NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1 – ORGANIZATION AND DESCRIPTION OF OPERATIONS
Description of Business
Legend Oil and Gas, Ltd.
(the “Company” or “Legend”) is a crude oil hauling and trucking company with principal operations in
the Bakken region of North Dakota and the Permian Basin in Texas. These crude oil hauling operations commenced through our
acquisition of Black Diamond Energy Holdings, LLC (“Maxxon”) on April 3, 2015. Our business focus is to
expand our crude oil hauling operations into other basins within Colorado, Texas and Oklahoma. Our operations are managed
by employees based principally in North Dakota and Denver, Colorado, with the Company’s contract CEO and CFO based
out of Georgia.
Further, through October 27, 2015, we were
also an oil and gas exploration, development and production company; this business was to acquire producing and non-producing oil
and gas interests and develop oil and gas properties that we owned or in which we had a leasehold interest. Our oil and gas property
interests were located in the United States (Kansas and Oklahoma). On October 27, 2015, we sold our oil and gas exploration operations
and we have presented those operations as discontinued operations.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Principles of Consolidation
The condensed consolidated financial statements
at and for the three and six month periods ended June 30, 2016 include the accounts of the Company, and our
wholly-owned subsidiary, Black Diamond Energy Holdings, LLC and its wholly-owned subsidiaries Maxxon Energy, LLC and Treeline
Diesel Center, LLC. Intercompany transactions and balances have been eliminated in consolidation.
Basis of Presentation
In the opinion of management, the accompanying condensed consolidated
financial statements include all adjustments necessary to present fairly the financial position, results of operations and cash
flows of the Company. These adjustments are of a normal, recurring nature. However, the financial statements do not include all
of the disclosures normally required by accounting principles generally accepted in the United States of America or those normally
made in the Company’s Annual Report on Form 10-K. Please refer to the Company’s Annual Report on Form 10-K for the
year ended December 31, 2015 for such disclosures. The condensed consolidated balance sheet as of December 31, 2015 was derived
from the audited consolidated balance sheet as of that date. The results of operations for interim periods are not necessarily
indicative of the results to be expected for the full year. The information included in this Quarterly Report on Form 10-Q should
be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the
consolidated financial statements and notes thereto, included in the Company’s 2015 Annual Report on Form 10-K.
Reclassifications
Certain information from the three and six months
ended June 30, 2015, and at December 31, 2015, have been reclassified to conform with the current period’s presentation
in connection with our discontinued operations.
In the Company’s statement of cash flows included in Form
10-Q for the three months ended March 31, 2016 and 2015, the Company classified its cash flows attributable to the repayment of
notes payable as “net cash used in financing activities – discontinued operations” as a result of its decision
to dispose of its oil and gas exploration segment as described in Note 1. During the three months ended June 30, 2016, management
reevaluated the nature of the Company’s notes payable and determined that such note payable is attributable to continuing
activities. Accordingly, the condensed consolidated statements of cash flows for the six months ended June 30, 2016 and 2015
present the cash flow activity relating to the Company’s notes payable as “net cash used in financing activities –
continuing operations”. The following table presents amounts which were included in the condensed consolidated statements
of cash flows included in Form 10-Q for the three months ended March 31, 2016 and 2015 which have been reclassified to conform
to the current presentation.
|
|
As Originally Stated
|
|
As Restated
|
Proceeds from notes payable
|
|
$
|
—
|
|
|
$
|
360,000
|
|
Payments on notes payable
|
|
|
—
|
|
|
|
(809,044
|
)
|
Net cash flows provided by financing activities – continuing operations
|
|
|
—
|
|
|
|
(449,044
|
)
|
Net cash flows provided by financing activities – discontinued operations
|
|
|
(449,044
|
)
|
|
|
|
|
Assets held for sale - discontinued operations
We own a drilling rig which we have classified as an
asset held for sale, which is part of our discontinued operations. Long-lived assets that are expected to be recovered through a sale
or disposition are classified as held for sale. Assets classified as held for sale are evaluated for impairment using the
lower of fair value less disposal costs and carrying value. Assets held for sale are not depreciated. During the three and
six months ended June 30, 2016 and 2015, no impairment loss was recorded.
