Our financial statements are stated in United States Dollars
(US$) and are prepared in accordance with United States Generally Accepted Accounting Principles.
The Reports of the Independent Registered Public Accounting
firm by Sadler, Gibb & Associates LLC for the audited financial statements for the year ended December 31, 2013 and 2012 and
are included herein immediately preceding the audited financial statements.
Notes to Financial Statements
December 31, 2013 and 2012
NOTE 1 – NATURE OF BUSINESS
Supernova Energy, Inc. (“the Company”)
is an oil and gas exploration and production company incorporated in the state of Nevada on June 22, 2009. On October 21, 2013
the Company elected to change its corporate name from Northumberland Resources, Inc. to Supernova Energy, Inc.
NOTE 2 – GOING CONCERN
The Company's financial statements are prepared
using generally accepted accounting principles in the United States of America applicable to a going concern which contemplates
the realization of assets and liquidation of liabilities in the normal course of business. 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. The ability
of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until
it becomes profitable. If the Company is unable to obtain adequate capital, it could be forced to cease operations.
In order to continue as a going concern, the
Company will need, among other things, additional capital resources. Management's plan is to obtain such resources for the Company
by obtaining capital from management and significant shareholders sufficient to meet its minimal operating expenses and seeking
equity and/or debt financing. However management cannot provide any assurances that the Company will be successful in accomplishing
any of its plans.
The ability of the Company to continue as a
going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually
secure other sources of financing and attain profitable operations. The accompanying financial statements do not include any adjustments
that might be necessary if the Company is unable to continue as a going concern.
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Cash and Cash Equivalents
The Company considers all highly liquid investments
with the original maturities of three months or less to be cash equivalents. The Company had $2,035 and $1,026 of cash and cash
equivalents at December 31, 2013 and 2012, respectively.
Use of Estimates
The preparation of financial statements in
conformity with accounting principles generally accepted in the United States of America requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Significant
estimates made in preparing these financial statements include the estimate of proved oil and gas reserves and related present
value estimates of future net cash flows therefrom and the assessment of asset retirement obligations.
Recent Accounting Pronouncements
The Company has evaluated recent accounting
pronouncements and their adoption has not had or is not expected to have a material impact on the Company’s financial position
or statements.
Reclassification of Financial Statement
Accounts
Certain amounts in the December 31, 2012 financial
statements have been reclassified to conform to the presentation in the December 31, 2013 financial statements.
SUPERNOVA ENERGY, INC.
(Formerly Northumberland Resources, Inc.)
Notes to Financial Statements
December 31, 2013 and 2012
NOTE
3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 Financial Accounting Standards Board (“FASB”) Accounting Standards
Codification (“ASC”) Topic 410 “Asset Retirement and Environmental Obligations” (FASB ASC 410),
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, are excluded from the unit-of-production amortization. Exclusions
are adjusted annually based on drilling results and interpretative analysis.
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 depleted using the unit-of-production method. For the years ended December 31, 2013 and 2012, the Company recognized
$263,987 and $459,258, respectively of depletion expense related to oil and gas production.
Ceiling Test
– In applying the full cost method and in accordance with ASC 932, the Company performs an impairment test (ceiling test)
at each reporting date, whereby the carrying value of property and equipment is compared to the value of its proved reserves discounted
at a ten percent interest rate of future net revenues, based on current economic and operating conditions, plus the cost of properties
not being amortized, plus the lower of cost or fair market value of unproved properties included in costs being amortized, less
the income tax effects related to book and tax basis differences of the properties. As of December 31, 2013 and 2012, $-0- and
$13,948 of impairment expense has been recorded, respectively, in connection with the full cost ceiling test calculation.
Revenue Recognition
– Revenues from the sale of oil and natural gas are recognized when the product is delivered at a fixed or determinable price,
title has transferred, and collectability is reasonably assured. For oil sales, this occurs when the customer takes delivery of
oil from the operators’ storage tanks.
SUPERNOVA ENERGY, INC.
(Formerly Northumberland Resources, Inc.)
Notes to Financial Statements
December 31, 2013 and 2012
NOTE
3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
Long-Lived Assets
Long-lived assets include equipment and intangible
assets other than those with indefinite lives. We assess the carrying value of our long-lived asset groups when indicators of impairment
exist and recognize an impairment loss when the carrying amount of a long-lived asset is not recoverable from the undiscounted
cash flows expected to result from the use and eventual disposition of the asset. Indicators of impairment include significant
underperformance relative to historical or projected future operating results, significant changes in our use of the assets or
in our business strategy, loss of or changes in customer relationships and significant negative industry or economic trends. When
indications of impairment arise for a particular asset or group of assets, we assess the future recoverability of the carrying
value of the asset (or asset group) based on an undiscounted cash flow analysis. If carrying value exceeds projected, net, undiscounted
cash flows, an additional analysis is performed to determine the fair value of the asset (or asset group), typically a discounted
cash flow analysis, and an impairment charge is recorded for the excess of carrying value over fair value.
