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| DOIG.OB > SEC Filings for DOIG.OB > Form 10-K/A on 16-Oct-2009 | All Recent SEC Filings |
16-Oct-2009
Annual Report
This Report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. The words "believe," "expect," "anticipate," "intend,"
"estimate," "may," "should," "could," "will," "plan," "future," "continue," and
other expressions that are predictions of or indicate future events and trends
and that do not relate to historical matters identify forward-looking
statements. These forward-looking statements are based largely on our
expectations or forecasts of future events, can be affected by inaccurate
assumptions, and are subject to various business risks and known and unknown
uncertainties, a number of which are beyond our control. Therefore, actual
results could differ materially from the forward-looking statements contained in
this document, and readers are cautioned not to place undue reliance on such
forward-looking statements. We undertake no obligation to publicly update or
revise any forward-looking statements, whether as a result of new information,
future events or otherwise. A wide variety of factors could cause or contribute
to such differences and could adversely impact revenues, profitability, cash
flows and capital needs.
There can be no assurance that the forward-looking statements contained in this document will, in fact, transpire or prove to be accurate.
Factors that could cause or contribute to our actual results differing
materially from those discussed herein or for our stock price to be adversely
affected include, but are not limited to: (i) changes in our business strategy;
(ii) the uncertainty of reserve estimates and timing of development
expenditures; (iii) access and availability of materials, equipment, supplies,
labor and supervision, power and water; (iv) results of current and future
exploration activities; (v) results of pending and future feasibility studies;
(vi) accidents and labor disputes; (vii) disappointing results from our
exploration or development efforts; (viii) failure to meet our revenue or profit
goals or operating budget; (ix) decline in demand for our common stock; (x)
downward revisions in securities analysts' estimates or changes in general
market conditions; (xi) investor perception of our industry or our prospects;
(xii) technological changes in the oil and gas exploration industry, including
technological innovations by competitors or in competing technologies; (xiii)
the proximity of natural gas production to natural gas pipelines; (xiv) the
availability of pipeline capacity; (xv) the demand for oil and natural gas by
utilities and other end users; (xvi) the availability of alternate fuel sources;
(xvii) the effect of inclement weather, such as hurricanes; (xviii) changes in
oil and gas exploration, processing and overhead costs; (xix) unexpected changes
in business and economic conditions; (xx) changes in interest rates and currency
exchange rates; (xxi) commodity price fluctuations, including changes in the
worldwide price for oil and gas; (xxii) state and federal regulation of oil and
natural gas marketing; and (xxiii) federal regulation of natural gas sold or
transported in interstate commerce; (xxiv) local and community impacts and
issues;
For the Years Ended December 31, 2008 and 2007
Revenues
We generated total revenue of $1,927,539 for the year ended December 31, 2008, an increase of approximately 111% from revenues of $913,808 for the year ended December 31, 2007. During the year ended December 31, 2008, $860,092 of the revenue we generated was attributable to natural gas and oil sales and $1,067,447 was attributable to a gain on the disposition of our working interest in the Owl Creek Prospect during the three months ended September 30, 2008. During the year ended December 31, 2007, our revenue generated was entirely attributable to natural gas and oil sales. The increase in total revenue for the year ended December 31, 2008, when compared to the year ended December 31, 2007, is attributable revenue of $1,067,447, which was recognized from the sale of our working interest in the Owl Creek Prospect during the nine months ended September 30, 2008. The decrease in revenue generated from natural gas and oil sales for the year ended December 31, 2008, when compared to the year ended December 31, 2007, is primarily attributable our inability to recognize revenue for the entire 2008 fiscal year from the Owl Creek Prospect resulting from the sale of our working interest in this property during the nine months ended September 30, 2008.
Costs and Expenses
We incurred costs and expenses in the amount of $2,141,979 for the year ended December 31, 2008, a 32% decrease from costs and expenses of $3,185,239 for year ended December 31, 2007.