Net Loss Per Common Share
The computation of basic net loss per
common share is based on the weighted average number of shares that were outstanding during the period, including
contingently redeemable common stock. The computation of diluted net loss per common share is based on the weighted average
number of shares used in the basic net loss per share calculation plus the number of common shares that would be issued
assuming the exercise of all potentially dilutive common shares outstanding. All potentially dilutive shares or
convertible instruments outstanding for the six month periods June 30, 2016 and 2015 were anti-dilutive. Potentially dilutive
common shares include convertible preferred stock and convertible debentures.
|
|
June 30,
2016
|
|
June 30,
2015
|
Potentially dilutive of common stock equivalents:
|
|
|
|
|
Preferred stock
|
|
|
604,155,998
|
|
|
|
—
|
|
Convertible Debt
|
|
|
448,981,746
|
|
|
|
39,333,333
|
|
Recently Issued Accounting
Pronouncements
From time to time, new accounting
pronouncements are issued by the Financial Accounting Standards Board or FASB or other standard setting bodies and adopted by the
Company as of the specified effective date. Unless otherwise discussed below, the Company believes that the impact of recently
issued standards that are not yet effective will not have a material impact on its financial position or results of operations
upon adoption.
In
March, 2016, FASB issued accounting standards update (ASU) 2016-09,
Compensation
- Stock Compensation: Improvements to Employee Share-Based Payment Accounting
,
which relates to the accounting for employee share-based payments. The guidance in this update addresses several aspects of
the accounting for share-based payments, including income tax consequences, classification of awards as either equity
or liabilities and classification on the statement of cash flows. The new standard is effective for the Company beginning
on January 1, 2017. The Company is evaluating the effect that ASU 2016-09 will have on its consolidated financial statements
and related disclosures.
NOTE 3 – GOING CONCERN
The accompanying condensed consolidated
financial statements have been prepared on a going concern basis, which contemplates the realization of assets and
satisfaction of liabilities in the normal course of business. The Company has incurred significant losses from continuing
operations of approximately $2 million for the six months ended June 30, 2016 and had negative working capital of
approximately $700 thousand at June 30, 2016. Additionally, the Company is dependent on a small number of customers in
obtaining its revenue goals. Further, obtaining additional debt and/or equity financing to roll-out and scale its planned
principal business operations may be limited due our losses from operations. These factors raise substantial doubt about the
Company’s ability to continue as a going concern.
Management’s plans in regard to these matters
consist principally of seeking additional debt and/or equity financing combined with restructuring its current debt obligations,
and expected cash flows from our crude oil hauling company and assets that it may acquire. There can be no assurance that the
Company’s efforts will be successful. The financial statements do not include any adjustments that may result from the outcome
of this uncertainty.
NOTE 4 – PROPERTY AND EQUIPMENT
The amount of capitalized costs related to property
and equipment and the amount of related accumulated depreciation and impairment are as follows:
|
|
June 30,
|
|
December 31,
|
|
|
2016
|
|
2015
|
|
|
|
|
|
Trucks, trailers, and vehicles
|
|
$
|
4,074,494
|
|
|
$
|
3,488,246
|
|
Furniture and equipment
|
|
|
186,770
|
|
|
|
186,770
|
|
Property and equipment, at cost
|
|
|
4,261,264
|
|
|
|
3,675,016
|
|
Accumulated depreciation
|
|
|
(817,746
|
)
|
|
|
(462,842
|
)
|
Property and equipment, net
|
|
$
|
3,443,518
|
|
|
$
|
3,212,174
|
|
The drilling rig, in the amount of $398,680 (net
of accumulated depreciation of $66,320) was previously included in property and equipment, and has been reclassified to
assets held for sale - discontinued operations, as the Company has ceased all drilling operations. During the third quarter
2015, the Company impaired the value of their Treeline Diesel Center, LLC subsidiary assets with a carrying value of $224,835
(net of accumulated depreciation of $33,108).
In February the Company exchanged vehicles with
a carrying value of $184,439 for new vehicles with a purchase price of $198,210. In addition, the vehicles traded were
financed with an outstanding principal balance of $166,614 owed at the date of the exchange, which was extinguished in full.