Property and equipment are recorded at historical
cost less accumulated depreciation, unless impaired. Depreciation is charged to operations over the estimated useful lives of the
assets using the straight-line. Upon retirement or sale, the historical cost of assets disposed of and the related accumulated
depreciation are removed from the accounts and any resulting gain or loss is recognized. Expenditures for repairs and maintenance
are charged to expense as incurred.
Income Taxes
Income taxes are provided in accordance with
FASB Codification Topic 740,
Accounting for Income Taxes.
A deferred tax asset or liability is recorded for all
temporary differences between financial and tax reporting and net operating loss-carry forwards.
Deferred tax assets are reduced by a valuation
allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax asset will
not be realized. Deferred tax assets and liabilities are adjusted for the effect of changes in tax laws and rates on the date of
enactment.
The asset and liability approach is used to
account for income taxes by recognizing deferred tax assets and liabilities for the expected future tax consequences of temporary
differences between the carrying amounts and the tax basis of assets and liabilities. The Company records a valuation allowance
to reduce the deferred tax assets to the amount that is more likely than not to be realized.
SUPERNOVA ENERGY, INC.
(Formerly Northumberland Resources, Inc.)
Notes to Financial Statements
December 31, 2013 and 2012
NOTE
3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Fair Value Measurements
The fair value of a financial instrument is the amount
that could be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants
at the measurement date. Financial assets are marked to bid prices and financial liabilities are marked to offer prices. Fair
value measurements do not include transaction costs. A fair value hierarchy is used to prioritize the quality and reliability
of the information used to determine fair values. Categorization within the fair value hierarchy is based on the lowest level
of input that is significant to the fair value measurement. The fair value hierarchy is defined into the following three categories:
Level 1: Quoted market prices in active
markets for identical assets or liabilities
Level 2: Observable market-based inputs
or inputs that are corroborated by market data
Level 3: Unobservable inputs that
are not corroborated by market data
Basic and Diluted Loss per Share
Basic and diluted loss per share is calculated
by dividing the Company’s net loss applicable to common shareholders by the weighted average number of common shares during
the period. Diluted earnings per share is calculated by dividing the Company’s net income available to common shareholders
by the diluted weighted average number of shares outstanding during the year. The diluted weighted average number of shares outstanding
is the basic weighted number of shares adjusted for any potentially dilutive debt or equity. There were -0- and 202,020 such common
stock equivalents outstanding as of December 31, 2013 and 2012, respectively.
NOTE 4 – PROPERTY AND EQUIPMENT
As of December 31, 2013 and 2012 the Company’s
oil and gas pumping and support equipment consisted of the following:
|
|
December 31,
2013
|
|
December 31,
2012
|
|
|
|
|
|
|
|
Oil and gas pumping and support equipment
|
|
$
|
229,864
|
|
$
|
256,254
|
Accumulated depreciation
|
|
|
(88,698)
|
|
|
(58,306)
|
Net
|
|
$
|
141,166
|
|
$
|
197,948
|
Depreciation expense was $45,500 and $44,436
for the years ended December 31, 2013 and 2012, respectively.
NOTE 5 – OIL AND GAS PROPERTIES
Oil and gas properties are stated at cost.
The Company recognized depletion expense totaling $263,987 and $459,258 during the years ended December 31, 2013 and 2012, respectively.
As of December 31, 2013 and 2012 oil and gas properties consisted of the following:
|
|
December 31,
2013
|
|
December 31,
2012
|
|
|
|
|
|
Proved producing properties
|
|
$
|
1,044,068
|
|
|
$
|
967,512
|
|
Proved non-producing properties
|
|
|
14,448
|
|
|
|
20,036
|
|
Unproved properties
|
|
|
264,718
|
|
|
|
340,097
|
|
Accumulated depletion
|
|
|
(745,638
|
)
|
|
|
(516,312
|
)
|
|
|
|
|
|
|
|
|
|
Net Oil and Gas Properties
|
|
$
|
577,596
|
|
|
$
|
811,333
|
|
SUPERNOVA ENERGY, INC.
(Formerly Northumberland Resources, Inc.)
