Stockholders' Deficit

3 Months Ended

May 31, 2012

Effective January 11, 2007 the Company effected a forward stock spilt of the authorized, issued and outstanding shares of common stock on a six new for one old basis. Authorized capital increased from 75,000,000 common shares to 450,000,000 common shares. Effective April 21, 2008 the Company effected a reverse stock split of authorized, issued and outstanding shares of common stock on a one new for five old basis. Authorized capital decreased from 450,000,000 to 90,000,000 and outstanding common stock decreased from 74,841,228 to 14,968,246 shares.

Effective August 31, 2010, the Company amended its Articles of Incorporation increasing its authorized capital structure to 500,000,000 shares, consisting of 450,000,000 shares of common stock, par value $0.001, and 50,000,000 shares of preferred stock, par value $0.001.

Effective July 12, 2011, the Company amended its Articles of Incorporation increasing its authorized capital structure to 3,000,000,000 shares, consisting of 2,950,000,000 shares of common stock, par value $0.001, and 50,000,000 shares of preferred stock, par value $0.001.

Effective August 31, 2011, the Company amended its Articles of Incorporation decreasing its authorized shares of common stock, par value $0.001, to 2,900,000,000 and increasing its authorized shares of preferred stock to 100,000,000 shares of preferred stock, par value $0.001. The preferred stock is convertible into shares of common stock at a ratio of 20:1 and shall have the same voting rights as common stock.

On May 17, 2007, the Company entered into a share issuance agreement with a subscriber that will allow the subscriber to advance up to $8,000,000 to the Company in exchange for units of the Company. The units will be issued at a price equal to 80% of the volume-weighted average of the closing price of common share for the 10 banking days immediately preceding the date of the notice. Each unit will consist of one common share of the Company and one common share purchase warrant. Each common share purchase warrant will entitle the subscriber to purchase one additional common share at 125% of the price of the units for a period of three years. Should the Company seek alternative sources of financing this subscriber has the right to approve the terms.

Shares issued under the agreement were as follows:

	Number of		Issue		Total
Issue Date	Units		Price		Proceeds

May 17, 2007		377,358	$	5.30	$	2,000,000
August 1, 2007		31,056	$	8.05		250,000
September 18, 2007		44,199	$	9.05		400,000
September 18, 2007		52,133	$	10.55		550,000
September 27, 2007		28,708	$	10.45		300,000
October 26, 2007		16,381	$	12.21		200,000
October 26, 2007		21,097	$	11.85		250,000
October 26, 2007		35,897	$	9.75		350,000
November 28, 2007		47,337	$	8.45		400,000
January 16, 2008		43,478	$	3.45		150,000
January 24, 2008		96,154	$	5.20		500,000
January 30, 2008		48,387	$	3.10		150,000
February 11, 2008		89,286	$	2.80		250,000
February 26, 2008		96,774	$	3.10		300,000

		1,028,245			$	6,050,000

On November 5, 2008, the Company entered into a subscription agreement with Carbon Energy Investments Limited (“Carbon Energy”) for the sale of 80,000,000 shares of common stock at a price of $0.50 per share for the aggregate price of $40,000,000. Carbon Energy agreed to pay for the shares as follows:

	●	$15,000,000 on or before November 30, 2008 (later amended to December 12, 2008);
	●	$15,000,000 on or before January 31, 2009; and
	●	$10,000,000 on or before March 31, 2009.

On November 5, 2008, the Company entered into an agreement to purchase shares in Alaska Oil & Gas Resources Limited (“Alaska Oil & Gas”) with Carbon Energy. Carbon Energy is the sole owner of Alaska Oil & Gas. Pursuant to the agreement, the Company agreed to acquire 100% of the issued shares of Alaska Oil & Gas from Carbon Energy in consideration for $57,500,000, $250,000 of which was to be paid in cash and the remainder by the issuance of 57,250,000 shares of common stock. On the same day, two of the Company’s directors were appointed as directors of Alaska Oil & Gas.

On November 28, 2008, the Company entered into an amendment agreement with Carbon Energy relating to purchase of Alaska Oil & Gas whereby it was agreed that the consideration to be paid pursuant to the agreement was varied such that the consideration would amount to $57,500,000, payable by the issuance of 2,000,000 shares of common stock within three business days of November 2008 (issued subsequently) and 55,500,000 shares on completion of the transaction.

On December 3, 2008, the Company entered into a letter agreement with Carbon Energy whereby Carbon Energy agreed to return 2,000,000 shares of common stock to the company upon demand unless certain conditions are fulfilled or waived. The conditions are, among others, that Carbon Energy must complete in full the subscription agreement dated November 5, 2008 except that the first $20,000,000 must be paid to the company on or before December 7, 2008 and that Carbon Energy must sell to the Company Alaska Oil & Gas which must own certain oil and gas leases pursuant to the agreement relating to the purchase of Alaska Oil & Gas.

On November 26, 2008, the Company issued 50,000,000 shares of restricted common stock to Carbon Energy in consideration for $25,000,000 to be received pursuant to the above-mentioned subscription agreement.

On December 2, 2008, the Company issued an additional 2,000,000 shares of restricted common stock to Carbon Energy pursuant to the terms of the amendment agreement for $1,000,000 to be received.

The Company never received payment for the shares issued to Carbon and Carbon never completed on the sale of Alaska Oil & Gas. As a result, the shares that were previously subscribed were cancelled during the year ended February 28, 2009 along with the agreements to purchase Alaska Oil & Gas. The Company is currently reviewing its legal position and any associated remedies relating to the above.