The Company assumed liabilities for the new vehicles of $211,658. Accordingly, the Company recorded a loss on the disposition
of the vehicles of $31,272 during the three and six months ended June 30, 2016.
The company recorded depreciation expense for the six months ended June 30, 2016
and 2015 of $377,255 and $190,410, respectively.
NOTE 5 – INTANGIBLE ASSETS
The amount of intangible assets related to Maxxon Energy,
LLC acquisition and the amount of related accumulated amortization and impairment are as follows:
|
|
June 30,
|
|
December 31,
|
|
|
2016
|
|
2015
|
Non-compete agreement
|
|
$
|
39,200
|
|
|
$
|
39,200
|
|
Trademark
|
|
|
47,800
|
|
|
|
47,800
|
|
Customer relationships
|
|
|
267,000
|
|
|
|
267,000
|
|
Total intangible assets
|
|
|
354,000
|
|
|
|
354,000
|
|
Accumulated amortization of intangible assets
|
|
|
(61,085
|
)
|
|
|
(36,758
|
)
|
Net Intangible asset ending balance, June 30
|
|
$
|
292,915
|
|
|
$
|
317,242
|
|
As of December 31, 2015, the Company assessed its
goodwill for impairment and determined that goodwill was fully impaired. Accordingly, as of June 30, 2016, the Company
removed goodwill and the corresponding accumulated impairment from the accompanying condensed consolidated financial
statements. Amortization of intangible assets for the six months ended June 30, 2016 and 2015 was $24,327 and $0, respectively.
NOTE 6 – LIABILITIES OF
DISCONTINUED OPERATIONS – ASSET RETIREMENT OBLIGATION
The asset retirement obligation recorded as of
both June 30, 2016 and December 31, 2015 was related to the Van Pelt lease, a non-producing field and discontinued operation, that the
Company acquired during 2015, and which the Company still owned as of June 30, 2016. The asset retirement obligation at
both June 30, 2016 and December 31, 2015 was $118,425 and $96,129, respectively, and has been included within liabilities
of discontinued operations of the condensed consolidated statements of operations. The Company recorded $0 and $2,400
in accretion expense of the asset retirement obligation liability during the three months ended June 30, 2016 and
2015, respectively. The Company recorded $22,296 and $4,785 in accretion expense of the asset retirement obligation
liability during the six months ended June 30, 2016 and 2015, respectively.
NOTE 7 – RELATED PARTY TRANSACTIONS
As of December 31, 2015, there was an amount due
to Northpoint Energy Partners (“NPE”), of which our CEO is a principal, in the amount of $120,000, as a result
of the bonus accrual under the NPE letter agreement for CEO services, which was paid out during the six months ended June
30, 2016.
NOTE 8 –
Convertible
debt – related party
On October 22,
2015, the Company consummated a Securities Purchase Agreement with Hillair Capital Investments, LP (“Hillair”)
pursuant to which it issued an Original Issue Discount Senior Secured Convertible Debenture in the aggregate amount of
$654,000, payable in full on March 1, 2017. The debenture was convertible into 21,800,000 shares of common stock at a
conversion price of $0.03 per share. After taking into account the original issue discount, legal and diligence fees of
$104,000 reimbursed to Hillair, the net proceeds received by the Company were $550,000.
On January 29, 2016, the Company and Hillair amended the Securities
Purchase Agreement (the “Amended SPA”) to increase the aggregate amount available to the Company. The Amended SPA increased
the amount from $654,000 to $1,439,400. As a result, the Company received $630,000 in new proceeds, net of original issue discount,
legal and diligence fees of $155,400 which were recorded as a debt discount. The debenture is convertible into 381,313,333 shares
of common stock at a conversion price of $0.03 per share. The Amended SPA also extended the maturity date to March 1, 2018. All
other terms of the debenture remain the same.
On March 25, 2016, we entered into a convertible debenture
with Hillair totaling $410,788, due and payable on March 1, 2018. This debenture is convertible into 13,692,933 of our
common shares at $0.03 per share. We received net proceeds of $360,000, net of original issue discount, legal and diligence fees,
which were recorded as a debt discount within the convertible debt - related party line of the accompanying condensed consolidated
balance sheet.