The decrease in costs and expenses for the year ended December 31, 2008, when compared the year ended December 31, 2007, is primarily attributable to the following factors:
· General and administrative costs for the year ended December 31, 2008 decreased to$222,269 from $1,375,933 for the year ended December 31, 2007, a decrease of 78%. The decrease in general and administrative costs was caused by a reduction in stock based compensation expense attributable to the issuances of stock options and shares of common stock. Stock based compensation expense for the year ended December 31, 2008 was $47,700 as compared to $680,397 for the year ended December 31, 2007. Further reductions in administrative costs was due to foreign exchange gains increasing to $181,370 (December 31, 2007: $(184,136)) as the Canadian dollar weakened against the US dollar.
· Natural gas and oil operating costs for the year ended December 31, 2008 increased to $222,269 from $199,062 for the year ended December 31, 2007, an increase of 12%. The increase in natural gas and oil operating costs is attributable to an increase in the number of new producing wells for the year ended December 31, 2008, as compared to the year ended December 31, 2007.
· Depreciation and depletion expense for the year ended December 31, 2008 decreased to $265,942 from $667,513 for the year ended December 31, 2007, a decrease of 60%. The decrease in depreciation and depletion expense is attributable to the disposal of two wells and was partially offset by additional uneconomic wells that were moved to the proved property pool for depletion; and
· Impairment of natural gas and oil properties expense for the year ended December 31, 2008 increased to $1,393,687 from $936,584 for the year ended December 31, 2007, an increase of 49%. The substantial increase in impairment of natural gas and oil properties expense for the year ended December 31, 2008, as compared to the year ended December 31, 2007, is attributable to the impairment of our working interests in the Company's prospects resulting from our third party evaluation that the costs associated with these prospects are highly unlikely to be recovered based on the commodity price prevalent at December 31, 2008.
Net Operating Loss
The net operating loss for the year ended December 31, 2008 was $214,440, compared to a net operating loss of $2,271,431 for the year ended December 31, 2007.
Other Income and Expense
We reported other net income of $2,009 for the year ended December 31, 2008, as compared to other income of $37,052 in the year ended December 31, 2007. Other expenses were attributable to interest expenses for a note payable which was paid in full during the reporting period.
Net Loss
Net loss for the year ended December 31, 2008 was $215,826, compared to a net loss of $2,249,959 for the year ended December 31, 2007. The reduction in loss for the year ended December 31, 2008 was attributable to an increase in revenues from new and existing wells, a reduction in operating expenses and the sale of the Owl Creek Prospect.
There are material events and uncertainties which could cause our reported financial information to not to be indicative of future operating results or financial condition. Our inability to successfully identify, execute or effectively integrate future acquisitions may negatively affect our results of operations. The success of any acquisition depends on a number of factors beyond our control, including the ability to estimate accurately the recoverable volumes of reserves, rates of future production and future net revenues attainable from the reserves and to assess possible environmental liabilities. Drilling for oil and natural gas may also involve unprofitable efforts, not only from dry wells but also from wells that are productive but do not produce sufficient net reserves to return a profit after deducting operating and other costs. In addition, wells that are profitable may not achieve our targeted rate of return. Our ability to achieve our target results are also dependent upon the current and future market prices for crude oil and natural gas, costs associated with producing oil and natural gas and our ability to add reserves at an acceptable cost. We do not operate the properties in which we have an interest and we have limited ability to exercise influence over operations for these properties or their associated costs. Our dependence on the operator and other working interest owners for these projects and our limited ability to influence operations and associated costs could materially adversely affect the realization of our returns on capital in drilling or acquisition activities and our targeted production growth rate. As a result, our historical results should not be indicative of future operations.
Liquidity and Capital Resources
As of December 31, 2008, we had total current assets of $1,057,369 and total current liabilities in the amount of $50,157. As a result, we had working capital of $1,007,212 as of December 31, 2008.