Notes to Financial Statements
December 31, 2013 and 2012
NOTE
5 – OIL AND GAS PROPERTIES (CONTINUED)
All of
the Company’s oil and natural gas properties are located in the United States. Costs being amortized at December
31, 2013 and 2012 are as follows:
|
|
December 31,
|
|
|
2013
|
|
2012
|
Proved leasehold costs
|
|
$
|
596,631
|
|
|
$
|
700,297
|
|
Costs of wells and equipment
|
|
|
842,829
|
|
|
|
745,969
|
|
Capitalized asset retirement costs
|
|
|
113,638
|
|
|
|
137,633
|
|
Total oil and gas properties
|
|
|
1,553,098
|
|
|
|
1,583,899
|
|
Accumulated depreciation and depletion
|
|
|
(834,336
|
)
|
|
|
(574,618
|
)
|
Net Capitalized Costs
|
|
$
|
718,762
|
|
|
$
|
1,009,281
|
|
The following
table sets forth the changes in the total cost of oil and natural gas properties at December 31, for each of the two years
in the period ended December 31, 2013:
|
|
December 31,
|
|
|
2013
|
|
2012
|
Balance at Beginning of Period
|
|
$
|
1,583,899
|
|
|
$
|
1,146,546
|
|
Acquisitions using cash
|
|
|
—
|
|
|
|
175,116
|
|
Other capitalized costs
|
|
|
133,075
|
|
|
|
262,237
|
|
Sale proceeds
|
|
|
(163,876
|
)
|
|
|
—
|
|
Other non-cash transactions
|
|
|
—
|
|
|
|
—
|
|
Balance at End of Period
|
|
$
|
1,553,098
|
|
|
$
|
1,583,899
|
|
Other
capitalized costs include title related expenses and tangible and intangible drilling costs.
On March 1, 2011, the Company purchased a 100
percent working interest on a 70 percent net revenue interest in certain oil and gas leases and related well operating equipment
in Pratt County, Kansas for $260,000. Of this total, $149,000 was allocated to oil and gas leases, and the remaining $111,000 was
allocated to the purchased well operating equipment.
On June 11, 2011, the Company purchased a 30
percent working interest on an 24.45 percent net revenue interest in an unproved oil and gas well located in Cowley County, KS.
The Company paid $17,220 for the lease on 640 acres at $85 per acre.
On July 7, 2011, the Company purchased a 20
percent working interest on an 16.41 percent net revenue interest in a proved and producing oil and gas well located in Cowley
County, KS. The Company paid $45,000 to acquire the leases .
On September 27, 2011,
the Company purchased two leases and related well operating equipment located in Pratt County for $72,500. Of this total, $22,500
was allocated to oil and gas leases, and the remaining $50,000 was allocated to the purchased well operating equipment. The
leases carry a 100 percent working interest of 70 percent net revenue interest.
On September 27, 2011,
the Company also purchased a 23 percent interest in a net revenue interest ranging from 18.66 to 19.65 percent in three leases
in Barton and Stafford Counties, Kansas for $220,800. The three leases combined contain slightly more than 564
net acres. In total there are seven active wells located in these leases. There are four oil
producing wells, two disposal wells and one injection well.
On December 19, 2011,
the company purchased a 15 percent interest in net revenue interests ranging from 12.675 percent to 13.125 percent in four leases
in Cowley County, Kansas for $75,600. The four leases combined contain approximately 720 acres.
SUPERNOVA ENERGY, INC.
(Formerly Northumberland Resources, Inc.)
Notes to Financial Statements
December 31, 2013 and 2012
NOTE
5 – OIL AND GAS PROPERTIES (CONTINUED)
On February 9, 2012,
the Company purchased a 30 percent gross working interest and a 26.25 percent net revenue interest in six unproved oil and gas
leases in Cowley County, Kansas for $140,400. The six leases combined contain approximately 1,025 acres.
On May 14, 2012 the
Company purchased a 35 percent gross working interest and a 28 percent net revenue interest in 98 acres of unproved oil and gas
leases in Stafford County, Kansas for $12,569. Concurrent with this purchase, the Company paid $22,673 in additional development
costs, and $66,181 for support equipment, for an aggregate purchase price of $101,387.
On May 14, 2012 the
Company purchased a 13 percent gross working interest and a 10 percent net revenue interest in 70 acres of unproved oil and gas
leases in Butler County, Kansas for $17,208. Concurrent with this purchase, the Company paid $27,401 in additional development
costs, and $18,021 for support equipment, for an aggregate purchase price of $62,630.
On February 5, 2013
the Company sold a 30 percent gross working interest and a 30 percent net revenue interest in six oil and gas leases located in
Pratt County, Kansas for $100,000. This amount was deducted from funds payable from the Company to the purchasing entity on July
18, 2013. Pursuant to this transaction the Company transferred a 30 percent interest in all related support equipment and asset
retirement obligations.
During the years ended
December 31, 2013 and 2012, the Company incurred development costs including certain work-over costs and other improvements to
its wells. The Company paid $119,149 and $169,951, respectively for these improvements, which have been capitalized to the book
value of the wells.
