Attached files
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
Mark One
[X] 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. 333-181042
NORSTRA ENERGY, INC.
(Name of registrant in its charter)
Nevada 27-1833279
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification Number)
1048 West 11th, Spokane, WA, 99204
(Address of principal executive offices) (Zip Code)
(888) 474-8077
(Registrant's telephone number, including area code)
414 Manor Road, Laredo, Texas 78041
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] 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 (ss.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). [X] YES [ ] NO
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a small 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 [X]
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act) [ ] YES [X] NO
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant has filed all documents and reports required to be
filed by Sections 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. [ ] YES [ ] NO
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. 38,250,000 common shares issued
and outstanding as of January 15, 2014.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements 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 24
Item 4. Controls and Procedures 24
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 25
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 25
Item 3 Defaults Upon Senior Securities 25
Item 4. Mine Safety Disclosures 25
Item 5. Other Information 25
Item 6. Exhibits 26
SIGNATURES 28
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Our unaudited interim financial statements for the three and nine month periods
ended November 30, 2013 form part of this quarterly report. They are stated in
United States Dollars (US$) and are prepared in accordance with United States
generally accepted accounting principles.
3
Norstra Energy Inc.
(An Exploration Stage Company)
Condensed Balance Sheets
November 30, February 28,
2013 2013
---------- ----------
(Unaudited)
ASSETS
Current Assets
Cash $ 127,562 $ 99,550
Deposits and prepaid expenses 44,638 6,500
---------- ----------
Total Current Assets 172,200 106,050
---------- ----------
Other Assets
Oil and gas properties, unproved (full cost method) 584,575 19,064
---------- ----------
Total Other Assets 584,575 19,064
---------- ----------
TOTAL ASSETS $ 756,775 $ 125,114
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUTIY (DEFICIT)
LIABILITIES
Current Liabilities
Accounts payable and accrued liabilities $ 76,327 $ 1,113
Due to shareholder 8,274 8,274
---------- ----------
Total Current Liabilities 84,601 9,387
---------- ----------
Long Term Liabilities
Asset retirement obligations 5,560 5,059
Convertible notes payable, net 835,298 100,000
Accrued interest - notes payable 40,945 27
---------- ----------
Total Long Term Liabilities 881,803 105,086
---------- ----------
TOTAL LIABILITIES 966,404 114,473
---------- ----------
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock, par value $0.001, 50,000,000 preferred shares authorized,
1,000,000 and nil shares issued and outstanding, respectively 1,000 --
Common Stock, par value $0.001, 150,000,000 shares authorized, 38,250,000
and 73,763,100 shares issued and outstanding, respectively 38,250 73,763
Additional paid-in capital 220,206 (19,032)
Deficit accumulated during the exploration stage (469,085) (44,090)
---------- ----------
Total Stockholders' Equity (Deficit) (209,629) 10,641
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 756,775 $ 125,114
========== ==========
The accompanying notes are an integral part of
these condensed financial statements.
4
Norstra Energy Inc.
(An Exploration Stage Company)
Condensed Statements of Operations
(Unaudited)
Cumulative
From Inception
(November 12, 2010)
Three Months Ended November 30, Nine Months Ended November 30, to
------------------------------ ------------------------------ November 30,
2013 2012 2013 2012 2013
------------ ------------ ------------ ------------ ------------
REVENUES: $ -- $ -- $ -- $ -- $ --
OPERATING EXPENSES:
General and administrative 29,884 15,071 175,795 26,828 205,000
Accretion expense 167 167 501 500 1,496
Professional fees 80,841 5,000 152,758 11,500 166,621
------------ ------------ ------------ ------------ ------------
TOTAL OPERATING EXPENSES 110,892 20,238 329,054 38,828 373,117
------------ ------------ ------------ ------------ ------------
OTHER EXPENSES
Interest expense (44,616) -- (95,941) -- (95,968)
------------ ------------ ------------ ------------ ------------
NET LOSS $ (155,508) $ (20,238) $ (424,995) $ (38,828) $ (469,085)
============ ============ ============ ============ ============
BASIC AND DILUTED LOSS PER
COMMON SHARE $ (0.00) $ (0.00) $ (0.01) $ (0.00)
============ ============ ============ ============
BASIC WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 38,250,000 73,741,122 39,670,524 54,945,827
============ ============ ============ ============
The accompanying notes are an integral part of
these condensed financial statements.
5
Norstra Energy Inc.
(An Exploration Stage Company)
Condensed Statements of Cash Flows
(Unaudited)
Cumulative
From Inception
(November 12, 2010)
Nine Months Ended November 30, to
------------------------------ November 30,
2013 2012 2013
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss for the period $ (424,995) $ (38,828) $ (469,085)
Adjustments to reconcile net income to
cash generated by operating activities:
Expenses paid on the Company's behalf by a related party -- 6,774 6,774
Accretion expense - oil and gas property 501 500 1,496
Share based compensation 10,000 -- 10,000
Interest on beneficial conversion 55,023 -- 55,023
Changes in operating assets and liabilities:
Deposits and prepaid expenses (38,138) -- (44,638)
Accounts payable and accrued liabilities 75,214 -- 76,327
Accrued interest - notes payable 40,918 -- 40,945
------------ ------------ ------------
NET CASH USED IN OPERATING ACTIVITIES (281,477) (31,554) (323,158)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of oil and gas leases (170,000) -- (185,000)
Capitalized exploration and development costs (395,511) -- (395,511)
------------ ------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (565,511) -- (580,511)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable to related party -- 1,500 6,500
Proceeds from subscription receivable -- 5,000 5,000
Issuance of common stock for cash -- 33,250 44,731
Proceeds from convertible notes payable 875,000 -- 975,000
------------ ------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 875,000 39,750 1,031,231
------------ ------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 28,012 8,196 127,562
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 99,550 177 --
------------ ------------ ------------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 127,562 $ 8,373 $ 127,562
============ ============ ============
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Cash paid for interest $ -- $ -- $ --
============ ============ ============
Cash paid for income taxes $ -- $ -- $ --
============ ============ ============
NON-CASH FINANCING AND INVESTING ACTIVITIES
Stock issued in exchange for forgiveness of related party debt $ -- $ -- $ 5,000
============ ============ ============
Stock subscription receivable $ -- -- 5,000
============ ============ ============
Capitalized asset retirement obligation $ -- $ -- $ 5,226
============ ============ ============
Cancellation of common stock $ 35,513 $ -- $ 35,513
============ ============ ============
Beneficial conversion features on convertible notes payable $ 194,725 $ -- $ 194,725
============ ============ ============
The accompanying notes are an integral part of
these condensed financial statements.
6
Norstra Energy Inc.
(An Exploration Stage Company)
Notes to Condensed Financial Statements
November 30, 2013
(Unaudited)
NOTE 1. ORGANIZATION AND BUSINESS OPERATIONS
NORSTRA ENERGY INC. ("the Company") was incorporated under the laws of the State
of Nevada, U.S. on November 12, 2010. The Company is in the exploration stage as
defined under Accounting Standards Codification ("ASC") 915 and it intends to
engage in the exploration and development of oil and gas properties.
The Company has not generated any revenue to date and consequently its
operations are subject to all risks inherent in the establishment of a new
business enterprise. For the period from inception, November 12, 2010 through
November 30, 2013 the Company has accumulated losses of $469,085.
On March 30, 2012, the Company approved a 2:1 forward split of the Company's
stock. Following this split, the Company's authorized capital increased to
150,000,000 common shares with a par value of $0.001 per share and the
outstanding shares of the Company's capital stock has since increased to
38,250,000. The effect of this forward split has been retroactively applied to
the common stock balances and reflected in all common stock activity reflected
in these financial statements since that time.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The financial statements of the Company have been prepared in accordance with
generally accepted accounting principles in the United States of America and are
presented in US Dollars. The Company's fiscal year end is February 28.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid instruments with a maturity of three
months or less at the time of issuance to be cash equivalents. The Company had
$127,562 and $99,550 of cash and cash equivalents at November 30, 2013 and
February 28, 2013, respectively.