On April 6, 2016, we entered into a convertible debenture
with Hillair totaling $1,159,206, due and payable on March 1, 2018. This debenture is convertible into 38,340,200 of
our common shares at $0.03 per share. We received net proceeds of $1,000,000, net of original issue discount, legal and diligence
fees, which were recorded as a debt discount within the convertible debt - related party line of the accompanying condensed consolidated
balance sheet.
On May 27, 2016, we entered
into a convertible debenture with Hillair totaling $460,082, due and payable on March 1, 2018. This debenture is convertible
into 15,336,080 of our common shares at $0.03 per share. We received net proceeds of $400,000, net of original issue discount,
legal and diligence fees, which were recorded as a debt discount within the convertible debt - related party line of the accompanying
condensed consolidated balance sheet.
The total debt discount and deferred financing costs
for the convertible debentures amount to $450,611 and $89,323 (net of accumulated amortization of $78,865 and $14,677) as of
June 30, 2016 and December 31, 2015, respectively. The Company amortized to interest expense, the debt discounts and deferred
financing costs associated with its convertible debentures in the amount of $48,626 and $0 for the three months ended June
30, 2016 and 2015, respectively, and $64,188 and $0 for the six months ended June 30, 2016 and 2015, respectively.
NOTE 9 – NOTES PAYABLE
Notes payable consist of the following:
|
|
June 30, 2016
|
|
December 31, 2015
|
|
|
|
|
|
|
a)
|
On
April 5, 2016, the Company entered into an agreement with Sher that restructured the existing secured promissory note
($2,854,000) plus accrued interest ($142,700) and a $250,000 restructuring fee, (the “Restructuring”), with an
amended and restated note totaling $3,246,700. This note accrues interest at 15% per annum, with all principal and interest
due upon maturity. During the six months ended June 30, 2016, we paid $1,000,000 against this note as part of our agreement
with Sher. The remaining amount outstanding on the note as of June 30, 2016 and December 31, 2015 was $2,246,700 and
$2,854,000, respectively. The restructuring fee of $219,997 (net of accumulated amortization of $30,003) is
being amortized to interest expense through the term of the agreement. The note is due
on April 3, 2018. The note will remain collateralized by the same
collateral assets (tractors and trailers) as the original promissory note to Sher. Those assets
have a net book value of $1,854,903 (net of accumulated depreciation of $535,097).
|
|
$
|
2,026,703
|
|
|
$
|
2,854,000
|
|
|
|
|
|
|
|
|
|
|
|
b)
|
During the six months ended June 30,
2016, the Company entered into various insurance financing agreements. The agreements are payable in nine
monthly payments and accrue interest at various rates (ranging from 3.45% and 4.61%). These financing agreements are
unsecured; however, should there be a default, the Company’s insurance policies would be subject to
cancellation.
|
|
|
406,693
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
c)
|
On December 16, 2015, the Company entered into a secured line of credit facility with State Bank and Trust Company in the aggregate amount of $275,000. The facility bears interest at 4% and due on December 16, 2016. The note is collateralized by certain property of Maxxon.
|
|
|
268,881
|
|
|
|
100,000
|
|
|
|
|
|
|
|
|
|
|
|
d)
|
On
March 29, 2016, the Company entered into a trailer purchase agreement with Southwest Truck & Trailer, Inc. The
Company purchased 7 trailers valued at $278,636. The Company paid $28,000 as a down payment and entered into
a financing agreement with a third party for the remaining balance of $250,636. The financing requires monthly
payments of $6,962 for the next 3 years and has a 0% interest rate.
The note is secured by the related trailers
acquired with a net book value of $265,858 (net of accumulated depreciation of $12,781).
|
|
|
229,751
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
e)
|
On April 8, 2016, the Company entered
into a trailer purchase agreement with Southwest Truck & Trailer, Inc. The Company purchased 6 trailers valued at
$217,369. The Company paid $32,400 as a down payment and entered into a financing agreement with a third party for the
remaining balance of $184,968. The financing requires monthly payments of $5,138 for the next 3 years and has a 0%
interest rate. The note is secured by the related trailers acquired with a net book value of $252,079 (net of
accumulated depreciation of $10,758).
|
|
|
174,692
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
f)
|
On
October 19, 2015, the Company entered into a secured note agreement with a financial institution for the purchase of a
vehicle in the amount of $118,110. The note bore interest at 5.99% and was due on December 3, 2020. In February 2016, the
Company traded in the vehicle for a new vehicle. As part of the trade in, the note was settled and a new note was issued with
a principal balance of $135,278 with interest at 3.99% and is due on April 1, 2021.