NOTE 6 – NOTES PAYABLE
As of December 31, 2011 the Company owed $123
to a related party. During the year ended December 31, 2012 the Company borrowed $18,000 from related parties, and in 2013 repaid
the entire $18,000 open balances. On August 21, 2013 the Company borrowed an additional $5,000 from the related party, with principal
due in full on August 21, 2014, along with an additional $500 in accrued interest. As of December 31, 2013 the Company had an aggregate
total of $5,123 in notes payable to related parties.
NOTE 7 – CONVERTIBLE NOTES PAYABLE
On September 28, 2011 the Company borrowed
$100,000 from an unrelated third party entity in the form of a convertible note. The note bore interest at a rate of five percent
per annum, with principal and interest due in full on September 24, 2012. The note was convertible at any time, at the option of
the note holder, into shares of the Company’s common stock, at ten percent below the current market price on the date of
conversion. For purposes of the note, “current market price” is defined as the average of the lowest three daily closing
prices per share for the five business days prior to the date of conversion.
Pursuant to this conversion feature, the Company
recognized a derivative liability in the amount of $93,976 on the note date. At December 31, 2011, the derivative liability was
revalued at $103,581, and at December 31, 2012 the derivative liability was revalued at $11,136. This led to the Company recording
a gain on derivative liability of $92,445 for the period ended December 31, 2012. On March 17, 2013 the derivative liability was
revalued at $-0-, resulting in a gain on derivative liability of $11,136 for the year ended December 31, 2013.
On March 17, 2013 the holder of the note elected
to convert the entire face value of the note of $100,000, along with $9,644 in accrued interest, into 109,952 shares of common
stock (see Note 10).
NOTE 8 – DERIVATIVE LIABILITY
On September 28, 2011 the Company executed
a convertible note payable in the amount of $100,000 which was convertible at the holder’s option at 90 percent of the average
of the lowest three daily closing prices per share for the five business days prior to the date of conversion.
SUPERNOVA ENERGY, INC.
(Formerly Northumberland Resources, Inc.)
Notes to Financial Statements
December 31, 2013 and 2012
NOTE
8 – DERIVATIVE LIABILITY (CONTINUED)
The fair value of the conversion option of
the convertible note of $93,976 was recognized as a derivative liability on the date of issuance with all future changes in the
fair value of these conversion options being recognized in earnings in the Company’s statement of operations under the caption
“Other income (expense) – gain (loss) on derivative liability” until such time as the note was converted.
The Company used the Black-Scholes options
pricing model to value the derivative liability and subsequent remeasurement. Included in the models were the following assumptions:
risk free rates ranging from 0.02 percent to 0.16 percent, and annual volatilities which ranged from 10 percent to 500 percent.
ASC 815 requires the Company to assess the
fair market value of certain derivatives at each reporting period and recognize any change in the fair market value of the derivatives
as gain (loss) on the income statements. At December 31, 2012 the derivative liability was revalued at $11,136, which
led to the Company recording a gain on derivative liability in the amount of $92,445.
On March 17, 2013, pursuant to the full conversion
of the note into 109,952 shares of common stock, the derivative liability was revalued at $-0-, resulting in a gain on derivative
liability of $11,136 for the year ended December 31, 2013.
NOTE
9 – ASSET RETIREMENT OBLIGATIONS
The total future asset retirement obligation
is estimated by management based on the Company’s net working interests in all wells and facilities, estimated costs to reclaim
and abandon wells and facilities and the estimated timing of the costs to be incurred in future periods. At December 31, 2013 and
2012, the Company estimated the undiscounted cash flows related to asset retirement obligation to total approximately $323,400
and $399,900, respectively. The fair value of the liability at December 31, 2013 and 2012 is estimated to be $151,353 and $158,976,
respectively, using risk free rates between 2.48 and 4.24 percent and inflation rates between 2.75 and 4.20 percent. The actual
costs to settle the obligation are expected to occur in approximately 25 years.
On February 5, 2013
the Company sold a 30 percent gross working interest and a 30 percent net revenue interest in six oil and gas leases located in
Pratt County, Kansas for $100,000. This amount was deducted from funds payable from the Company to the purchasing entity on July
18, 2013. Pursuant to this transaction the Company transferred a 30 percent interest in all related support equipment and asset
retirement obligations.
Through December 31, 2013, the Company established
an asset retirement obligation of $112,652 for the wells acquired by the Company, which was capitalized to the value of the oil
and gas properties. The wells have an estimated useful life of 25 years. Total accretion expense on the asset retirement obligation
was $38,701, leaving an ending net balance of $151,353 at December 31, 2013.