USE OF ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States 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. Actual results could differ from those estimates.
FINANCIAL INSTRUMENTS
The carrying value of the Company's financial instruments approximates their
fair value because of the short maturity of these instruments.
7
STOCK-BASED COMPENSATION
Stock-based compensation is accounted for at fair value in accordance with
Financial Accounting Standards Board ("FASB") Accounting Standards Codification
("ASC") 718. To date, the Company has not adopted a stock option plan and has
not granted any stock options.
INCOME TAXES
Income taxes are accounted for under the assets and liability method. Deferred
tax assets and liabilities are recognized for the estimated future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carry forwards. Deferred tax assets and
liabilities are measured using enacted tax rates in effect for the year in which
those temporary differences are expected to be recovered or settled.
BASIC AND DILUTED NET LOSS PER SHARE
The Company computes net loss per share in accordance with ASC 260,"Earnings per
Share". ASC 260 requires presentation of both basic and diluted earnings per
share (EPS) on the face of the income statement.
Basic EPS is computed by dividing net loss available to common shareholders
(numerator) by the weighted average number of shares outstanding (denominator)
during the period. Diluted EPS gives effect to all potentially dilutive common
shares outstanding during the period. Diluted EPS excludes all potentially
dilutive shares if their effect is anti-dilutive. At November 30, 2013 and 2012,
10,000,000 and 0 potentially dilutive shares, respectively, were issued or
outstanding.
RECENT ACCOUNTING PRONOUNCEMENTS
Except for rules and interpretive releases of the SEC under authority of federal
securities laws and a limited number of grandfathered standards, the FASB ASC is
the sole source of authoritative GAAP literature recognized by the FASB and
applicable to the Company. Management has reviewed the aforementioned rules and
releases and believes any effect will not have a material impact on the
Company's present or future consolidated financial statements.
OIL AND GAS PROPERTIES
The Company uses the full cost method of accounting for oil and natural gas
properties. Under this method, all acquisition, exploration and development
costs, including certain payroll, asset retirement costs, other internal costs,
and interest incurred for the purpose of finding oil and natural gas reserves,
are capitalized. Internal costs that are capitalized are directly attributable
to acquisition, exploration and development activities and do not include costs
related to production, general corporate overhead or similar activities. Costs
associated with production and general corporate activities are expensed in the
period incurred. Proceeds from the sale of oil and natural gas properties are
applied to reduce the capitalized costs of oil and natural gas properties unless
the sale would significantly alter the relationship between capitalized costs
and proved reserves, in which case a gain or loss is recognized.
Capitalized costs associated with impaired properties and capitalized costs
related to properties having proved reserves, plus the estimated future
development costs, and asset retirement costs under ASC 410 "Asset Retirement
and Environmental Obligations", are amortized using the unit-of-production
method based on proved reserves. Capitalized costs of oil and natural gas
properties, net of accumulated amortization and deferred income taxes, are
limited to the total of estimated future net cash flows from proved oil and
natural gas reserves, discounted at ten percent, plus the cost of unevaluated
properties.
8
There are many factors, including global events that may influence the
production, processing, marketing and price of oil and natural gas. A reduction
in the valuation of oil and natural gas properties resulting from declining
prices or production could adversely impact depletion rates and capitalized cost
limitations. Capitalized costs associated with properties that have not been
evaluated through drilling or seismic analysis, including exploration wells in
progress at November 30, 2013, are excluded from the unit-of-production
amortization. Exclusions are adjusted annually based on drilling results and
interpretative analysis.
Revenue recognition: Sales of oil and natural gas properties are accounted for
as adjustments to the net full cost pool with no gain or loss recognized, unless
the adjustment would significantly alter the relationship between capitalized
costs and proved reserves. If it is determined that the relationship is
significantly altered, the corresponding gain or loss will be recognized in the
statements of operations. Costs of oil and gas properties are amortized using
the units of production method.
Ceiling test: Under the full-cost method of accounting, the net book value of
oil and gas properties, less related deferred income taxes, may not exceed a
calculated "ceiling." The ceiling limitation is the estimated after-tax future
net cash flows from proved oil and gas reserves, discounted at 10 percent per
annum and adjusted for cash flow hedges. Estimated future net cash flows exclude
future cash outflows associated with settling accrued asset retirement
obligations. The Company has adopted U.S. Securities and Exchange Commission
("SEC") Release 33-8995 and the amendments to ASC 932, "Extractive Industries --
Oil and Gas" (the Modernization Rules). Under the Modernization Rules, estimated
future net cash flows are calculated using end-of-period costs and an unweighted
arithmetic average of commodity prices in effect on the first day of each of the
previous 12 months, held flat for the life of the production, except where
prices are defined by contractual arrangements.
Any excess of the net book value of proved oil and gas properties, less related
deferred income taxes, over the ceiling is charged to expense and reflected as
additional depletion, depreciation and amortization expense ("DD&A") in the
accompanying statement of operations. Such limitations are tested quarterly. As
of November 30, 2013 and February 28, 2013, capitalized costs did not exceed the
ceiling limitation, and no write-down was indicated.
The Company periodically assesses for impairment and no indication of impairment
existed at November 30, 2013 and February 28, 2013.
The amount of capitalized costs for the Reno County, Kansas lease at November
30, 2013 and February 28, 2013 is $19,064. The amount of capitalized costs for
the South Sun River Bakken Prospect at November 30, 2013 and February 28, 2013
is $565,511 and nil, respectively.
ASSET RETIREMENT OBLIGATIONS
The Company records the fair value of a liability for an asset retirement
obligation in the period in which it is incurred and a corresponding increase in
the carrying amount of the related long-lived asset. The liability is accreted
to its present value each period, and the capitalized cost is depreciated over
the useful life of the related asset. If the liability is settled for an amount
other than the recorded amount, a gain or loss is recognized.
NOTE 3. GOING CONCERN AND LIQUIDITY CONSIDERATIONS
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern, which contemplates the realization of
assets and the liquidation of liabilities in the normal course of business. As
at November 30, 2013, the Company had a loss from operations, for the nine
months ended of $424,995, an accumulated deficit of $469,085, and working
capital of $87,599 and has earned no revenues since inception. The Company has
not yet established an ongoing source of revenues sufficient to cover its
operating costs and allow it to continue as a going concern.
9
The Company depends upon capital to be derived from future financing activities
such as subsequent offerings of its common stock or debt financing in order to
operate and grow the business. There can be no assurance that the Company will
be successful in raising such capital and are not limited to, acceptance of the
Company's business plan, the ability to raise capital in the future, the ability
to expand its customer base, and the ability to hire key employees to provide
services. There may be other risks and circumstances that management may be
unable to predict.
The financial statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets or the amounts
and classification of liabilities that may result from the possible inability of
the Company to continue as a going concern.
NOTE 4. CAPITAL STOCK
AUTHORIZED STOCK
The Company has authorized 150,000,000 common shares and 50,000,000 preferred
shares, both with a par value of $0.001 per share. Each common share entitles
the holder to one vote, in person or proxy, on any matter on which action of the
stockholders of the corporation is sought.
SHARE ISSUANCE
PREFERRED SHARES
On March 12, 2013 the Company issued 1,000,000 shares of preferred stock to an
officer and director of the Company at a price of $0.01 as part of a consulting
agreement.
There were 1,000,000 and nil preferred shares issued and outstanding at November
30, 2013 and February 28, 2013, respectively.
COMMON SHARES
In March 2012, the Company increased its authorized capital from 75,000,000
common shares to 150,000,000 common shares with a par value of $0.001 per share.
The Company also authorized a stock split on a one (1) old for two (2) new basis
retroactive to inception.