The revenue we currently generate from natural gas and oil sales does not exceed our operating expenses. As such, we will require additional financing activities including issuance of our equity or debt securities to fund our operations and proposed drilling activities beyond the year ended December 31, 2008. During the three months March 31, 2008, we received $90,000 from financing activities involving loan issuance. We repaid this loan during the quarter ended September 30, 2008, including interest charges of $5,016. We received $0 from financing activities involving share issuances for the year ended December 31, 2008, compared to $45,000 for the year ended December 31, 2007.
We will require additional funds to expand our acquisition, exploration and production of natural oil and gas properties. Our management also anticipates that the current cash on hand may not be sufficient to fund our continued operations at the current level for the next twelve months. Additional capital will be required to effectively expand our operations through the acquisition and drilling of new prospects and to implement our overall business strategy. It is uncertain whether we will be able to obtain financing when sought or obtain it on terms acceptable to us. If we are unable to obtain additional financing, the full implementation of our ability to expand our operations will be impaired. Any additional equity financing may involve substantial dilution to our then existing shareholders.
Cash Used in Operating Activities
Operating activities generated $445,122 in cash for the year ending December 31, 2008, compared to $90,830 in cash used for operating activities for the year ended December 31, 2007. Our positive cash flow for the year ending December 31, 2008 was caused by the redemption of certain cash equivalents.
Cash Used in Investing Activities
Cash flows provided by investing activities for the year ending December 31, 2008 was $596,614, compared to $1,551,813 cash used in investing activities for the year ended December 31, 2007. Our positive cash flow for the year ending December 31, 2008 was primarily caused by sale proceeds of natural gas and oil working interests in the amount of $1,309,826.
Cash from Financing Activities
Cash flows provided by financing activities for the year ending December 31, 2008 primarily consisted of $(132,289) related to the cost of registration of shares under Form S-4, compared to $45,000 in cash received from financing activities for the year ended December 31, 2007.
The underlying drivers that resulted in material changes and the specific inflows and outflows of cash for the year ending December 31, 2008 are as follows:
· Revenue received as a result of royalties from natural gas and oil producing properties;
· Property acquisition costs; and
· Sale of the Owl Creek Prospect.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet debt nor did we have any transactions, arrangements, obligations (including contingent obligations) or other relationships with any unconsolidated entities or other persons that may have material current or future effect on financial conditions, changes in the financial conditions, results of operations, liquidity, capital expenditures, capital resources, or significant components of revenue or expenses..
Going Concern
As shown in the accompanying financial statements, we have incurred a net loss of $3,573,762 since inception. To achieve profitable operations, we require additional capital for obtaining producing oil and gas properties through either the purchase of producing wells or successful exploration activity. We believe that we will be able to obtain sufficient funding to meet our business objectives, including anticipated cash needs for working capital and are currently evaluating several financing options. However, there can be no assurances offered in this regard. As a result of the foregoing, there exists substantial doubt about our ability to continue as a going concern.
Critical Accounting Policies
In December 2001, the SEC requested that all registrants list their most "critical accounting polices" in the Management Discussion and Analysis. The SEC indicated that a "critical accounting policy" is one which is both important to the portrayal of a company's financial condition and results, and requires management's most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. We believe that the following accounting policies fit this definition.
Oil and Gas Joint Ventures
All exploration and production activities are conducted jointly with others and, accordingly, the accounts reflect only our proportionate interest in such activities.
Natural Gas and Oil Properties
We account for our oil and gas producing activities using the full cost method of accounting as prescribed by the United States Securities and Exchange Commission ("SEC"). Accordingly, all costs associated with the acquisition of properties and exploration with the intent of finding proved oil and gas reserves contribute to the discovery of proved reserves, including the costs of abandoned properties, dry holes, geophysical costs, and annual lease rentals are capitalized. All general corporate costs are expensed as incurred. In general, sales or other dispositions of oil and gas properties are accounted for as adjustments to capitalized costs, with no gain or loss recorded. Amortization of evaluated oil and gas properties is computed on the units of production method based on all proved reserves on a country-by-country basis. Unevaluated oil and gas properties are assessed at least annually for impairment either individually or on an aggregate basis. The net capitalized costs of evaluated oil and gas properties (full cost ceiling limitation) are not to exceed their related estimated future net revenues from proved reserves discounted at 10%, and the lower of cost or estimated fair value of unproved properties, net of tax considerations. These properties are included in the amortization pool immediately upon the determination that the well is dry.