Changes to the asset retirement obligation
for the years ended December 31, 2013 and 2012 were as follows:
|
|
December 31,
2013
|
|
December 31,
2012
|
|
|
|
|
|
Balance, beginning of year
|
|
$
|
158,976
|
|
|
$
|
121,848
|
|
Liabilities incurred
|
|
|
—
|
|
|
|
20,129
|
|
Disposal
|
|
|
(24,063
|
)
|
|
|
—
|
|
Accretion expense
|
|
|
16,440
|
|
|
|
16,999
|
|
Balance, end of year
|
|
$
|
151,353
|
|
|
$
|
158,976
|
|
SUPERNOVA ENERGY, INC.
(Formerly Northumberland Resources, Inc.)
Notes to Financial Statements
December 31, 2013 and 2012
NOTE 10 – STOCKHOLDERS’ EQUITY
On October 21, 2013 the Company elected to
reduce its authorized number of common shares from 200,000,000 to 100,000,000. On September 15, 2013 the Company authorized a reverse-split
of its common stock on a one-share-for-two-shares basis. All references to common stock have been restated so as to retroactively
incorporate the effects of this transaction. As of December 31, 2013 and 2012, there were 31,726,585 and 31,114,550 post-split
shares of common stock issued and outstanding, respectively.
On March 21, 2012, the Company issued 416,667
shares of common stock at $1.20 per share for cash proceeds of $500,000.
On April 1, 2012, the Company appointed a new
member of its Board of Directors. The Company has agreed to pay the director $1,000 per month. In addition, the Company has also
agreed to issue the new director 5,000 shares of common stock at $1.04 per share, for services valued at $5,200. The price per
share of common stock issued for services was based on the trading price of the Company’s common stock on the dates such
services were performed.
During the year ended December 31, 2012, the
Company increased its authorized $0.001 par value common stock to 198,000,000 shares, and authorized 2,000,000 preferred shares
with 1-to-100 voting rights and conversion ratio from preferred to common shares.
During the year ended December 31, 2012, the
Company converted 40,470,000 shares of outstanding common stock into 809,400 shares of preferred stock. During the same fiscal
period, the Company cancelled 9,499,999 shares of common stock.
During the year ended December 31, 2013 the
Company issued 109,950 shares of common stock upon the conversion of a $100,000 convertible note payable and related accrued interest
payable (see Note 7). The Company also issued 502,084 shares of common stock for cash at $1.20 per share, resulting in total cash
proceeds of $465,000.
NOTE 11 – INCOME TAXES
The Company accounts for income taxes in accordance
with ASC 740, Income Taxes , which requires the recognition of deferred tax liabilities and assets at currently enacted tax rates
for the expected future tax consequences of events that have been included in the financial statements or tax returns. A valuation
allowance is recognized to reduce the net deferred tax asset to an amount that is more likely than not to be realized.
ASC 740 provides guidance on the accounting
for uncertainty in income taxes recognized in a company’s financial statements. ASC 740 requires a company to determine whether
it is more likely than not that a tax position will be sustained upon examination based upon the technical merits of the position.
If the more likely-than-not threshold is met, a company must measure the tax position to determine the amount to recognize in the
financial statements.
Net deferred tax assets consist of the following
components as of December 31, 2013 and 2012:
|
|
December 31,
2013
|
|
December 31,
2012
|
Book income (loss) from operations
|
|
$
|
(256,555
|
)
|
|
$
|
(246,881
|
)
|
Amortization of debt discounts
|
|
|
—
|
|
|
|
22,891
|
|
Common stock issued for services
|
|
|
—
|
|
|
|
1,768
|
|
Impairment of oil and gas properties
|
|
|
—
|
|
|
|
4,742
|
|
Change in derivative liability
|
|
|
(3,786
|
)
|
|
|
(31,431
|
)
|
Change in valuation allowance
|
|
|
260,341
|
|
|
|
248,911
|
|
Total provision for income taxes
|
|
$
|
—
|
|
|
$
|
—
|
|
SUPERNOVA ENERGY, INC.
(Formerly Northumberland Resources, Inc.)
Notes to Financial Statements
December 31, 2013 and 2012
NOTE 11 – INCOME TAXES (CONTINUED)
The income tax provision differs from the amount
of income tax determined by applying the estimated U.S. federal and state income tax rates of 34 percent to pretax income from
continuing operations for the year ended December 31, 2013 and 2012 due to the following:
|
|
December 31,
2013
|
|
December 31,
2012
|
|
|
|
|
|
Loss carry forwards (expire through 2032)
|
|
$
|
747,599
|
|
|
$
|
491,044
|
|
|
|
|
|
|
|
|
|
|
Total gross deferred tax asset
|
|
|
670,368
|
|
|
|
410,708
|
|
Valuation allowance
|
|
|
(670,368
|
)
|
|
|
(410,708
|
)
|
Net deferred taxes
|
|
$
|
—
|
|
|
$
|
—
|
|
At December 31, 2013, the Company had net operating
loss carry forwards of approximately $747,599 through 2032. No tax benefit has been reported in the December 31, 2013
financial statements since the potential tax benefit is offset by a valuation allowance of the same amount. Due to the change in
ownership provisions of the Tax Reform Act of 1986, net operating loss carry forwards for Federal income tax reporting purposes
are subject to annual limitations. Should a change in ownership occur, net operating loss carry forwards may be limited as to use
in future years.