In February 2012, the Company issued 20,513,100 shares of common stock for cash
proceeds of $10,257. During the same month, the Company also issued 10,000,000
shares of common stock for debt of $5,000 and 10,000,000 shares of common stock
for stock subscriptions receivable of $5,000. In August 2012 the payment was
received for the subscriptions receivable. In July and August of 2012,
31,250,000 shares were issued at a price of $0.001 for cash proceeds of $31,250.
In September of 2012, 2,000,000 shares were issued at a price of $0.001 for cash
proceeds of $2,000.
On March 12, 2013, the Company cancelled 35,513,100 common shares of a current
officer and a former director of the Company.
There were 38,250,000 and 73,763,100 common shares issued and outstanding at
November 30, 2013 and February 28, 2013, RESPECTIVELY.
10
NOTE 5. DUE TO RELATED PARTY
On February 23, 2012, an officer and director loaned the Company $5,000. On
February 25, 2012 the company issued 10,000,000 shares of common stock in
extinguishment of the shareholder liability at $0.001 per share.
During the year ended February 28, 2013, an officer and director of the Company
paid operating expenses on behalf of the Company amounting to $6,774. The same
officer and director also loaned the Company $1,500. The resulting shareholder
payable balance of $8,274 at November 30, 2013 and February 28, 2013
respectively is unsecured, due on demand and is non-interest bearing.
NOTE 6. CONVERTIBLE NOTES PAYABLE
Effective February 27, 2013, the company entered into a secured promissory note
in an aggregate principal amount of $100,000 pursuant to the terms of a
subscription. The Note bears interest at an annual rate of 10%, which is to be
paid with principal in full on the maturity date of February 27, 2015. The
principal amount of the Note together with interest may be converted into shares
of our common stock, at the option of the holder, at a conversion price of $0.25
per share.
Effective April 5, 2013, the company entered into a secured promissory note in
an aggregate principal amount of $50,000 pursuant to the terms of a
subscription. The Note bears interest at an annual rate of 10%, which is to be
paid with principal in full on the maturity date of April 5, 2015. The principal
amount of the Note together with interest may be converted into shares of our
common stock, at the option of the holder, at a conversion price of $0.30 per
share. The amount of the discount upon issuance of the note was 36,667 and the
amount amortized during the nine month period ended November 30, 2013 was
$3,274.
Effective April 25, 2013, the company entered into a secured promissory note in
an aggregate principal amount of $180,000 pursuant to the terms of a
subscription. The Note bears interest at an annual rate of 10%, which is to be
paid with principal in full on the maturity date of April 25, 2015. The
principal amount of the Note together with interest may be converted into shares
of our common stock, at the option of the holder, at a conversion price of $0.50
per share. The amount of the discount upon issuance of the note was 46,800 and
the amount amortized during the nine month period ended November 30, 2013 was
$10,800.
Effective May 15, 2013, the company entered into a secured promissory note in an
aggregate principal amount of $100,000 pursuant to the terms of a subscription.
The Note bears interest at an annual rate of 10%, which is to be paid with
principal in full on the maturity date of May 15, 2015. The principal amount of
the Note together with interest may be converted into shares of our common
stock, at the option of the holder, at a conversion price of $0.55 per share.
The amount of the discount upon issuance of the note was 29,091 and the amount
amortized during the nine month period ended November 30, 2013 was 5,452.
Effective May 29, 2013, the company entered into a secured promissory note in an
aggregate principal amount of $170,000 pursuant to the terms of a subscription.
The Note bears interest at an annual rate of 10%, which is to be paid with
principal in full on the maturity date of May 29, 2015. The principal amount of
the Note together with interest may be converted into shares of our common
stock, at the option of the holder, at a conversion price of $0.60 per share.
The amount of the discount upon issuance of the note was 82,167 and the amount
amortized during the nine month period ended November 30, 2013 was $8,616.
Effective September 10, 2013, the company entered into a secured promissory note
dated July 30, 2013 with an aggregate principal amount of $250,000 pursuant to
the terms of a subscription agreement. The note bears interest at an annual rate
of 10% which is to be paid with principal in full on the maturity date of July
11
30, 2015. The principal amount of the note together with interest may be
converted into shares of our common stock at the option of the holder, at the
conversion price of $0.50 per share.
On December 10, 2013, pursuant to the terms of a subscription agreement between
our company and Jackson Bennett, LLC dated December 6, 2014, we issued a secured
promissory note (the "Note") with an aggregate principal amount of $150,000. The
Note bears interest at an annual rate of 10% which is to be paid together with
principal in full on the maturity date of December 6, 2015. At the option of
Jackson Bennett, LLC the principal amount of the Note together with all accrued
interest may be converted into shares of our common stock (the "Convertible
Shares") at the conversion rate of $0.25 per share. As at November 30, 2013, the
Company received $125,000 toward this note payable at which point the terms of
the promissory note became effective. As a result, $125,000 has been recorded in
Convertible Notes Payable of $835,298 on the balance sheet at November 30, 2013.
NOTE 7. OIL AND MINERAL LEASES
On February 1, 2011, the Company entered into an agreement with an unrelated
third-party entity to purchase a 100% working interest and an 80% net revenue
interest in an oil and mineral lease in Reno County, Kansas. As consideration
for the purchase, the Company paid $15,000 in cash. The Company has not incurred
any exploration or development costs in connection with this lease.
On March 12, 2013, we entered into a Farmout agreement with Summit West Oil, LLC
for approximately 10,000 acres of oil and gas exploration property in northwest
Montana known as the South Sun River Bakken Prospect. Under the terms of the
original farmout agreement, which was subsequently amended, we were required to
carry out certain expenditures in order to earn a 100% interest in the property,
subject to an underlying 20% burden to Summit and the State of Montana, the
following of which requirements were met:
* $60,000 by April 5, 2013 for the acquisition of seismic and other
exploration data (requirement met);
* $140,000 by April 30, 2013 for the reinterpretation of the seismic
data as well as delineation and surveying of potential drill locations
(requirement met);
On June 6, 2013, we entered into a Farmout agreement with Summit West Oil, LLC,
related to additional property which is an extension of and located to the west
of the South Sun River where the drill site is located.
Under the terms of the Farmout agreement, we were required to carry out the
following expenditures in order to earn a 100% interest in the property, subject
to an underlying 20% royalty burden to Summit, Teton Resources, and the Milford
Hutterite Colony:
* Exercise the lease renewal option by December 20, 2013 with full
payment of all or some of the lease tracts;
* Drilling of horizontal well at an estimated expenditure of $5,000,000
by June 30, 2014 Drilling of a second horizontal well at an estimated
expenditure of $5,000,000 by December 31, 2014
* Drilling of an additional horizontal well at an estimated expenditure
of $5,000,000 by June 30, 2016
Pursuant to the June 6, 2013 farmout agreement, our company also acquired the
option to purchase the property outright and without drilling obligations for
10,000,000 shares of our common stock until December 31, 2013.
12
By November, 2013 we had incurred approximately $395,000 in work expense on the
property toward the satisfaction of our drilling obligations. By October, 2013,
we had also paid approximately $170,000 in satisfaction of our lease renewal
requirements by acquiring leases and lease extensions for 5 years on the Milford
Property totaling approximately 13,300 net acres.
Effective September 20, 2013, pursuant to agreements between Summit West Oil,
LLC and Norstra Energy, Inc., Summit West and Norstra have agreed to the
following:
1. Summit West will release portions of the Milford Colony Oil and Gas
Lease assigned to Summit West by Teton Resources.
2. Summit West will exercise its option to extend those portions of the
Milford Colony Oil and Gas Lease not released by Summit West.
3. Norstra will negotiate new leases with Milford Colony for those lands
released by Summit West.
In consideration of the above agreements between Summit West and Norstra, the
parties have made the following undertakings and acknowledgments:
1. The Farmout Agreements of March 12, 2013 and June 6, 2013 between
Summit West and Norstra shall be deemed to be satisfied. The State of
Montana Oil and Gas Leases currently owned by Summit West shall be
retained by Summit West and not assigned to Norstra.