The new note is secured by the new
vehicle acquired with a net book value of $111,051 (net of accumulated depreciation of $7,890).
|
|
|
125,535
|
|
|
|
116,411
|
|
|
|
|
|
|
|
|
|
|
|
g)
|
On
November 12, 2015, the Company entered into a secured note agreement with a financial institution for the purchase of a
vehicle in the amount of $57,106. The note bore interest at 3.99% and was due on November 12, 2020. In February 2016, the
Company traded in the vehicle for a new vehicle. As part of the trade in, the note was settled and a new note was issued with
a principal balance of $76,380 with interest at 3.90% and is due on April 5, 2021.
The new note is secured by the new
vehicle acquired with a net book value of $74,148 (net of accumulated depreciation of $5,121).
|
|
|
72,897
|
|
|
|
55,843
|
|
|
|
|
|
|
|
|
|
|
|
h)
|
On
November 1, 2015, the Company purchased three trucks from A&H Sterling Energy, LLC. The trucks were financed by A&H
Sterling Energy, LLC with an outstanding promissory note in the aggregate amount of $96,407 owed to Cunard Holdings LLC. The
Company assumed the outstanding promissory note as part of the acquisition of the trucks. The note bears interest at 7%, is
secured by those trucks with a net book value of $83,427 (net of accumulated depreciation of $12,980), and is due on January 1, 2018.
|
|
|
68,317
|
|
|
|
89,511
|
|
|
|
|
|
|
|
|
|
|
|
i)
|
On
May 19, 2016, the Company entered into a secured note agreement with a financial institution for the purchase of a vehicle
valued at $53,355. The Company paid $4,000 as a down payment and financed the remaining amount of $49,355. The note was
issued with a 7.49% interest rate and is due on May 19, 2020.
The loan is secured by the related vehicle with a net book value of $51,066 (net of accumulated depreciation of $2,289).
|
|
|
47,573
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
j)
|
In January 2016, the Company entered into a forbearance agreement to transfer amounts owed on a credit card to Origin Bank into a note agreement, in the aggregate amount of $40,850. The note bears interest at 4% per annum and is payable in 12 monthly payments beginning April 15, 2016 of $3,000 per month with the remaining balance and accrued interest due on April 15, 2017.
|
|
|
32,230
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
k)
|
On
October 28, 2013, a vendor filed a complaint against the Company seeking to collect $68,913, plus interest at 12% for services
rendered on or before November 30, 2012. This claim has been satisfactorily resolved between the parties, and Legend is remitting
$2,500 per month in settlement of this claim, until such balance is fully repaid. During the six months ended June 30, 2016, the
Company made principal payments of $15,000 and capitalized $1,365 of interest expense to the principal balance.
|
|
|
31,878
|
|
|
|
45,805
|
|
|
|
|
|
|
|
|
|
|
|
l)
|
On
April 1, 2014, the Company issued a note payable to New Western Energy Corporation (“NWTR”) for $75,000 as part
of the plan for merger with NWTR. The note has no interest provision and was due on February 28, 2015. On January 6, 2015,
the Company entered into a settlement with NWTR to repay the remainder of principal in 5 installments starting on February
15, 2015. The note was in default as of June 30, 2016, but the Company has not received a waiver nor a default notice from
NWTR.
|
|
|
26,664
|
|
|
|
26,664
|
|
|
|
|
|
|
|
|
|
|
|
m)
|
On May 4, 2016 the Company entered into an agreement with Drivestar to repay $20,000 of incurred expenses
related to the cancellation of a trailer sale. The note requires monthly payments of $2,585 through Decemeber 15, 2016 and has
a 9% interest rate.
|
|
|
15,000
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
n)
|
On
June 19, 2014, a vendor filed a complaint against the Company seeking to collect $35,787, plus interest at 12% for services
rendered. This claim has been satisfactorily resolved between the parties, and Legend is remitting $2,000 per month
in settlement of this claim, until such balance is fully repaid. During the six months ended June 30, 2016, the Company
capitalized $73 of interest expense to the principal balance.