On December 2, 2008, the Company issued an additional 2,000,000 shares of restricted common stock to Carbon Energy pursuant to the terms of the amendment agreement for $1,000,000 to be received.

During the year ended February 28, 2010, the holder of the Company’s debentures received the 15,000,000 restricted common shares pledged as security against the debentures valued at $4,650,000, based on the quoted market price of the Company’s common shares on the date they were released from escrow.

The Company never received payment for the 52,000,000 shares issued to Carbon. As a result, the shares that were previously subscribed were cancelled during the three months ended May 31, 2010.

Acquisitions

On July 15, 2010, the Company issued 1,750,000 in exchange for 100% of the outstanding capital stock of 1536692 Ontario, Inc., a Canadian Corporation, (“Ontario”) through a share exchange transaction to Mr. Jack Lieberman, the father of the Company’s President and Chief Executive Officer (Note 7).

Debt Conversions

During the period July 15, 2010 (date of acquisition) through February 28, 2011, the Company issued 16,750,000 shares of its restricted common stock in conversion of $38,750 of notes payable at an average price of $0.045 per share.

During the nine months ended November 30, 2011, the Company issued 346,500,000 shares of its restricted common stock in conversion of $185,947 of related party notes payable, and $143,803 of accrued interest, at an average price of $0.0129 per share.

During the nine months ended November 30, 2011, the Company issued 6,435,656 shares of its restricted common stock in conversion of $45,000 of notes payable, and $1,800 of accrued interest, at an average price of $0.012 per share.

Stock Issued for Services

During the year ended February 29, 2012, the Company issued 483,075,003 shares of its restricted common stock to various individuals and entities for services and company support.

During the quarter ended, May 31, 2012, the Company issued 1,250,000 003 shares of its restricted common stock to various individuals and entities for services and company support.

Common Stock Purchase Warrants

Changes in the Company’s common stock purchase warrants for the three months ended November 31, 2012 and the year ended February 29, 2012 are as follows:

	Three Months ended				Year ended
	May 31, 2012				February 29, 2012
			Weighted					Weighted
			Average					Average
	Number of		Exercise		Number of			Exercise
	Warrants		Price		Warrants			Price

Balance at beginning of year		2,000,000	$	0.001		3,028,246		$	2.53

Warrants expired		—	$	—		(1,028,246	)	$	7.34

Balance at end of period		2,000,000	$	0.001		2,000,000		$	0.001

The remaining average life of the warrants at May 31, 2012 and February 29, 2012 was .71 and 1.66 years, respectively.

A finder’s fee of $60,000 and 52,265 share purchase warrants exercisable at $2.87 for a period of three years from the date of issuance (6% of proceeds) were paid to Partners Consulting in connection with the Original Debenture (Note 6) pursuant to a finder agreement dated February 15, 2008. The fair value of the warrants was determined using the Black-Scholes valuation model. The assumptions used in the Black-Scholes calculation are as follows: expected life – 3 years; volatility – 192%; Dividend rate – 0%; and risk free interest rate is 1.0%. As of February 28, 2011 these warrants had not been exercised and expired. The fair value of the shares ($1,208) has been reflected as a credit to consulting fees for the year ended February 28, 2011.

A finder’s fee of $60,000 and 76,923 share purchase warrants exercisable at $0.78 for a period of three years from the date of issuance (6% of additional proceeds) were paid to Partners Consulting in connection with the Amended Debentures (Note 6) pursuant to a finder agreement dated February 15, 2008. The fair value of the warrants was determined using the Black-Scholes valuation model. The assumptions used in the Black-Scholes calculation are as follows: expected life – 3 years; volatility – 192.6%; Dividend rate – 0%; and risk free interest rate is 1.0%. As of February 28, 2011 these warrants had not been exercised and expired. The fair value of the shares ($1,779) has been reflected as a credit to consulting fees for the year ended February 28, 2011.

- Definition

The entire disclosure for shareholders' equity, comprised of portions attributable to the parent entity and noncontrolling interest, if any, including other comprehensive income (as applicable). Including, but not limited to: (1) balances of common stock, preferred stock, additional paid-in capital, other capital and retained earnings; (2) accumulated balance for each classification of other comprehensive income and total amount of comprehensive income; (3) amount and nature of changes in separate accounts, including the number of shares authorized and outstanding, number of shares issued upon exercise and conversion, and for other comprehensive income, the adjustments for reclassifications to net income; (4) rights and privileges of each class of stock authorized; (5) basis of treasury stock, if other than cost, and amounts paid and accounting treatment for treasury stock purchased significantly in excess of market; (6) dividends paid or payable per share and in the aggregate for each class of stock for each period presented; (7) dividend restrictions and accumulated preferred dividends in arrears (in aggregate and per share amount); (8) retained earnings appropriations or restrictions, such as dividend restrictions; (9) impact of change in accounting principle, initial adoption of new accounting principle and correction of an error in previously issued financial statements; (10) shares held in trust for Employee Stock Ownership Plan (ESOP); (11) deferred compensation related to issuance of capital stock; (12) note received for issuance of stock; (13) unamortized discount on shares; (14) description, terms, and number of warrants or rights outstanding; (15) shares under subscription and subscription receivables, effective date of new retained earnings after quasi-reorganization and deficit eliminated by quasi-reorganization and, for a period of at least ten years after the effective date, the point in time from which the new retained dates; and (16) retroactive effective of subsequent change in capital structure.

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+ Details

FOX PETROLEUM INC. 10-Q