2. Norstra will no longer be obligated to issue 10,000,000 shares to
Summit West.
3. Norstra will instead issue 300,000 restricted shares of Norstra
Energy, Inc. common stock, on or before October 1, 2013, to Fred
Taylor, President, Summit West Oil LLC, in exchange for Summit
retaining the State of Montana Oil and Gas Leases. Additionally,
Summit West will forfeit all royalty overrides on the Milford Colony
leases.
4. Summit will authorize a Change of Operator to Black Gold, LLC.
Upon closing of our September 20, 2013 letter of understanding with Summit, we
will hold 100% of the Milford Property without any obligations for approximately
5 years. As at November 30, 2013 the letter of understanding agreement has not
closed and the 300,000 restricted common shares issuable to Mr. Fred Taylor have
not been issued. It is anticipated that a formal closing will be completed prior
to the year ending February 28, 2014. In order to secure Black Gold, LLC as
operator of the Milford Property, we anticipate issuing 3,000,000 common shares
to Black Gold upon finalization of an operating agreement.
NOTE 8. ENVIROMENTAL AND OTHER CONTINGENCIES
The Company's operations and earnings may be affected by various forms of
governmental action in the United States. Examples of such governmental action
include, but are by no means limited to: tax increases and retroactive tax
claims; royalty and revenue sharing increases; import and export controls; price
controls; currency controls; allocation of supplies of crude oil and petroleum
products and other goods; expropriation of property; restrictions and
preferences affecting the issuance of oil and gas or mineral leases;
restrictions on drilling and/or production; laws and regulations intended for
the promotion of safety and the protection and/or remediation of the
environment; governmental support for other forms of energy; and laws and
regulations affecting the Company's relationships with employees, suppliers,
customers, stockholders and others. Because governmental actions are often
motivated by political considerations and may be taken without full
consideration of their consequences, and may be taken in response to actions of
other governments, it is not practical to attempt to predict the likelihood of
such actions, the form the actions may take or the effect such actions may have
on the Company.
13
Companies in the oil and gas industry are subject to numerous federal, state,
local and regulations dealing with the environment. Violation of federal or
state environmental laws, regulations and permits can result in the imposition
of significant civil and criminal penalties, injunctions and construction bans
or delays. A discharge of hazardous substances into the environment could, to
the extent such event is not insured, subject the Company to substantial
expense, including both the cost to comply with applicable regulations and
claims by neighboring landowners and other third parties for any personal injury
and property damage that might result.
The Company currently leases a property at which hazardous substances could have
been or are being handled. In addition, many of these properties have been
operated by third parties whose treatment and disposal or release of
hydrocarbons or other wastes were not under the Company's control. Under
existing laws the Company could be required to remove or remediate previously
disposed wastes (including wastes disposed of or released by prior owners or
operators), to clean up contaminated property (including contaminated
groundwater) or to perform remedial plugging operations to prevent future
contamination. The Company is investigating the extent of any such liability and
the availability of applicable defenses and believes costs related to these
sites will not have a material adverse effect on the Company's net income,
financial condition or liquidity in a future period.
The Company's liability for remedial obligations includes certain amounts that
are based on anticipated regulatory approval for proposed remediation of former
refinery waste sites. Although regulatory authorities may require more costly
alternatives than the proposed processes, the cost of such potential alternative
processes is not expected to be a material amount. Certain environmental
expenditures are likely to be recovered by the Company from other sources,
primarily environmental funds maintained by certain states. Since no assurance
can be given that future recoveries from other sources will occur, the Company
has not recorded a benefit for likely recoveries.
There is the possibility that environmental expenditures could be required at
currently unidentified sites, and new or revised regulations could require
additional expenditures at known sites. However, based on information currently
available to the Company, the amount of future remediation costs incurred at
known or currently unidentified sites is not expected to have a material adverse
effect on the Company's future net income, cash flows or liquidity. The Company
has recorded $5,560 and $5,059 for its estimated asset retirement obligations as
of November 30, 2013 and February 28, 2013, respectively. The Company also
recorded $167 and $667 of accretion expense related to its asset retirement
obligations as of November 30, 2013 and February 28, 2013, respectively.
Changes to the asset retirement obligation were as follows:
November 30, 2013 February 28, 2013
----------------- -----------------
Balance, beginning of period $ 5,059 $ 4,392
Liabilities incurred -- --
Disposal -- --
Accretion expense 501 667
-------- --------
Balance, end of period $ 5,560 $ 5,059
======== ========
NOTE 9. SUBSEQUENT EVENTS
In accordance with ASC 855-10, the Company's management has reviewed all
material events and there are no material subsequent events to report.
14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD LOOKING STATEMENTS
This quarterly report contains forward-looking statements. These statements
relate to future events or our future financial performance. In some cases, you
can identify forward-looking statements by terminology such as "may", "should",
"expects", "plans", "anticipates", "believes", "estimates", "predicts",
"potential" or "continue" or the negative of these terms or other comparable
terminology. These statements are only predictions and involve known and unknown
risks, uncertainties and other factors that may cause our or our industry's
actual results, levels of activity, performance or achievements to be materially
different from any future results, levels of activity, performance or
achievements expressed or implied by these forward-looking statements. Although
we believe that the expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee future results, levels of activity, performance
or achievements. Except as required by applicable law, including the securities
laws of the United States, we do not intend to update any of the forward-looking
statements to conform these statements to actual results.
Our unaudited financial statements are stated in United States Dollars (US$) and
are prepared in accordance with United States Generally Accepted Accounting
Principles. The following discussion should be read in conjunction with our
financial statements and the related notes that appear elsewhere in this
quarterly report. The following discussion contains forward-looking statements
that reflect our plans, estimates and beliefs. Our actual results could differ
materially from those discussed in the forward looking statements. Factors that
could cause or contribute to such differences include, but are not limited to,
those discussed below and elsewhere in this quarterly report.
In this quarterly report, unless otherwise specified, all dollar amounts are
expressed in United States dollars. All references to "US$" refer to United
States dollars and all references to "common stock" refer to the common shares
in our capital stock.
As used in this quarterly report, the terms "we", "us", "our" and "our company"
mean Norstra Energy Inc., unless otherwise indicated.
CORPORATE OVERVIEW
We are a start-up exploration stage company, incorporated in the State of Nevada
on November 12, 2010 under the name Norstra Inc., as a for-profit company. Our
fiscal year end is February 28. Our office is located at 1048 West 11th,
Spokane, WA, 99204. Our telephone number is 1-888-474-8077. Our website and
further information about our company can be found at
http://www.norstraenergy.com.
On November 18, 2011, we filed a certificate of amendment with the Nevada
Secretary of State to change our name from Norstra Inc. to Norstra Energy Inc.
On March 28, 2012, we filed a certificate of change with the Nevada Secretary of
State to effect a 2 new for 1 old forward split of our authorized and issued and
outstanding shares of common stock such that our authorized capital increased
from 75,000,000 shares of common stock with a par value of $0.001 to 150,000,000
shares of common stock with a par value of $0.001.
Effective February 27, 2013, the Nevada Secretary of State accepted for filing a
Certificate of Amendment, wherein our company amended our Articles of
Incorporation to create 50,000,000 shares of preferred stock, $0.001 par value
for which our board of directors may fix and determine the designations, rights,
preferences or other variations of each class or series within each class of
preferred stock of our company. The creation of the preferred stock was approved
on February 26, 2013 by written consent by our board of directors and the
holders of 54.94% of our voting securities. Our company's authorized capital now
consists of 150,000,000 shares of common stock and 50,000,000 shares of
preferred stock, all with a par value of $0.001.
15
CURRENT BUSINESS
We are engaged in the exploration and development of oil and gas properties.