|
|
|
3,114
|
|
|
|
3,041
|
|
|
|
|
|
|
|
|
|
|
|
o)
|
On
October 20, 2014, the Company issued a note payable for the purchase of drilling rig for $315,000. The note bears interest
at 6% per annum and was due on April 12, 2016. The Company was required to make monthly payment of $18,343. This note is
fully repaid as of June 30, 2016.
|
|
|
—
|
|
|
|
73,372
|
|
|
Total
|
|
|
3,529,928
|
|
|
|
3,364,647
|
|
|
|
|
|
|
|
|
|
|
|
|
Less short term debt
|
|
|
(742,919
|
)
|
|
|
(249,348
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Less current portion of long term debt
|
|
|
(281,199
|
)
|
|
|
(1,074,781
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Long term debt
|
|
$
|
2,505,810
|
|
|
$
|
2,040,518
|
|
NOTE 10 –
STOCKHOLDERS’ EQUITY (DEFICIT)
On December 21, 2015, the Company
obtained stockholder approval to amend the Company’s Articles of Incorporation to effect an increase in the amount of
authorized shares of from 1,100,000,000 to 5,000,000,000. The Company increased the number of authorized shares of common
stock from 1 billion shares, with a par value of $0.001, to 4.9 billion shares, with a par value of $0.001 and 100 million
shares designated as blank check preferred stock. As of June 30, 2016 and December 31, 2015 the Company designated 600 shares
and 9,643 shares of its 100 million shares of blank check preferred stock as Series A Convertible Preferred and Series B
Convertible Preferred, respectively.
Convertible Preferred Stock
On October 22, 2015, the Company consummated
a Securities Exchange Agreement with Hillair, its majority shareholder, pursuant to which it issued 9,643 shares of Series
B Convertible Preferred Stock (the “Series B Preferred Shares”) in exchange for the cancellation of debentures
held by Hillair with a total principal value of $9,642,546 and accrued interest of $182,430. The shares are convertible into
327,499,200 shares of our common stock at $0.03 per share.
The Company had issued and
outstanding 600 shares of its Series A Convertible Preferred Stock. This convertible preferred stock has a 0% dividend rate. The
shares of preferred stock are convertible into 600 million shares of the Company¹s common stock at $0.0001 per share, and
have a non-dilution provision. The shares were converted to 600 million shares of common stock in May 2015.
Common Stock Issuances
In April 2015, the Company issued 90,817,356 shares
of common stock to Albert Valentin as part of its purchase of Maxxon. The stock had a fair value of $526,741. The fair value of
the common stock was determined using the closing price of the shares on the grant date.
In December 2015, the Company issued 57,682,644 shares
of common stock to Steven Wallace as part of its purchase of Maxxon. The stock had a fair value of $334,559. The fair value of
the common stock was determined using the closing price of the shares on the grant date.
On March 2, 2016, the Company issued common stock
to an employee. A total of 6 million shares were issued with a fair value of $10,800 using the closing market price on the
date of issuance.
NOTE 11 – DISCONTINUED OPERATIONS
The amounts of net assets and liabilities related
to the discontinued operations of the Company’s oil and gas operations as of June 30, 2016 and December 31, 2015 were
$280,255 and $302,551, respectively. The table below summarizes the operations of the Company’s oil and gas activities for the
three and six months ended June 30, 2016 and 2015.