In accordance with generally accepted accounting
principles, the Company has analyzed its filing positions in all jurisdictions where it is required to file income tax returns
for the open tax years in such jurisdictions. The Company has identified its federal income tax returns for the previous five years
remain subject to examination. The Company’s income tax returns in state income tax jurisdictions also remain subject to
examination for the previous five years. The Company currently believes that all significant filing positions are highly certain
and that all of its significant income tax filing positions and deductions would be sustained upon audit. Therefore, the Company
has no significant reserves for uncertain tax positions, and no adjustments to such reserves were required by generally accepted
accounting principles. No interest or penalties have been levied against the Company and none are anticipated, therefore no interest
or penalty has been included in the provision for income taxes in the consolidated statements of operations.
NOTE 12 – COMMITEMENTS AND CONTINGENCIES
Compensation to Directors
– The
Company’s two directors are entitled to a director’s fee of $1,000 per month, per director.
Other Commitments –
The Company
has a consulting agreement with a third party whereby the consultant provides consulting services for a fee of $12,000 per month.
In addition, the Company has an agreement with a third party investor relations firm whereby the firm provides investor relations
services to the Company for a fee of $6,000 per month.
NOTE 13 – SUBSEQUENT EVENTS
In accordance with ASC 855-10, the Company’s
management has reviewed all material events and there are no additional material subsequent events to report.
SUPERNOVA ENERGY, INC.
(Formerly Northumberland Resources, Inc.)
Notes to Financial Statements
December 31, 2013 and 2012
SUPPLEMENTAL
INFORMATION TO
FINANCIAL
STATEMENTS (Unaudited)
Oil and
Gas Producing Activities
In
January 2010, the Financial Accounting Standards Board (FASB) issued FASB Accounting Standards Update (ASU) No. 2010-03, "Oil
and Gas Reserve Estimations and Disclosures" (ASU No. 2010-03). This update aligns the current oil and gas reserve estimation
and disclosure requirements of the Extractive Industries - Oil and Gas topic of the FASB Accounting Standards Codification (ASC
Topic 932) with the changes required by the final rule of the Securities and Exchange Commission (the “SEC”), "Modernization
of Oil and Gas Reporting." ASU No. 2010-03 must be applied prospectively as a change in accounting principle that is inseparable
from a change in accounting estimate and is effective for entities with annual reporting periods ending on or after December 31,
2009.
Oil
and Gas Reserves.
Users of this information should be aware that the process of estimating quantities of "proved,"
"proved developed," "proved undeveloped" and "probable" crude oil, natural gas liquids and natural
gas reserves is complex, requiring significant subjective decisions in the evaluation of all available geological, engineering
and economic data for each reservoir. The data for a given reservoir may also change substantially over time as a result of numerous
factors including, but not limited to, additional development activity, evolving production history and continual reassessment
of the viability of production under varying economic conditions. Consequently, material revisions (upward or downward) to existing
reserve estimates may occur from time to time. Although reasonable effort is made to ensure that reserve estimates reported represent
the most accurate assessments possible, the significance of the subjective decisions required and variances in available data
for various reservoirs make these estimates generally less precise than other estimates presented in connection with financial
statement disclosures. See ITEM 1A. Risk Factors.
Proved
reserves represent estimated quantities of crude oil, natural gas liquids and natural gas that geoscience and engineering data
can estimate, with reasonable certainty, to be economically producible from a given day forward from known reservoirs under economic
conditions, operating methods and government regulation before the time at which contracts providing the right to operate expire,
unless evidence indicates that renewal is reasonably certain, regardless of whether deterministic or probabilistic methods are
used for the estimation.
Proved
developed reserves are proved reserves expected to be recovered under operating methods being utilized at the time the estimates
were made, through wells and equipment in place or if the cost of any required equipment is relatively minor compared to the cost
of a new well.
Proved
undeveloped reserves are reserves that are expected to be recovered from new wells on undrilled acreage, or from existing wells
where a relatively major expenditure is required. Reserves on undrilled acreage are limited to those directly offsetting development
spacing areas that are reasonably certain of production when drilled, unless evidence using reliable technology exists that establishes
reasonable certainty of economic producibility at greater distances. Undrilled locations can be classified as having undeveloped
reserves only if a development plan has been adopted indicating that they are scheduled to be drilled within five years, unless
the specific circumstances justify a longer time. Estimates for proved undeveloped reserves are not attributed to any acreage
for which an application of fluid injection or other improved recovery technique is contemplated, unless such techniques have
been proved effective by actual projects in the same reservoir or an analogous reservoir, or by other evidence using reliable
technology establishing reasonable certainty.