On February 1, 2011, we entered into an agreement with an unrelated third-party
entity to purchase a 100% working interest and an 80% net revenue interest in an
oil and mineral lease in Reno County, Kansas. As consideration for the purchase,
our company paid $15,000 in cash. Our company has not incurred any exploration
or development costs in connection with this lease. We have had limited
operations and have been issued a "going concern" opinion by our auditor, based
upon our reliance on the sale of our common stock as the sole source of funds
for our future operations.
On February 15, 2012, our company and Keta Oil and Gas Inc. concluded the
transaction in which our company paid $15,000 to acquire 100% working interest
in the oil and gas leases, containing approximately 83 acres, located in Reno
County, State of Kansas. The purchase price was made up of $10 for the lease
assignment and $14,990 as a lease bonus payment.
The lease is for a three year term with a commencement date of original
acquisition of February 15, 2012 and grants our company the right to explore for
potential petroleum and natural gas opportunities on the lease. The ability to
renew the lease is to be renegotiated before or upon termination if our company
should choose to renew the leasing rights.
On March 1, 2013, we entered into consulting agreements with Mr. Glen Landry,
our president, chief executive officer, secretary, treasurer and director, and
Mr. Dallas Kerkenezov, our chief financial officer. Mr. Landry will receive a
consulting fee of $5,000 per month and shall be issued 1,000,000 shares of our
preferred stock, which will be convertible into 10,000,000 shares of our common
stock upon achievement of production from the South Sun River Bakken Prospect.
Mr. Kerkenezov shall receive $500 a month for performing duties as our chief
financial officer. Both agreements have a term of 12 months.
Also on March 1, 2013, Mr. Kerkenezov, our chief financial officer and Ms.
Heredia, our former director, cancelled a total of 35,513,100 shares of our
common stock held by them. Mr. Kerkenezov cancelled 27,013,100 and Ms. Heredia
cancelled 8,500,000. These shares were cancelled in order to make our company
more attractive for financing, given the capital requirements of the South Sun
River Bakken Prospect.
On March 12, 2013, we entered into a farmout agreement with Summit West Oil, LLC
for approximately 10,000 acres of oil and gas exploration property in northwest
Montana known as the South Sun River Bakken Prospect. Under the terms of the
original farmout agreement, which was subsequently amended, we were required to
carry out certain expenditures in order to earn a 100% interest in the property,
subject to an underlying 20% burden to Summit and the State of Montana, the
following of which requirements were met:
* $60,000 by April 5, 2013 for the acquisition of seismic and other
exploration data (requirement met);
* $140,000 by April 30, 2013 for the reinterpretation of the seismic
data as well as delineation and surveying of potential drill
locations; (requirement met);
On June 6, 2013, we entered into a second farmout agreement with Summit, related
to an additional property (known as the "Milford Colony Oil and Gas Lease" or
the "Milford Property") which is an extension of and located to the east of the
first South Sun River lease block (which was the subject of the March 12, 2013
farmout agreement). This additional property is the primary focus of our
operations.
Under the terms of the June 6, 2013 farmout agreement, we were required to carry
out the following expenditures in order to earn a 100% interest in the property,
subject to an underlying 20% royalty burden to Summit, Teton Resources, and the
Milford Hutterite Colony.
16
* Exercise the lease renewal option by December 20, 2013 with full
payment of all or some of the lease tracts;
* Drilling of horizontal well at an estimated expenditure of $5,000,000
by June 30, 2014;
* Drilling of a second horizontal well at an estimated expenditure of
$5,000,000 by December 31, 2014;
* Drilling of a third horizontal well at an estimated expenditure of
$5,000,000 by June 30, 2016.
Pursuant to the June 6, 2013 farmout agreement, our company also acquired the
option to purchase the property outright and without drilling obligations for
10,000,000 shares of our common stock until December 31, 2013.
By November 30, 2013 we had incurred approximately $395,000 in work expense on
the property toward the satisfaction of our drilling obligations. By October,
2013, we had also paid approximately $170,000 in satisfaction of our lease
renewal requirements by acquiring leases and lease extensions for 5 years on the
Milford Property totaling approximately 13,300 net acres.
Effective as at September 20, 2013, we entered into a letter of understanding
and agreement with Summit which modifies the terms of the farmout agreements
dated March 12, 2013 and June 6, 2013. Pursuant the September 20, 2013
agreement, Norstra and Summit have agreed to the following terms:
* Summit will release portions of the Milford Colony Oil and Gas Lease
assigned to Summit by Teton Resources.
* Summit will exercise its option to extend those portions of the
Milford Colony Oil and Gas Lease not released by Summit.
* Our company will negotiate new leases with the Milford Hutterite
Colony for those lands released by Summit.
In consideration of the above agreements between Summit and Norstra, the parties
have made the following undertakings and acknowledgments:
* The farmout agreements of March 12, 2013 and June 6, 2013 between
Summit and our company are deemed to be satisfied.
* The State of Montana Oil and Gas Leases currently owned by Summit
shall be retained by Summit and not assigned to our company.
* Our company will no longer be obligated to issue 10,000,000 shares to
Summit pursuant to the June 6, 2013 agreement.
* Our company will instead issue 300,000 restricted common shares on or
before October 1, 2013 to Fred Taylor, president of Summit, in
exchange for Summit retaining the State of Montana oil and gas leases.
Additionally, Summit will forfeit all royalty overrides on the Milford
Colony leases.
* Summit will authorize a Change of Operator to Black Gold, LLC
Upon closing of our September 20, 2013 letter of understanding with Summit, we
will hold 100% of the Milford Property without any obligations for approximately
5 years. As at November 30, 2013 the letter of understanding agreement has not
closed and the 300,000 restricted common shares issuable to Mr. Fred Taylor have
not been issued. It is anticipated that a formal closing will be completed prior
to the year ending February 28, 2014. In order to secure Black Gold, LLC as
operator of the Milford Property, we anticipate issuing 3,000,000 common shares
to Black Gold upon finalization of an operating agreement.
Effective February 27, 2013, we entered into a secured promissory note in an
aggregate principal amount of $100,000 pursuant to the terms of a subscription
agreement between our company and Jackson Bennett, LLC. The note bears interest
at an annual rate of 10% which is to be paid with principal in full on the
maturity date of February 27, 2015. The principal amount of the note together
with interest may be converted into shares of our common stock, at the option of
Jackson Bennett, LLC, at a conversion price of $0.25 per share.
17
Effective April 5, 2013, we entered into a secured promissory note in an
aggregate principal amount of $50,000 pursuant to the terms of a subscription
agreement between our company and Jackson Bennett, LLC. The note bears interest
at an annual rate of 10% which is to be paid with principal in full on the
maturity date of April 5, 2015. The principal amount of the note together with
interest may be converted into shares of our common stock at the option of the
holder, at a conversion price of $0.30 per share.
Effective April 25, 2013, we entered into a secured promissory note in an
aggregate principal amount of $180,000 pursuant to the terms of a subscription
agreement between our company and Jackson Bennett, LLC. The note bears interest
at an annual rate of 10% which is to be paid with principal in full on the
maturity date of April 25, 2015. The principal amount of the note together with
interest may be converted into shares of our common stock at the option of the
holder, at a conversion price of $0.50 per share.
Effective May 15, 2013, we entered into a secured promissory note in an
aggregate principal amount of $100,000 pursuant to the terms of a subscription
agreement between our company and Jackson Bennett, LLC. The note bears interest
at an annual rate of 10% which is to be paid with principal in full on the
maturity date of May 15, 2015. The principal amount of the note together with
interest may be converted into shares of our common stock at the option of the
holder, at a conversion price of $0.55 per share.
Effective May 29, 2013, we entered into a secured promissory note in an
aggregate principal amount of $170,000 pursuant to the terms of a subscription
agreement between our company and Jackson Bennett, LLC. The note bears interest
at an annual rate of 10% which is to be paid with principal in full on the
maturity date of May 29, 2015. The principal amount of the note together with
interest may be converted into shares of our common stock at the option of the
holder, at a conversion price of $0.60 per share.