|
|
For the Three Months Ended
|
|
For the Six Months Ended
|
|
|
June 30, 2016
|
|
June 30, 2015
|
|
June 30, 2016
|
|
June 30, 2015
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
—
|
|
|
$
|
70,711
|
|
|
$
|
—
|
|
|
$
|
240,726
|
|
Production expenses
|
|
|
—
|
|
|
|
(77,879
|
)
|
|
|
(2,967
|
)
|
|
|
(283,046
|
)
|
Operating expenses
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(29,877
|
)
|
Depletion, depreciation and amortization
|
|
|
—
|
|
|
|
(28,727
|
)
|
|
|
—
|
|
|
|
(85,011
|
)
|
Accretion of asset retirement obligation
|
|
|
—
|
|
|
|
(2,400
|
)
|
|
|
(22,296
|
)
|
|
|
(4,785
|
)
|
Loss on sale of oil and gas properties
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(892,131
|
)
|
Impairment loss on oil and gas properties
|
|
|
—
|
|
|
|
(45,719
|
)
|
|
|
—
|
|
|
|
(452,277
|
)
|
Other Income
|
|
|
—
|
|
|
|
75,699
|
|
|
|
—
|
|
|
|
75,699
|
|
Loss from discontinued operations
|
|
$
|
—
|
|
|
$
|
(8,315
|
)
|
|
$
|
(25,263
|
)
|
|
$
|
(1,430,702
|
)
|
NOTE 12 – COMMITMENTS AND CONTINGENCIES
The Company is not aware of any pending or threatened
legal proceedings, nor is the Company aware of any pending or threatened legal proceedings, affecting any current officer, director
or control shareholder, or their affiliates.
As part of its regular operations, the Company may
become party to various pending or threatened claims, lawsuits and administrative proceedings seeking damages or other remedies
concerning its’ commercial operations, products, employees and other matters. Although the Company can give no assurance
about the outcome of these or any other pending legal and administrative proceedings and the effect such outcomes may have on the
Company, the Company believes that any ultimate liability resulting from the outcome of such proceedings, to the extent not otherwise
provided for or covered by insurance, will not have a material adverse effect on the Company’s financial condition or results
of operations.
On February 15, 2016, the Company entered into a trailer
lease agreement with Wallwork Truck Center. The Company leased 10 trailers at a monthly rent of $17,335 for 48 months commencing
on February 12, 2016 and continuing until February 12, 2020.
The Company leases office space on
a month-to-month basis, with monthly rental payments due of approximately $2,200. The Company leases office space, a
diesel repair shop, and employee housing under non-cancelable lease agreements. The leases provide that we pay taxes,
insurance, utilities, and maintenance expenses related to the leased assets. During March 2016, we entered into a
restructured lease agreement with the property owner/landlord, where the facility lease has been restructured to a 60 month
lease commencing April 1, 2016. The restructured lease indicates that we will not pay any cash lease payments while we
deplete our $120,000 security deposit held by the landlord, which is included in other assets on the accompanying balance
sheets. The revised lease and its payment structure will be such that we will use the funds contained in the security deposit
in the amount of $6,000 per month as rent expense (in lieu of cash payments) while WTI oil prices remain below $60.00 per
barrel, for any 30 day period. When the price of WTI oil goes above $60.00 per barrel but less than $80.00 per barrel for any
30 day period, we will use the revised amount against our deposit of $7,500 per month. Upon the price of WTI oil being above
the $80.00 per barrel level for a 30 day period, the Company’s rent payment will be $10,000 per month,
the maximum rental payment under the restructured lease agreement.
NOTE 13 – SUBSEQUENT EVENTS
The Company has evaluated events and transactions subsequent
to June 30, 2016 and through the date these condensed consolidated financial statements were included in this Form 10-Q and filed
with the SEC.
On July 27, 2016, we entered into an
agreement with Hillair where to which it issued an Original Issue
Discount Senior Convertible Debenture (the “Debenture”) to Hillair in the aggregate amount of $550,000,
payable in full on March 1, 2018. The Debenture is unsecured and is convertible into up to 18,333,333 shares of Common Stock
at a conversion price of $0.03 per share. After taking into account the original issue discount and legal and diligence fees
of $75,000 reimbursed to the Purchaser, the net proceeds received by the Company were $475,000.
On July 26, 2016, we entered into an operating lease
with a finance company for three tanker trailers. The lease is for 60 months and required a downpayment of $60,000. The aggregate
monthly payment is approximately $6,000, for all three trailers.
On July 5, 2016, the Company entered into a convertible
debenture with Hillair totaling in the aggregate amount of $330,000, payable in full on March 1, 2018. This debenture is convertible
into up to 11,000,000 shares of our Common Stock at a conversion price of $0.03 per share. We received net proceeds of $300,000,
net of original issue discount, legal and diligence fees, which were recorded as deferred financing costs and an original issue
discount.