Court-approved Settlement Agreement concerning coastal lease PRC 145.1 just offshore Ventura County in the Rincon Field.  The complaint was dismissed on procedural grounds and refiled by Punta Gorda in the Ventura County Superior Court.  The Superior Court is in the process of addressing pleading challenges.  No discovery has occurred and trial has not yet been scheduled.  Although we intend to vigorously pursue Punta Gorda’s rights in this case, the outcome of this matter is not determinable as of the date of this report.

Item 1A
Risk Factors

Not applicable.

Item 2
Unregistered Sales of Equity Securities and Use of Proceeds

On January 10, 2014, we closed a private placement of 3,600,000 “Units” for gross proceeds of $360,000.  No commissions were paid or are payable.  The price of each Unit was $0.10.  Each Unit is comprised of one share of our common stock, together with a warrant to acquire an additional one-half share of our common stock on payment of $0.20 per share.  The warrants expire five years from the closing date.

The issuances of the securities described above were made in reliance upon the exemption from registration available under Section 4(2) of the Securities Act of 1933, as amended (“Securities Act”), including Regulation D promulgated thereunder, as transactions not involving a public offering, or pursuant to Regulation S as transactions not requiring registration under Section 5 of the Securities Act. In transactions made in reliance on the exemption from registration, the exemption was claimed on the basis that those transactions did not involve any public offering and the purchasers in each offering were accredited or sophisticated and had sufficient access to the kind of information registration would provide. In transactions made in reliance on Regulation S, the safe harbor from registration was claimed on the basis that they involved an offshore transaction, no directed selling efforts were made in the United States and appropriate offering restrictions were implemented.  In each case, appropriate investment representations were obtained and stock certificates were issued with restrictive legends.

Item 3 
Defaults upon Senior Securities

None. 

Item 4
Mine Safety Disclosures

N/A.

Item 5
Other Information

None.

Item 6
  Exhibits
 
Number
Exhibit
   
10.1     Agreement and Plan of Reorganization dated September 18, 2013 (1)
10.2     Option Agreement dated October 15, 2013 (2)
10.3     Amended and Restated Option Agreement dated November 20, 2013 (3)
31.1
Certification of Principal Executive and Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1
Certification of Principal Executive and Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS*
XBRL Instance Document
101.SCH*
XBRL Taxonomy Extension Schema Document
101.CAL*
XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB*
XBRL Taxonomy Extension Label Linkbase Document
101.PRE*
XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF*
XBRL Taxonomy Extension Definition Linkbase Document
 
(1)  Incorporated by reference to Exhibit 10 of the Company’s Current Report on Form 8-K dated September 23, 2013.
(2)  Incorporated by reference to Exhibit 10 of the Company’s Current Report on Form 8-K dated October 21, 2013.
(3)  Incorporated by reference to Exhibit 10.1 of the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2013.
*  Pursuant to applicable securities laws and regulations, we are deemed to have complied with the reporting obligation relating to the submission of interactive data files in such exhibits and are not subject to liability under any anti-fraud provisions of the federal securities laws as long as we have made a good faith attempt to comply with the submission requirements and promptly amend the interactive data files after becoming aware that the interactive data files fail to comply with the submission requirements. Users of this data are advised that, pursuant to Rule 406T, these interactive data files are deemed not filed and otherwise are not subject to liability.
 
 
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SIGNATURES

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


   
Sara Creek Gold Corp.
     
Date: January 13, 2014
 
/s/ Darren Katic
   
Darren Katic
Chief Executive Officer (Principal Executive Officer) and Chief
Financial Officer (Principal Accounting and Financial Officer)
 
 
 
 
 
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