Effective September 10, 2013, we entered into a secured promissory note dated
July 30, 2013 with an aggregate principal amount of $250,000 pursuant to the
terms of a subscription agreement with Jackson Bennett, LLC. The note bears
interest at an annual rate of 10% which is to be paid with principal in full on
the maturity date of July 30, 2015. The principal amount of the note together
with interest may be converted into shares of our common stock at the option of
the holder, at the conversion price of $0.50 per share.
Effective December 10, 2013, we entered into a secured promissory note dated
December 6, 2013 with an aggregate principal amount of $150,000 pursuant to the
terms of a subscription agreement with Jackson Bennett, LLC. The note bears
interest at an annual rate of 10% which is to be paid with principal in full on
the maturity date of December 6, 2015. The principal amount of the note together
with interest may be converted into shares of our common stock at the option of
the holder, at the conversion price of $0.25 per share. As of November 30, 2013
we received $125,000 toward this note payable.
We have had limited operations and have been issued a "going concern" opinion by
our auditor, based upon our reliance on the sale of our common stock as the sole
source of funds for our future operations.
RESULTS OF OPERATIONS
Our financial statements have been prepared assuming that we will continue as a
going concern and, accordingly, do not include adjustments relating to the
recoverability and realization of assets and classification of liabilities that
might be necessary should we be unable to continue in operation. We expect we
will require additional capital to meet our long term operating requirements. We
expect to raise additional capital through, among other things, the sale of
equity or debt securities.
We have generated no revenues and have incurred a net loss of $469,085 since
inception through November 30, 2013.
18
THREE AND NINE MONTH PERIODS ENDED NOVEMBER 30, 2013 COMPARED TO THE THREE AND
NINE MONTH PERIODS ENDED NOVEMBER 30, 2012 AND THE PERIOD FROM INCEPTION
(NOVEMBER 12, 2010) TO NOVEMBER 30, 2013.
Three Months Ended Nine Months Ended
November 30, November 30,
------------------------- -------------------------
2013 2012 2013 2012
---------- ---------- ---------- ----------
General and administrative expenses $ 29,884 $ 15,071 $ 175,795 $ 26,828
Accretion expense $ 167 $ 167 $ 501 $ 500
Professional fees $ 80,841 $ 5,000 $ 152,758 $ 11,500
Interest expense $ 44,616 $ Nil $ 95,941 $ Nil
---------- ---------- ---------- ----------
NET LOSS $ (155,508) $ (20,238) $ (424,995) $ (38,828)
========== ========== ========== ==========
Our net loss for the three months ended November 30, 2013 was approximately
$155,508 compared to a net loss of $20,238 during the three months ended
November 30, 2012. Our net loss for the nine months ended November 30, 2013 was
approximately $424,995 compared to a net loss of $38,828 during the nine months
ended November 30, 2012. During the three and nine month periods ended November
30, 2013 and 2012, we did not generate any revenue. Net loss during the period
from inception (November 12, 2010) to November 30, 2013 was $469,085.
During the three months ended November 30, 2013, we incurred general and
administrative, accretion expense and professional expenses of approximately
$110,892 compared to general and administrative, accretion expense and
professional fees of $20,238 during the three months ended November 30, 2012.
During the nine months ended November 30, 2013, we incurred general and
administrative, accretion expense and professional expenses of approximately
$329,054 compared to general and administrative, accretion expense and
professional fees of $38,828 during the nine months ended November 30, 2012.
General and administrative expenses and professional fees incurred during the
three and nine month periods ended November 30, 2013 and 2012 were generally
related to corporate overhead, financial and administrative contracted services,
such as legal and accounting and developmental costs. During the period from
inception (November 12, 2010) to November 30, 2013, we incurred general and
administrative, accretion expense and professional expenses of approximately
$373,117.
Our net loss per common share during the three months ended November 30, 2013
and 2012 was $0.00 and $0.00, respectively. The weighted average number of
shares outstanding was 38,250,000 for the three month period ended November 30,
2013. Our net loss per common share during the nine months ended November 30,
2013 and 2012 was $(0.01) and $0.00, respectively. The weighted average number
of shares outstanding was 39,670,524 for the nine month period ended November
30, 2013.
LIQUIDITY AND CAPITAL RESOURCES
WORKING CAPITAL
November 30, February 28,
2013 2013
---------- ----------
Current Assets $ 172,200 $ 106,050
Current Liabilities $ 84,601 $ 9,387
---------- ----------
Working Capital $ 87,599 $ 96,663
========== ==========
19
CASH FLOWS
November 30, February 28,
2013 2013
---------- ----------
Cash Flows from (used in) Operating Activities $ (281,477 $ (31,554)
Cash Flows from (used in) Investing Activities $ (565,511) $ --
Cash Flows from (used in) Financing Activities $ 875,000 $ 39,750
---------- ----------
Net Increase (decrease) in Cash During Period $ 28,012 $ 8,196
========== ==========
As at the nine months ended November 30, 2013, our current assets were $172,200
and our current liabilities were $84,601 which resulted in working capital of
$87,599. As at the nine months ended November 30, 2013, current assets were
comprised of $127,562 in cash compared to $99,550 in cash at February 28, 2013.
At the nine months ended November 30, 2013, current liabilities were comprised
of $8,274 in advances from a directors and $76,327 in general accounts payable
and accrued liabilities. Long term liabilities were comprised of $5,560 in asset
retirement obligations, $835,298 in convertible notes payable, net and $40,945
in accrued interest, notes payable.
Stockholders' equity decreased $220,270 from $10,641 as of February 28, 2013 to
a deficit $209,629 as of November 30, 2013.
CASH FLOWS FROM OPERATING ACTIVITIES
We have not generated positive cash flows from operating activities. For the
nine month period ended November 30, 2013, net cash flows used in operating
activities was $281,477 consisting of a net loss of $424,995 and was offset by
an accretion expense of $501, share-based compensation of $10,000, interest on
beneficial conversion of $55,023, accounts payable of $75,214 and accrued
interest-notes payable of $40,918. For the nine month period ended November 30,
2012, net cash flows used in operating activities was $31,554 consisting of a
net loss of $20,238 and was offset by expenses paid on behalf of the company by
a related party of $6,774 and an accretion expense of $500.
Net cash flows used in operating activities was $323,158 for the period from
inception (November 12, 2010) to November 30, 2013 consisting of a net loss of
$469,085 which was offset by expenses paid on behalf of the company by a related
party of $6,774, an accretion expenses of $1,496, share based compensation of
$10,000, interest on beneficial conversion of $55,023, accounts payable of
$76,327 and accrued interest-notes payable of $40,945.
CASH FLOWS USED IN INVESTING ACTIVITIES
For the nine months ended November 30, 2013, we used $565,511 in investing
activities. For the nine month ended November 30, 2012 we use any cash flows for
investing activities. For the period from inception (November 12, 2010) through
November 30, 2013, net cash used in investing activities was $580,511.
CASH FLOWS FROM FINANCING ACTIVITIES
We have financed our operations primarily from either advances from directors or
the issuance of equity and debt instruments. For the nine months ended November
30, 2013, we generated $875,000 from financing activities. For the nine months
ended November 30, 2012, we generated $39,750 from financing activities. For the
period from inception (November 12, 2010) through November 30, 2013, net cash
provided by financing activities was $1,031,231primarily due to the issuance of
33,250,000 common shares for cash of $33,250 pursuant to our company's S-1
offering and proceeds from convertible notes payable of $975,000.
20
PLAN OF OPERATION
We are a start-up, exploration-stage company and have not yet generated or
realized any revenues from our business operations.
Our auditors have issued a going concern opinion on our audited financial
statements for the year ended February 28, 2013. This means that there is
substantial doubt that we can continue as an on-going business for the next
twelve months unless we obtain additional capital to pay our bills. This is
because we have not generated any revenues and no revenues are anticipated until
we begin removing and selling minerals. There is no assurance we will ever reach
this point. Accordingly, we must raise cash from sources from other sources. Our
only other source for cash at this time is investments by others. We must raise
cash to implement our project and stay in business. As of November 30, 2013, our
company had $127,562 in cash on hand.