SUPERNOVA ENERGY, INC.
(Formerly Northumberland Resources, Inc.)
Notes to Financial Statements
December 31, 2013 and 2012
SUPPLEMENTAL
INFORMATION TO
FINANCIAL
STATEMENTS (Unaudited)
Oil and
Gas Producing Activities (Continued)
Probable
undeveloped reserves are those additional reserves that are less certain to be recovered than proved reserves but which, together
with proved reserves, are as likely as not to be recovered. Probable reserves may be assigned to areas of a reservoir adjacent
to proved reserves where data control or interpretations of available data are less certain, even if the interpreted reservoir
continuity of structure or productivity does not meet the reasonable certainty criterion. Probable reserves may be assigned to
areas that are structurally higher than the proved area if these areas are in communication with the proved reservoir.
No
major acquisition or sale of oil and gas properties or other favorable or adverse event subsequent to December 31, 2013 is believed
to have caused a material change in the estimates of proved developed or proved undeveloped or probable undeveloped reserves as
of that date.
NET PROVED
RESERVE SUMMARY
The following
table sets forth the Company's net proved reserves, including proved developed and proved undeveloped reserves, at December 31,
2013, as pursuant to reserve reports prepared by the Company’s independent, certified petroleum engineer.
|
|
At December 31, 2013
|
|
At December 31, 2012
|
Net Proved Developed Reserves
|
|
|
|
|
|
|
|
|
Crude Oil (Bbls)
|
|
|
83,743
|
|
|
|
58,116
|
|
Natural Gas (Mcf)
|
|
|
—
|
|
|
|
138,102
|
|
Oil Equivalents (Boe)
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Net Proved Undeveloped Reserves
|
|
|
|
|
|
|
|
|
Crude Oil (Bbls)
|
|
|
32,391
|
|
|
|
—
|
|
Natural Gas (Mcf)
|
|
|
—
|
|
|
|
—
|
|
Oil Equivalents (Boe)
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Net Proved Developed and Undeveloped Reserves
|
|
|
|
|
|
|
|
|
Crude Oil (Bbls)
|
|
|
116,134
|
|
|
|
58,116
|
|
Natural Gas (Mcf)
|
|
|
—
|
|
|
|
138,102
|
|
Oil Equivalents (Boe)
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
SUPERNOVA ENERGY, INC.
(Formerly Northumberland Resources, Inc.)
Notes to Financial Statements
December 31, 2013 and 2012
SUPPLEMENTAL
INFORMATION TO
FINANCIAL
STATEMENTS (Unaudited)
Capitalized
Costs Relating to Oil and Gas Producing Activities
. The following table sets forth the capitalized costs relating to the Company’s
crude oil and natural gas producing activities at December 31, 2013 and 2012:
|
|
At December 31, 2013
|
|
At December 31, 2012
|
Proved leasehold costs
|
|
$
|
—
|
|
|
$
|
—
|
|
Costs of wells and development
|
|
|
1,430,333
|
|
|
|
1,461,134
|
|
Capitalized asset retirement costs
|
|
|
112,652
|
|
|
|
136,715
|
|
Total cost of oil and gas properties
|
|
|
1,542,985
|
|
|
|
1,597,849
|
|
Accumulated depreciation and depletion
|
|
|
(798,673
|
)
|
|
|
(574,618
|
)
|
Net Capitalized Costs
|
|
$
|
744,312
|
|
|
$
|
1,023,231
|
|
|
|
|
|
|
|
|
|
|
Costs
Incurred in Oil and Gas Property Acquisition, Exploration and Development Activities
. The following table sets forth the costs
incurred in the Company’s oil and gas property acquisition, exploration and development activities for the ended December
31, 2013 and 2012:
|
|
For the Year Ended
December 31, 2013
|
|
For the Year Ended
December 31, 2012
|
Acquisition of properties
|
|
|
|
|
|
|
|
|
Proved
|
|
$
|
—
|
|
|
$
|
170,177
|
|
Exploration costs
|
|
|
—
|
|
|
|
—
|
|
Development costs
|
|
|
119,149
|
|
|
|
169,951
|
|
Net Capitalized Costs
|
|
$
|
119,149
|
|
|
$
|
340,128
|
|
|
|
|
|
|
|
|
|
|
Results
of Operations for Oil and Gas Producing Activities
. The following table sets forth the results of operations for oil and gas
producing activities for the year ended December 31, 2013 and 2012:
|
|
For the Year Ended
December 31, 2013
|
|
For the Year Ended
December 31, 2012
|
Crude oil and gas revenues
|
|
$
|
232,572
|
|
|
$
|
445,667
|
|
Production costs
|
|
|
(301,266
|
)
|
|
|
(292,878
|
)
|
Depreciation, depletion and accretion
|
|
|
(290,265
|
)
|
|
|
(520,693
|
)
|
Results of operations for producing activities, excluding corporate overhead
|
|
$
|
(358,959
|
)
|
|
$
|
(367,904
|
)
|
|
|
|
|
|
|
|
|
|
SUPERNOVA ENERGY, INC.