Unproved properties consist of lease acquisition costs and costs on well currently being drilled on the properties. The recorded costs of the investment in unproved properties are not amortized until proved reserves associated with the projects can be determined or until they are impaired.
Revenue Recognition
Revenue from sales of crude oil, natural gas and refined petroleum products are recorded when deliveries have occurred and legal ownership of the commodity transfers to the customers. Title transfers for crude oil, natural gas and bulk refined products generally occur at pipeline custody points or when a tanker lifting has occurred. Revenues from the production of oil and natural gas properties in which we share an undivided interest with other producers are recognized based on the actual volumes sold by us during the period. Gas imbalances occur when our actual sales differ from its entitlement under existing working interests. We record a liability for gas imbalances when we have sold more than our working interest of gas production and the estimated remaining reserves make it doubtful that the partners can recoup their share of production from the field. At December 31, 2008 and 2007, we had no overproduced imbalances.
Recent Accounting Pronouncements
In December 2007, the Financial Accounting Standards Board (FASB) issued SFAS No. 141R, "Business Combinations". This statement replaces SFAS 141 and defines the acquirer in a business combination as the entity that obtains control of one or more businesses in a business combination and establishes the acquisition date as the date that the acquirer achieves control. SFAS 141R requires an acquirer to recognize the assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree at the acquisition date, measured at their fair values as of that date. SFAS 141R also requires the acquirer to recognize contingent consideration at the acquisition date, measured at its fair value at that date. This statement is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008, and earlier adoption is prohibited. The adoption of this statement is not expected to have a material effect on our financial statements.
In December 2007, the Financial Accounting Standards Board (FASB) issued SFAS No. 160, "Non-controlling Interests in Consolidated Financial Statements Liabilities -an Amendment of ARB No. 51". This statement amends ARB 51 to establish accounting and reporting standards for the Non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. This statement is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008, and earlier adoption is prohibited. The adoption of this statement is not expected to have a material effect on our future financial statements.
In March 2008, the FASB issued Statement No. 161, Disclosures about Derivative Instruments and Hedging Activities ("SFAS 161"), which is effective January 1, 2009. SFAS 161 requires enhanced disclosures about derivative instruments and hedging activities to allow for a better understanding of their effects on an entity's financial position, financial performance, and cash flows. Among other things, SFAS 161 requires disclosures of the fair values of derivative instruments and associated gains and losses in a tabular formant. SFAS 161 is not currently applicable to us since we do not have derivative instruments or hedging activity.
In May 8, 2008, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 162, the Hierarchy of Generally Accepted Accounting Principles, which will provide framework for selecting accounting principles to be used in preparing financial statements that are presented in conformity with U.S. generally accepted accounting principles (GAAP) for nongovernmental entities. With the issuance of SFAS No. 162, the GAAP hierarchy for nongovernmental entities will move from auditing literature to accounting literature. The adoption of this statement is not expected to have a material effect on our financial statements.
In June 2008, the FASB issued FASB Staff Position Emerging Issues Task Force (EITF) No. 03-6-1, determining whether instruments granted in share-based payment transactions are participating securities ("FSP EITF No. 03-6-1"). Under FSP EITF No. 03-6-1, unvested share-based payment awards that contain rights to receive non-forfeitable dividends (whether paid or unpaid) are participating securities, and should be included in the two-class method of computing EPS. FSP EITF No. 03-6-1 is effective for fiscal years beginning after December 15, 2008, and interim periods within those years, and is not expected to have a significant impact on our financial statements.
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable
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