Our current plan of operation is to fulfill our obligations pursuant to the
terms of letter of understanding with Summit dated September 20, 2013.
Upon closing of our September 20, 2013 letter of understanding with Summit, we
will hold 100% of the Milford Property without any obligations for approximately
5 years. As at November 30, 2013 the letter of understanding agreement has not
closed and the 300,000 restricted common shares issuable to Mr. Fred Taylor have
not been issued. It is anticipated that a formal closing will be completed prior
to the year ending February 28, 2014. In order to secure Black Gold, LLC as
operator of the Milford Property, we anticipate issuing 3,000,000 common shares
to Black Gold upon finalization of an operating agreement.
LIMITED OPERATING HISTORY; NEED FOR ADDITIONAL CAPITAL
There is no historical financial information about us upon which to base an
evaluation of our performance. We are a start-up exploration stage corporation
and have not generated any revenues from operations. We cannot guarantee we will
be successful in our business operations. Our business is subject to risks
inherent in the establishment of a new business enterprise, including limited
capital resources, possible delays in the exploration of our properties, and
possible cost overruns due to price and cost increases in services.
To become profitable and competitive, we must conduct the research and
exploration of our properties before we start production of any minerals we may
find. We have sought equity financing to provide for the capital required to
implement our research and exploration phases. We believe that the funds raised
from our offering and financings will allow us to operate for one year.
We have no assurance that future financing 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.
PURCHASE OF SIGNIFICANT EQUIPMENT
We do not currently intend to purchase any significant equipment during the next
twelve months.
OFF-BALANCE SHEET ARRANGEMENTS
We have no 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 stockholders.
21
GOING CONCERN
The financial statements accompanying this report have been prepared on a going
concern basis, which implies that our company will continue to realize its
assets and discharge its liabilities and commitments in the normal course of
business. Our company has not generated revenues since inception and has never
paid any dividends and is unlikely to pay dividends or generate earnings in the
immediate or foreseeable future. The continuation of our company as a going
concern is dependent upon the continued financial support from our shareholders,
the ability of our company to obtain necessary equity financing to achieve our
operating objectives, and the attainment of profitable operations. As of
November 30, 2013, our company has accumulated losses of $469,085 since
inception. We do not have sufficient working capital to enable us to carry out
our stated plan of operation for the next twelve months.
Due to the uncertainty of our ability to meet our current operating expenses and
the capital expenses noted above in their report on the financial statements for
the year ended February 28, 2013, our independent auditors included an
explanatory paragraph regarding concerns about our ability to continue as a
going concern. Our financial statements contain additional note disclosures
describing the circumstances that lead to this disclosure by our independent
auditors.
The continuation of our business is dependent upon us raising additional
financial support. The issuance of additional equity securities by us could
result in a significant dilution in the equity interests of our current
stockholders. Obtaining commercial loans, assuming those loans would be
available, will increase our liabilities and future cash commitments.
CRITICAL ACCOUNTING POLICIES
BASIS OF PRESENTATION
The financial statements of our company have been prepared in accordance with
generally accepted accounting principles in the United States of America and are
presented in US Dollars. Our company's fiscal year end is February 28.
CASH AND CASH EQUIVALENTS
Our company considers all highly liquid instruments with a maturity of three
months or less at the time of issuance to be cash equivalents. Our company had
$127,562 and $99,550 of cash and cash equivalents at November 30, 2013 and
February 28, 2013, respectively.
USE OF ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States 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. Actual results could differ from those estimates.
FINANCIAL INSTRUMENTS
The carrying value of our company's financial instruments approximates their
fair value because of the short maturity of these instruments.
STOCK-BASED COMPENSATION
Stock-based compensation is accounted for at fair value in accordance with
Financial Accounting Standards Board ("FASB") Accounting Standards Codification
("ASC") 718. To date, our company has not adopted a stock option plan and has
not granted any stock options.
22
INCOME TAXES
Income taxes are accounted for under the assets and liability method. Deferred
tax assets and liabilities are recognized for the estimated future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carry forwards. Deferred tax assets and
liabilities are measured using enacted tax rates in effect for the year in which
those temporary differences are expected to be recovered or settled.
BASIC AND DILUTED NET LOSS PER SHARE
Our company computes net loss per share in accordance with ASC 260,"Earnings per
Share". ASC 260 requires presentation of both basic and diluted earnings per
share (EPS) on the face of the income statement.
Basic EPS is computed by dividing net loss available to common shareholders
(numerator) by the weighted average number of shares outstanding (denominator)
during the period. Diluted EPS gives effect to all potentially dilutive common
shares outstanding during the period. Diluted EPS excludes all potentially
dilutive shares if their effect is anti-dilutive. At November 30, 2013 and 2012,
6,511,837 and 0 potentially dilutive shares, respectively, were issued or
outstanding.
RECENT ACCOUNTING PRONOUNCEMENTS
Except for rules and interpretive releases of the SEC under authority of federal
securities laws and a limited number of grandfathered standards, the FASB ASC is
the sole source of authoritative GAAP literature recognized by the FASB and
applicable to our company. Management has reviewed the aforementioned rules and
releases and believes any effect will not have a material impact on our
company's present or future consolidated financial statements.
OIL AND GAS PROPERTIES
Our company uses the full cost method of accounting for oil and natural gas
properties. Under this method, all acquisition, exploration and development
costs, including certain payroll, asset retirement costs, other internal costs,
and interest incurred for the purpose of finding oil and natural gas reserves,
are capitalized. Internal costs that are capitalized are directly attributable
to acquisition, exploration and development activities and do not include costs
related to production, general corporate overhead or similar activities. Costs
associated with production and general corporate activities are expensed in the
period incurred. Proceeds from the sale of oil and natural gas properties are
applied to reduce the capitalized costs of oil and natural gas properties unless
the sale would significantly alter the relationship between capitalized costs
and proved reserves, in which case a gain or loss is recognized.
Capitalized costs associated with impaired properties and capitalized costs
related to properties having proved reserves, plus the estimated future
development costs, and asset retirement costs under ASC 410 "Asset Retirement
and Environmental Obligations", are amortized using the unit-of-production
method based on proved reserves. Capitalized costs of oil and natural gas
properties, net of accumulated amortization and deferred income taxes, are
limited to the total of estimated future net cash flows from proved oil and
natural gas reserves, discounted at ten percent, plus the cost of unevaluated
properties.
There are many factors, including global events that may influence the
production, processing, marketing and price of oil and natural gas. A reduction
in the valuation of oil and natural gas properties resulting from declining
prices or production could adversely impact depletion rates and capitalized cost
limitations. Capitalized costs associated with properties that have not been
evaluated through drilling or seismic analysis, including exploration wells in
progress at November 30, 2013, are excluded from the unit-of-production
amortization. Exclusions are adjusted annually based on drilling results and
interpretative analysis.
23
Revenue recognition: Sales of oil and natural gas properties are accounted for
as adjustments to the net full cost pool with no gain or loss recognized, unless
the adjustment would significantly alter the relationship between capitalized
costs and proved reserves. If it is determined that the relationship is
significantly altered, the corresponding gain or loss will be recognized in the
statements of operations. Costs of oil and gas properties are amortized using
the units of production method.
Ceiling test: Under the full-cost method of accounting, the net book value of
oil and gas properties, less related deferred income taxes, may not exceed a
calculated "ceiling." The ceiling limitation is the estimated after-tax future
net cash flows from proved oil and gas reserves, discounted at 10 percent per
annum and adjusted for cash flow hedges. Estimated future net cash flows exclude
future cash outflows associated with settling accrued asset retirement
obligations. Our company has adopted U.S. Securities and Exchange Commission
("SEC") Release 33-8995 and the amendments to ASC 932, "Extractive Industries --
Oil and Gas" (the Modernization Rules). Under the Modernization Rules, estimated
future net cash flows are calculated using end-of-period costs and an unweighted
arithmetic average of commodity prices in effect on the first day of each of the
previous 12 months, held flat for the life of the production, except where
prices are defined by contractual arrangements.