(Formerly Northumberland Resources, Inc.)
Notes to Financial Statements
December 31, 2013 and 2012
SUPPLEMENTAL
INFORMATION TO
FINANCIAL
STATEMENTS (Unaudited)
Standardized Measure of Discounted Future
Net Cash Flows Relating to Proved Oil and Gas Reserves.
The following information has been developed utilizing procedures
prescribed by ASC Topic 932 and is based on crude oil and natural gas reserves and production volumes estimated by the Company’s
independent petroleum consultants. The estimates were based on a $86.69/BO crude oil price plus a $3.75/BO adjustment for high
gravity quotient, resulting in an overall crude oil price of $90.44/BO , and a gas price of $3.67/MCF. The following information
may be useful for certain comparison purposes, but should not be solely relied upon in evaluating the Company or its performance.
Further, information contained in the following table should not be considered as representative of realistic assessments of future
cash flows, nor should the Standardized Measure of Discounted Future Net Cash Flows be viewed as representative of the current
value of the Company.
The
future cash flows presented below are based on sales prices, cost rates and statutory income tax rates in existence as of the
date of the projections. It is expected that material revisions to some estimates of crude oil and natural gas reserves may occur
in the future, development and production of the reserves may occur in periods other than those assumed, and actual prices realized
and costs incurred may vary significantly from those used.
Future
production and development costs were computed by estimating those expenditures expected to occur in developing and producing
the proved oil and natural gas reserves at the end of the year, based on year-end costs. Actual future cash inflows may vary considerably,
and the standardized measure does not necessarily represent the fair value of the Company’s oil and natural gas reserves.
Management
does not rely upon the following information in making investment and operating decisions. Such decisions are based upon a wide
range of factors, including estimates of probable and possible reserves as well as proved reserves, and varying price and cost
assumptions considered more representative of a range of possible economic conditions that may be anticipated.
The
following table sets forth the standardized measure of discounted future net cash flows from projected production of the Company’s
oil and gas reserves as of December 31, 2013 and 2012:
|
|
December
31,
|
|
|
December
31,
|
|
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
Future cash inflows
|
|
$
|
3,447,080
|
|
|
$
|
3,327,753
|
|
Future production and development costs
|
|
|
(1,401,303
|
)
|
|
|
(1,408,391
|
)
|
Future income tax and insurance expense
|
|
|
(38,691
|
)
|
|
|
(270,919
|
)
|
Future net cash inflows
|
|
|
2,007,086
|
|
|
|
1,648,443
|
|
10% annual discount for estimated
timing of cash flows
|
|
|
(1,060,905
|
)
|
|
|
(910,129
|
)
|
Standardized measure of discounted
future net cash flows
|
|
$
|
946,181
|
|
|
$
|
738,314
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL INFORMATION TO
FINANCIAL
STATEMENTS (Unaudited)
Changes
in Standardized Measure of Discounted Future Net Cash Flows.
The following table sets forth the changes in the standardized
measure of discounted future net cash flows for the year ended December 31, 2013 and 2012:
|
|
December 31,
|
|
December 31,
|
|
|
2013
|
|
2012
|
Beginning of period
|
|
$
|
738,314
|
|
|
$
|
1,037,287
|
|
Revenues less production and other costs
|
|
|
68,694
|
|
|
|
(152,789
|
)
|
Changes in price, net of production costs
|
|
|
44,445
|
|
|
|
(286,291
|
)
|
Development costs incurred
|
|
|
119,149
|
|
|
|
169,951
|
|
Net changes in future development costs
|
|
|
84,792
|
|
|
|
59,227
|
|
Purchases of reserves in place
|
|
|
—
|
|
|
|
71,461
|
|
Accretion of discount
|
|
|
87,444
|
|
|
|
79,240
|
|
Net change in income taxes
|
|
|
99,996
|
|
|
|
23,255
|
|
Timing differences and other
|
|
|
(296,653
|
)
|
|
|
(256,329
|
)
|
End of period
|
|
$
|
946,181
|
|
|
$
|
738,314
|
|
|
|
|
|
|
|
|
|
|