Any excess of the net book value of proved oil and gas properties, less related
deferred income taxes, over the ceiling is charged to expense and reflected as
additional depletion, depreciation and amortization expense ("DD&A") in the
accompanying statement of operations. Such limitations are tested quarterly. As
of November 30, 2013 and February 28, 2013, capitalized costs did not exceed the
ceiling limitation, and no write-down was indicated.
Our company periodically assesses for impairment and no indication of impairment
existed at November 30, 2013 and February 28, 2013.
The amount of capitalized costs for the Reno County, Kansas lease at November
30, 2013 and February 28, 2013 is $19,064. The amount of capitalized costs for
the South Sun River Bakken Prospect at November 30, 2013 and February 28, 2013
is $565,510 and nil, respectively.
ASSET RETIREMENT OBLIGATIONS
Our company records the fair value of a liability for an asset retirement
obligation in the period in which it is incurred and a corresponding increase in
the carrying amount of the related long-lived asset. The liability is accreted
to its present value each period, and the capitalized cost is depreciated over
the useful life of the related asset. If the liability is settled for an amount
other than the recorded amount, a gain or loss is recognized.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a "smaller reporting company", we are not required to provide the information
required by this Item.
ITEM 4. CONTROLS AND PROCEDURES
MANAGEMENT'S REPORT ON DISCLOSURE CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our reports filed under the SECURITIES
EXCHANGE ACT OF 1934, as amended, is recorded, processed, summarized and
reported within the time periods specified in the Securities and Exchange
Commission's rules and forms, and that such information is accumulated and
communicated to our management, including our president (our principal executive
officer) and chief financial officer (our principal financial officer and
principal accounting officer) to allow for timely decisions regarding required
disclosure.
24
As the end of the quarter covered by this report, we carried out an evaluation,
under the supervision and with the participation of our president (our principal
executive officer) and chief financial officer (our principal financial officer
and principal accounting officer), of the effectiveness of the design and
operation of our disclosure controls and procedures. Based on the foregoing, our
president (our principal executive officer) and chief financial officer (our
principal financial officer and principal accounting officer) concluded that our
disclosure controls and procedures were not effective in providing reasonable
assurance in the reliability of our reports as of the end of the period covered
by this quarterly report.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
During the period covered by this report there were no changes in our internal
control over financial reporting that materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We know of no material, active or pending legal proceedings against our company,
nor are we involved as a plaintiff in any material proceeding or pending
litigation. There are no proceedings in which any of our directors, officers or
affiliates, or any registered or beneficial shareholder, is an adverse party or
has a material interest adverse to our interest.
ITEM 1A. RISK FACTORS
As a "smaller reporting company", we are not required to provide the information
required by this Item.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINING SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
25
ITEM 6. EXHIBITS
Exhibit
Number Description of Exhibit
------ ----------------------
(3) ARTICLES OF INCORPORATION AND BYLAWS
3.01 Articles of Incorporation (incorporated by reference to our
Registration Statement on Form S-1 filed on April 30, 2012)
3.02 Bylaws (incorporated by reference to our Registration Statement on Form
S-1 filed on April 30, 2012)
3.03 Certificate of Amendment (incorporated by reference to our Registration
Statement on Form S-1 filed on April 30, 2012)
3.04 Certificate of Change (incorporated by reference to our Registration
Statement on Form S-1 filed on April 30, 2012)
3.05 Certificate of Amendment (incorporated by reference to our Current
Report on Form 8-K filed on March 5, 2013)
(10) MATERIAL CONTRACTS
10.1 Oil and Gas Lease Assignment dated February 15, 2012 between our
company and Keta Oil and Gas Inc. (incorporated by reference to our
Registration Statement on Form S-1 filed on April 30, 2012)
10.2 Oil and Gas Lease dated January 15, 2012 between Harry Mark Milford and
Keta Oil and Gas Inc. (incorporated by reference to our Registration
Statement on Form S-1/A filed on June 28, 2012)
10.3 Subscription Agreement dated February 27, 2013 between our company and
Jackson Bennett LLC (incorporated by reference to our Current Report on
Form 8-K filed on March 5, 2013)
10.4 Farmout Agreement dated March 12, 2013 between our company and Summit
West Oil, LLC (incorporated by reference to our Current Report on Form
8-K filed on March 18, 2013)
10.5 Consulting Agreement dated March 1, 2013 between our company and Glen
Landry (incorporated by reference to our Current Report on Form 8-K
filed on March 18, 2013)
10.6 Consulting Agreement dated March 1, 2013 between our company and Dallas
Kerkenezov (incorporated by reference to our Current Report on Form 8-K
filed on March 18, 2013)
10.7 Subscription Agreement dated April 5, 2013 between our company and
Jackson Bennett LLC (incorporated by reference to our Quarterly Report
on Form 10-Q filed on July 22, 2013)
10.8 Subscription Agreement dated April 25, 2013 between our company and
Jackson Bennett LLC (incorporated by reference to our Current Report on
Form 8-K filed on May 7, 2013)
10.9 Subscription Agreement dated May 15, 2013 between our company and
Jackson Bennett LLC (incorporated by reference to our Quarterly Report
on Form 10-Q filed on July 22, 2013)
10.10 Subscription Agreement dated May 29, 2013 between our company and
Jackson Bennett LLC (incorporated by reference to our Quarterly Report
on Form 10-Q filed on July 22, 2013)
10.11 Farmout Agreement dated June 6, 2013 between our company and Summit
West Oil, LLC (incorporated by reference to our Quarterly Report on
Form 10-Q filed on July 22, 2013)
26
Exhibit
Number Description of Exhibit
------ ----------------------
10.12 Subscription Agreement dated July 30, 2013 between our company and
Jackson Bennett, LLC (incorporated by reference to our Current Report
on Form 8-K filed on October 4, 2013)
10.13 Letter of Understanding and Agreement with Summit West Oil, LLC dated
September 20, 2013 (incorporated by reference to our Quarterly Report
on Form 10-Q filed on October 21, 2013)
10.14 Subscription Agreement dated December 6, 2013 between our company and
Jackson Bennett, LLC (incorporated by reference to our Current Report
on Form 8-K filed on December 13, 2013)
(14) CODE OF ETHICS
14.1 Code of Ethics (incorporated by reference to our Annual Report on Form
10-K filed on June 7, 2013)
(31) RULE 13A-14(A) / 15D-14(A) CERTIFICATIONS
31.1* Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
of the Principal Executive Officer
31.2* Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
of the Principal Financial Officer and Principal Accounting Officer.
(32) SECTION 1350 CERTIFICATIONS
32.1* Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
of the Principal Executive Officer
32.2* Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
of the Principal Financial Officer and Principal Accounting Officer
101 INTERACTIVE DATA FILE
101** Interactive Data File (Form 10-K for the year ended February 28, 2013
furnished in XBRL).
101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
----------
* Filed herewith.
** Furnished herewith. Pursuant to Rule 406T of Regulation S-T, the
Interactive Data Files on Exhibit 101 hereto are deemed not filed or part
of a registration statement or prospectus for purposes of Sections 11 or 12
of the Securities Act of 1933, are deemed not filed for purposes of Section
18 of the Securities and Exchange Act of 1934, and otherwise are not
subject to liability under these sections.
27
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
NORSTRA ENERGY INC.
Date: January 21, 2014 /s/ Glen Landry
----------------------------------------------
Glen Landry
President, Chief Executive Officer, Secretary,
Treasurer and Director
(Principal Executive Officer)
Date: January 21, 2014 /s/ Dallas Kerkenezov
----------------------------------------------
Dallas Kerkenezov
Chief Financial Officer
(Principal Financial Officer and Principal
Accounting Officer)
2
